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Surtax on Undistributed Profits

Author: James Chang 78 views

Profit of a year can be distributed to shareholders in the next year. To neutralize a company’s dividend distribution decision, if there is any earnings of the current year not distributed in the following year, an additional income tax will be levied on such undistributed surplus earnings.

Undistributed Profits

It means the total amount of after-tax net income for the period but can be deducted by the following items:

  1. Make-up of the losses in previous years
  2. The dividends or earnings which have been distributed
  3. Legal earned surplus reserve at 10%

Rate

The surtax on undistributed profits is 5%.

Filing and payment

The return must be filed before 31 May of the year after the next year. For example, if the profit incurred in 2021 is not distributed in 2022, the surtax on undistributed profits​ should be paid before 31 May, 2023. Companies must attach to the annual corporate income tax return a report detailing changes in its retained earnings.

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