What is Cash Dividends?
Cash dividends are distributions of after-tax profits paid in cash to shareholders, declared by the board (and ratified by the shareholders’ general assembly for joint-stock companies) and recognized as a liability at the declaration date.
How It Works
- Declaration date: debit retained earnings, credit dividends payable.
- Record date: identifies eligible shareholders (no journal entry).
- Payment date: debit dividends payable, credit cash.
- Withholding tax (if applicable) reduces the net cash paid to non-resident holders.
Saudi Context
Saudi joint-stock companies must obtain CMA approval for any dividend distribution and apply 5% ZATCA withholding tax on dividends paid to non-resident shareholders. The Saudi Companies Law also requires that the legal reserve be fully funded before any dividends can be paid out of retained earnings.
Example
A Saudi company declares a SAR 5,000,000 cash dividend. SAR 1,000,000 is paid to non-resident holders subject to 5% withholding (SAR 50,000 withheld, SAR 950,000 net), and SAR 4,000,000 is paid to resident holders in full.