Dividend Declaration (New Zealand)

Under sections 52 and 53 of the Companies Act 1993, a New Zealand company may only pay a dividend if the board of directors is satisfied on reasonable grounds that the company will, immediately after the distribution, satisfy the solvency test. The solvency test has two limbs: (1) the company must be able to pay its debts as they fall due in the normal course of business (the liquidity test); and (2) the value of the company's assets must be greater than the value of its liabilities, including contingent liabilities, and the minimum capital (if any) stated in the company's constitution (the balance sheet test). The directors who vote in favour of a distribution must sign a certificate stating that the solvency test is met. If the solvency test is not met at the time of payment, the dividend is unlawful and the directors who signed the solvency certificate may be personally liable to repay the amount of the unlawful distribution to the company. The board must review the solvency test immediately before each dividend payment.

The imputation credit system under the Income Tax Act 2007 is designed to prevent double taxation of company profits in New Zealand. When a New Zealand company pays income tax, it accumulates imputation credits in its imputation credit account (ICA). When the company later distributes dividends to shareholders, it can attach imputation credits to the dividend to credit shareholders for the company tax already paid. A fully imputed dividend (attached at the corporate tax rate) means the shareholder does not pay additional income tax on the dividend to the extent of the credits attached, subject to their individual tax rate. The maximum imputation credit that can be attached to a dividend is limited by the company's ICA balance. If the company attaches more credits than it has in its ICA, an imputation penalty tax is payable under the Income Tax Act 2007. Companies must maintain accurate ICA records and file imputation returns with Inland Revenue. Resident withholding tax (RWT) applies to dividends paid to resident shareholders at the rate applicable to their income.

When a New Zealand company pays dividends to shareholders, withholding tax obligations arise under the Income Tax Act 2007. For New Zealand resident shareholders, the company must withhold resident withholding tax (RWT) on dividends at the default rate (33% for individuals with no IR330 on file, or at the shareholder's elected rate) unless the dividend is fully imputed with imputation credits that cover the withholding tax liability. For non-resident shareholders, non-resident withholding tax (NRWT) applies at a rate determined by the double tax agreement (DTA) between New Zealand and the shareholder's country of residence. The standard NRWT rate is 15% for portfolio dividends, but DTAs (for example, with Australia, the United States, or the United Kingdom) may reduce this rate. The company must pay the withheld tax to Inland Revenue and issue a withholding tax certificate to the shareholder showing the gross dividend, imputation credits, and tax withheld. The withholding tax return and payment are due in the month following the dividend payment.

Yes. Under the Companies Act 1993, a company may pay a dividend in specie (in kind) — that is, by distributing assets rather than cash. The solvency test under section 52 of the Companies Act 1993 must still be satisfied immediately after the distribution. For the solvency test, the company must value the assets to be distributed at fair market value. A dividend in specie may include shares in a subsidiary, property, or other assets. The directors must still sign a solvency certificate before the dividend is paid. For tax purposes, an in-specie dividend is treated as a dividend equal to the market value of the assets distributed under the Income Tax Act 2007, and the usual dividend withholding and imputation rules apply. The recipients of an in-specie dividend are treated as having received the assets at their market value for capital gains purposes in jurisdictions with a capital gains tax, but New Zealand does not have a general capital gains tax (though gains on certain assets such as property held on revenue account may be taxable). Tax advice should be sought before distributing a non-cash dividend.

A Dividend Declaration (New Zealand) does not legally require a lawyer in New Zealand, and individuals and businesses may draft and execute the document independently. The Companies Act 1993 does not mandate legal representation for the creation or signing of this type of document. However, seeking independent legal advice from a qualified New Zealand lawyer is recommended for transactions involving substantial financial value, complex regulatory requirements, or cross-border elements where multiple legal jurisdictions may apply. A lawyer can verify that the document complies with all applicable statutory requirements, identify potential risks specific to the transaction, and confirm that the terms adequately protect the interests of all parties involved. The High Court of New Zealand has jurisdiction over disputes arising from this type of document, and Companies Office may impose additional compliance obligations depending on the nature of the underlying transaction. Professional legal review is particularly advisable where the document will be submitted to government agencies or used as evidence in legal proceedings.