Dividend Declaration (Philippines)
BOARD OF DIRECTORS RESOLUTION
DECLARATION OF [Dividend Type]
[Corporation Name]
Board Meeting Date: [Board Meeting Date]
The Board of Directors of [Corporation Name] met on [Board Meeting Date] with the required quorum present. After review of the corporation's current financial position and confirmation that unrestricted retained earnings of [Retained Earnings] are available for dividend distribution under Section 42 of the Revised Corporation Code (RA 11232), the Board resolved as follows:
RESOLVED, that a [Dividend Type] is hereby declared in favor of stockholders of record as follows:
Dividend Type: [Dividend Type]
Per Share Amount: [Dividend Per Share]
Share Class: [Share Class]
Total Dividend: [Total Dividend Amount]
Record Date: [Record Date]
Payment Date: [Payment Date]
Payment Method: [Payment Method]
FURTHER RESOLVED, regarding BIR Tax Compliance:
The Treasurer is instructed to: (a) withhold final withholding tax at [Withholding Tax Rate] on cash dividends paid to applicable stockholders under the National Internal Revenue Code (NIRC, RA 8424); (b) remit the withheld tax to the BIR via BIR Form 1601-FQ within 25 days after the end of the calendar quarter in which dividends are paid; (c) issue BIR Form 2306 (Certificate of Final Tax Withheld at Source) to each stockholder from whom tax is withheld; (d) distribute the net dividend (gross dividend less applicable withholding tax) to each stockholder on the Payment Date via the designated payment method.
For stock dividends: the issuance of additional shares shall be subject to the required 2/3 stockholder approval under Section 42 of RA 11232 and SEC notification as required.
IN WITNESS WHEREOF, the foregoing resolution was duly adopted by the Board of Directors of [Corporation Name] at a duly convened meeting held on [Board Meeting Date].
Corporate Secretary
[Corporation Name]
Corporate Secretary
________________
Signature
President / Chairperson
________________
Signature
What Is a Dividend Declaration (Philippines)?
A Dividend Declaration in the Philippines states the declarant's position on the matter it addresses and stands as a formal undertaking of its truth.
Under Section 42 of RA 11232, cash dividends are declared by the Board of Directors from the corporation's unrestricted retained earnings (not from paid-in capital), while stock dividends require approval by stockholders representing at least two-thirds (2/3) of the outstanding capital stock. The corporation must have positive unrestricted retained earnings — profits that are not restricted by contractual obligation, board resolution, or legal requirement — before dividends can lawfully be declared. Declaring dividends from paid-in capital or in excess of unrestricted retained earnings violates Section 42 of RA 11232 and may expose directors to liability under Section 31.
The Bureau of Internal Revenue (BIR) imposes final withholding tax on dividends under the NIRC. Cash dividends paid by a domestic corporation to individual stockholders resident in the Philippines are subject to a 10% final withholding tax under Section 24(B)(2) of the NIRC. Dividends received by domestic corporations from other domestic corporations are generally exempt from income tax under Section 27(D)(4) of the NIRC (inter-corporate dividend exemption). Dividends paid to non-resident foreign corporations are subject to a 15% final withholding tax under Section 28(B)(5)(b) of the NIRC, reduced to 10% if the country of the foreign corporation allows a credit of 20% against its taxes on such dividends (the tax sparing rule).
Corporations with improperly accumulated earnings — retained earnings that exceed 100% of paid-in capital without specific business needs — may be assessed the Improperly Accumulated Earnings Tax (IAET) at 10% of improperly accumulated earnings under Section 29 of the NIRC, incentivizing dividend declarations.
The legal framework governing the Dividend Declaration (Philippines) in Philippines draws on several key statutes and regulatory bodies. Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Parties executing a Dividend Declaration (Philippines) in Philippines should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Revised Corporation Code (RA 11232, 2019) sets the foundational requirements.
When Do You Need a Dividend Declaration (Philippines)?
A Philippines Dividend Declaration is needed whenever a Philippine corporation's Board of Directors decides to distribute retained earnings to stockholders.
A Dividend Declaration is required when a profitable Philippine corporation wishes to distribute its accumulated retained earnings to stockholders as a return on investment — providing the Board Resolution authorizing the dividend, specifying the per-share amount, record date, and payment date, and instructing the Corporate Secretary to prepare the withholding tax remittance to the BIR.
A Dividend Declaration is needed when a corporation risks assessment of the Improperly Accumulated Earnings Tax (IAET) under Section 29 of the NIRC because its retained earnings exceed 100% of paid-in capital and the corporation cannot demonstrate specific business needs justifying the accumulation — a dividend declaration reduces the retained earnings to below the IAET threshold.
A Dividend Declaration is required when investors holding preferred shares of a Philippine corporation exercise their right to receive preferential dividends under the terms of the preferred shares specified in the Articles of Incorporation, triggering the Board's obligation to declare preferred dividends to the extent unrestricted retained earnings are available under Section 42 of RA 11232.
A Dividend Declaration is needed when a Shareholders' Agreement or investment agreement executed under the Civil Code (RA 386) requires the corporation to declare and pay dividends of a specified percentage of net income annually as a condition of the investment, and the Board adopts a formal dividend resolution to comply with that contractual obligation.
A Dividend Declaration is required by the BIR when a corporation remits the 10% final withholding tax on dividends paid to individual stockholders under Section 24(B)(2) of the NIRC, as BIR Form 1601-FQ (Quarterly Remittance Return of Final Income Taxes Withheld) requires documentation of the dividend declaration authorizing the distribution.
What to Include in Your Dividend Declaration (Philippines)
A valid Philippines Dividend Declaration must include the following elements to be effective under RA 11232 and compliant with BIR withholding tax obligations.
Board Resolution Authority: Confirmation that the Board of Directors adopted the dividend resolution at a duly constituted meeting of the Board (quorum of majority of directors under Section 24 of RA 11232), specifying the date and time of the Board meeting. For stock dividends, additionally confirm stockholder approval by a 2/3 vote of outstanding capital stock under Section 42 of RA 11232.
Type and Amount of Dividend: Specification of whether the dividend is a cash dividend (amount per share in Philippine peso, PHP ₱) or a stock dividend (number of shares issued per existing share, expressed as a percentage of outstanding shares). The total dividend amount must not exceed the corporation's unrestricted retained earnings as of the declaration date, per Section 42 of RA 11232. The per-share dividend amount and class of shares entitled to the dividend (common, preferred Series A, etc.) must be stated.
Record Date: The date as of which the stock and transfer book is closed to determine which stockholders are entitled to receive the declared dividend. Stockholders of record as of the record date receive the dividend. The record date must give reasonable notice to stockholders and allow time for processing stock transfers under Section 63 of RA 11232.
Payment Date: The date on which cash dividends will be paid to stockholders of record, or the date on which stock dividend certificates will be distributed. For stock dividends, the payment date triggers the BIR final withholding tax computation on the par value of shares issued.
BIR Withholding Tax Instructions: Instructions to the Treasurer or Finance Department to: compute the final withholding tax on dividends paid to individual stockholders at 10% under Section 24(B)(2) of the NIRC; compute the 15% (or 10% tax-sparing rate) withholding tax on dividends paid to non-resident foreign corporations under Section 28(B)(5)(b) of the NIRC; withhold the applicable tax before remitting the net dividend to stockholders; and file BIR Form 1601-FQ within 25 days after the end of the calendar quarter in which dividends were paid.
Additional compliance elements for a Dividend Declaration (Philippines) used in Philippines include: Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Forms-legal.com provides this template as a starting point for Philippines-compliant documentation.
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note = {Free legal document template. Based on Revised Corporation Code (RA 11232, 2019)}
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Frequently Asked Questions
The withholding tax on dividends in the Philippines depends on the recipient's tax classification under the National Internal Revenue Code (NIRC, RA 8424). Cash dividends paid by a domestic Philippine corporation to an individual stockholder who is a resident citizen or resident alien are subject to a 10% final withholding tax under Section 24(B)(2) of the NIRC. Dividends paid to non-resident alien individuals are subject to a 25% final withholding tax under Section 25(A)(2) of the NIRC, unless reduced by an applicable tax treaty. Dividends paid by a domestic corporation to another domestic Philippine corporation are exempt from income tax under the inter-corporate dividend exemption in Section 27(D)(4) of the NIRC. Dividends paid to a non-resident foreign corporation (NRFC) are subject to a 15% final withholding tax under Section 28(B)(5)(b) of the NIRC if the country of the NRFC allows a credit of at least 20% against its domestic taxes on such dividends (the tax-sparing rule); otherwise the rate is 25%. The withholding tax on dividends is final — the dividend income is not included in the recipient's regular income tax return. The declaring corporation remits the withheld tax to the BIR via BIR Form 1601-FQ within 25 days after the end of the quarter.
A Philippines corporation cannot declare dividends from paid-in capital — the corporation's capital stock and additional paid-in surplus represent the investment committed by stockholders that must be maintained for the protection of creditors. Under Section 42 of the Revised Corporation Code (RA 11232), dividends may only be declared out of unrestricted retained earnings — the accumulated net profits of the corporation after deducting applicable taxes, any restrictions imposed by contract (such as loan covenants restricting dividend payments), and any restrictions imposed by the Board of Directors or stockholders for specific business purposes. Declaring dividends from capital — called a liquidating dividend — is treated differently: it represents a return of capital rather than a distribution of profits, does not require a Board Resolution under Section 42 (it requires dissolution or capital reduction proceedings under Sections 37 and 133 of RA 11232), and is not subject to the same BIR dividend withholding tax treatment. Philippine courts and the SEC have consistently held that the capital paid-in by stockholders is a trust fund for creditors and may not be returned to stockholders at the expense of creditors.
The Improperly Accumulated Earnings Tax (IAET) in the Philippines is a 10% tax imposed under Section 29 of the National Internal Revenue Code (NIRC, RA 8424) on the improperly accumulated taxable income of domestic corporations. The IAET targets corporations that accumulate earnings beyond the reasonable needs of the business to avoid the payment of income tax by their stockholders on dividends received. Improperly accumulated earnings are generally defined as retained earnings in excess of 100% of the corporation's paid-in capital (subscribed capital plus additional paid-in capital), without a demonstrated specific business need. The BIR exempts certain corporations from the IAET — banks, insurance companies, publicly listed companies, and corporations organized primarily to hold shares of stock in other corporations (holding companies) are generally exempt. A corporation may overcome the presumption of improper accumulation by demonstrating specific expansion plans, debt repayment schedules, working capital requirements, or investment plans that justify the retained earnings. Declaring dividends reduces the retained earnings and eliminates or reduces the IAET exposure. BIR Revenue Regulations No. 2-2001 provides the implementing rules for the IAET including computation methodology and exemptions.
A cash dividend and a stock dividend in the Philippines differ in what the stockholder receives and in the corporate approval process required under the Revised Corporation Code (RA 11232). A cash dividend is a payment of money (Philippine peso, PHP ₱) by the corporation to each stockholder in proportion to shares held, declared by the Board of Directors alone from unrestricted retained earnings without requiring stockholder approval under Section 42 of RA 11232. A stock dividend is a distribution of additional shares of the corporation's own stock to existing stockholders in proportion to shares held — effectively capitalizing a portion of retained earnings by converting them into share capital. Stock dividends require: (1) approval by stockholders representing at least 2/3 of the outstanding capital stock under Section 42 of RA 11232 because they increase the corporation's outstanding shares and effectively amend the capitalization structure; and (2) SEC notification and, if authorized capital is insufficient for the new shares, amendment of the Articles of Incorporation under Section 37. From a BIR tax perspective, cash dividends are subject to final withholding tax at the time of payment, while stock dividends are not subject to immediate income tax on receipt but are subject to capital gains tax computation when the stock dividend shares are subsequently sold.
Preferred dividends in Philippines corporations are dividends paid on preferred shares before any dividend is paid on common shares, as specified in the terms of the preferred shares set out in the corporation's Articles of Incorporation filed with the SEC under Section 6 of RA 11232. Preferred shares in Philippine corporations may carry a stated dividend rate (e.g., 8% per annum of par value) that is payable when declared by the Board of Directors. Cumulative preferred shares accumulate unpaid dividends — if the Board does not declare dividends in a year, the unpaid preferred dividend accumulates and must be paid (together with all arrears) before any dividend can be paid to common stockholders. Non-cumulative preferred shares do not accumulate — if no dividend is declared, the right to the preferred dividend for that period is lost. The Revised Corporation Code (RA 11232) requires that the full terms of preferred shares — including dividend rate, cumulative or non-cumulative character, and priority in liquidation — be clearly specified in the Articles of Incorporation. BIR final withholding tax at 10% (for individual resident stockholders) applies to preferred dividends in the same manner as common share dividends under Section 24(B)(2) of the NIRC.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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