Key points of ex dividend that stock holders cannot ignore

        July to September is the peak ex dividend season in Taiwan, and many companies distribute stock dividends or cash dividends. However, when can stock holders buy in order to receive dividends? How is dividend income tax calculated? This issue of 'Finance Column' allows you to grasp the key to ex dividend at once.

        Introduction to ex rights and ex dividend

                'Except' means distribution, 'rights' means stock rights, and' interest 'means interest. Therefore, 'ex rights' represents the company's distribution of stock dividends, also known as rights issues; Ex dividend "refers to the distribution of cash dividends by a company, also known as dividend distribution.

        Ex dividend schedule

        Companies usually announce ex dividend related information at the shareholders' meeting. Investors can also go to the "Shareholders' Equity/Corporate Governance" ex dividend announcement on the "Public Information Observatory" and enter the company code or abbreviation they want to query to find the latest "Announcement on the Base Date for Determining Dividends, Bonuses or Other Benefits Distribution". The announcement materials of the Public Information Observatory will have several important schedules, including: ex rights/ex dividend trading days, start and end dates of stock transfer suspension, benchmark dates for rights distribution, and dividend distribution dates. The following will explain each key date:

        1. Ex rights/ex dividend trading day: As long as stocks are held before the ex rights/ex dividend trading day, dividends can be distributed. For example, TSMC's second ex rights/ex dividend trading day this year is June 12th, and investors can participate in ex rights and receive dividends as long as they hold stocks before the closing on June 11th at the latest. But if you only bought TSMC stock on June 12th, you will not be able to receive that dividend. The ex rights trading day and ex dividend trading day may not necessarily be the same day, and the actual schedule is subject to the announcement.

        2. Starting and ending dates for stock transfer suspension (5 days before the benchmark date): The delivery date for Taiwan stocks is T+2 days. If we continue with the example above, TSMC, which was purchased on June 11th, will complete the delivery on June 13th, which is the final transfer date. Its purpose is to determine who will participate in ex dividend. The company will start producing a list of shareholders eligible for ex rights and dividends on the day after the final transfer date, so it will limit a period of "suspension of transfer" to avoid any changes in the shareholder register. During the period of suspension of transfer, stocks can still be traded normally, but transfer is temporarily suspended.

        3. Benchmark date for rights distribution: On the last day of the suspension of transfer period, the company will use the actual shareholder register on that day as the benchmark for the allocation of shares and dividends.

        4. Dividend distribution date: the date on which dividends are recorded in the account. Ex dividend refers to the transfer of cash dividends into a bank account, while ex dividend refers to the transfer of stock dividends into a bank account. However, stock dividends and cash dividends may not be distributed on the same day, and the actual schedule is subject to the announcement.

        Many novice investors have experienced the situation of "buying stocks on ex dividend trading days but not receiving dividends". Once again, it is reminded that empty handed investors who want to participate in ex dividend must buy at least the day before the ex dividend trading day to receive dividends; In addition, if you hold the stock and want to participate in ex dividend, do not sell the stock before the ex dividend trading day!

        Tax considerations for dividends

        1 Incorporate into comprehensive income taxation

        Stock holders may be happy to receive dividends every year, but don't forget that all dividend income will be included in the current year's "personal comprehensive income tax" and needs to be reported in May of the following year. Among them, the income from stock dividends is calculated by multiplying the number of shares distributed by the above NTD 10. For example, if a company holds one share and distributes a stock dividend of NTD 3, the income from stock dividends is 1000 x (3 ÷ 10) x 10=NTD 3000, which must be included in income tax.

        2 Collecting supplementary premiums for second-generation health insurance

        If a single receipt of stock dividends or cash dividends exceeds NTD 20000, a supplementary premium for second-generation health insurance (2.11%) must be levied. However, if it exceeds NTD 10 million, the maximum calculation is NTD 10 million. Whether the dividends received by investors belong to "single" dividend income can be determined based on the following conditions:

        1. Confirm the company that distributes dividends: When stock dividends and cash dividends come from different companies, even if they are distributed on the same day, they are considered as different transactions.

        2. Confirmation of distribution date: For stock dividends and cash dividends of the same company, if the distribution dates are different, the amount will be calculated separately. If it does not exceed NTD 20000, there is no need to levy taxes; On the contrary, if the stock dividends and cash dividends of the same company are issued on the same day, they shall be calculated based on the total amount of the two.

        In addition, when the single income exceeds NTD 20000, the calculation method for collecting the supplementary premium of the second-generation health insurance is as follows:

        Stock dividend: (number of shares issued x face value NTD 10) x 2.11%

        ■ Cash dividends: receive cash in a single transaction x 2.11%

        Same day rights issue and interest distribution: [(number of shares issued x face value NTD 10)+single cash withdrawal] x 2.11%

        Ministry of Health and Welfare Q&A Explanation

        If the distribution of stock dividends and cash dividends is made on the same reference date and constitutes the same payment, the withholding obligor shall deduct the supplementary insurance premium that should be charged for the current distribution of stock dividends (calculated at face value) from the cash dividends paid at that time.

        If the cash dividends are insufficient to cover the supplementary insurance premiums that should be deducted from the current stock dividends, or if only stock dividends are distributed on the benchmark date, the withholding obligor shall notify the insured party and the National Health Insurance Administration shall collect them in the following year.

        In addition, if the invested stocks are overseas targets such as DR or KY, the company's dividend income will not be deducted from the second-generation health insurance supplementary premium as it is included in the overseas income.

        Whether to participate in ex dividend considerations

        Finally, regarding whether to participate in ex rights and dividends, four observation points are provided:

        1. Company fundamentals and dividend stability: Stable dividend distribution represents a company's good physical condition and greater security.

        2. Probability of filling in rights and interest: Ex dividend will cause the stock price to decline, and if the speed of filling in rights and interest is slow, it will result in capital gains losses in a short period of time. The stock exchange provides online ex rights and ex dividend reference price calculation services, which only require inputting data to calculate the ex rights and ex dividend reference price.

        3. Personal income gap: Those with lower incomes have the opportunity to receive tax refunds by participating in ex rights dividends. At present, there are two tax methods for dividend income in Taiwan. The first is to include dividends in the comprehensive income tax calculation, and calculate the deductible tax amount based on 8.5% of the dividends (up to NTD 80000). The second is separate taxation, with dividends calculated separately at a single tax rate of 28%.

        Shareholders who want to receive dividends and save taxes, if their total income is below NTD 983000 (net income below NTD 560000), can enjoy a tax rate difference of 3.5% after deducting dividends, subject to a 5% tax bracket.

        4. Investment purpose: Stock holding families (long-term investments) are more suitable for participating in ex dividend, and dividends can be continuously compounded and rolled over; If you only want to make short-term investments to earn spreads, it is not suitable to participate in ex dividend.

        In summary, participating in ex dividend should not only aim at "receiving dividends", but should be planned comprehensively based on the company's physical condition, personal taxation, investment objectives, etc. Moreover, the smooth filling of interest and rights is closely related to market conditions and the company's operating conditions. Please be sure to pay attention.

        Anti fraud propaganda

        Recently, investment fraud has been rampant. Oriental Securities Corporation reminds investors that the company will never recommend stocks or request to join investment groups through SMS, LINE, or physical letters. If you have any doubts, please call 165 or our customer service hotline (0800-088-567) for verification.

        *Public Information Observatory: https://mops.twse.com.tw/mops/#/web/home

        *Taiwan Stock Exchange Corporation "Ex rights and ex dividend reference price trial calculation": https://www.twse.com.tw/zh/announcement/ex-right/cal.html

        *Image source: freepik

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