When the word “dividend” crosses our mind, we usually think about it being a sum of money paid, typically annually, by a company to its shareholders (or “beneficial owners”) out of its profits, in proportion to shareholding.
This is true for the most part, and this is the classic “dividend in cash”.
But did you know that dividends can come in many different forms?
A “dividend in specie” is basically any other asset, other than cash, awarded to a beneficial owner.
This could be an asset such as stock or a vehicle.
Awarding of a dividend in specie makes things a bit more difficult when it comes to assigning a value to the dividend. It also places the liability on the company itself to pay the dividend withholding tax.
Furthermore, any form of a “benefit” given to a beneficial owner, by virtue of him/her holding shares in a company, may be “deemed” to be a dividend.
For example, a company loans an amount of money to a shareholder, interest free or charges interest at a lower rate than prime.
This “benefit” is due to the relationship the shareholder holds with the company, as such, the benefit is a deemed dividend.
In practice, the benefit is valued. The value is then a deemed dividend, which must be declared and dividend withholding tax paid at a flat rate of 20%.
