Thinking of paying a dividend? Great. In New Zealand, investors love companies that return profits to shareholders. It's often seen as a sign of strong performance and financial confidence. In fact, paying a dividend now and raising capital later, when needed for growth, can be a smarter strategy than holding onto all your profits. It shows discipline, builds trust, and may make future capital raises easier.

But before you send money out the door, make sure you understand how to stay compliant, strategic and smart about it. Here's a checklist of things to think about:

1. Check the Solvency Test

Under the Companies Act 1993, NZ companies must pass the solvency test before paying a dividend. That means:

2. Decide How Much to Pay

NZ companies have flexibility, but that doesn't mean you should go overboard. Consider:

Being consistent — paying a similar amount each year or gradually increasing it - is often better than making one big splash, as it helps build trust over time.

Dividends must generally be paid equally to all shareholders of the same class, based on how many shares they hold. Paying different amounts (called differential dividends) is only allowed in certain cases, where the company's constitution allows it and the differential basis is objective. We recommend seeking legal advice before paying differential dividends.

3. Decide when and how to make Payment

You'll need to decide the following key dates:

You could also give investors the option to use their dividends to buy more shares. This keeps more cash in your business while reassuring investors they can still get a return if they want it.

4. Approve the Dividend via Board Resolution

All dividends need a board resolution confirming the amount and type of dividend (interim or final). The resolution also needs to confirm that the solvency test has been passed. Unlike some countries, shareholder approval is not required—unless your constitution says otherwise. You can find an example Board resolution here.

5. Collect tax and bank account details from your investors

If you are managing the payment yourself, you'll need to collect bank account details from all your investors.

You should also collect each investor's IRD number and confirm their tax residency status. For New Zealand-resident investors, check whether they have any Resident Withholding Tax (RWT) exemption - IRD maintains an RWT exemptions register for you to check.

For overseas tax residents, confirm the applicable Non-Resident Withholding Tax (NRWT) position by checking whether a double tax agreement rate applies and which rate the investor is eligible to use.

6. Calculate your withholding tax payable and consider imputation

In New Zealand, dividends paid to New Zealand-resident investors are generally subject to RWT at 33%, but the amount of cash withholding is reduced by any imputation credits attached to the dividend.

Imputation credits are a record of how much tax the company has already paid on the profits it's paying out as a dividend. You can attach these credits to the dividend you pay, up to 28 cents of credit for every $1 of gross dividend, reflecting the 28% company tax rate.

When you attach imputation credits to a dividend, you usually only need to withhold enough extra RWT so that the imputation credits plus any RWT withheld come to 33% of the gross dividend. The shareholder then uses those imputation credits as a tax credit, which reduces the tax they ultimately owe on that dividend.

You'll need to provide each shareholder with a dividend statement showing the cash dividend, imputation credits attached, and any RWT deducted so they can complete their tax return or confirm IRD's end-of-year tax assessment.

7. Pay the Dividend

Payments are usually made via direct credit. Make sure your share register is up to date—especially for a fast-growing business. You will need to know the shareholdings of each investor on the record date , not the date you make the payment.

8. Keep Shareholders in the Loop

Don't forget to tell your shareholders what, why, and what's next.

Dividends aren't just cash - they're confidence.

Conclusion

Paying a dividend in New Zealand is simple, but you still have to follow the rules. Nail the compliance, communicate well, and it becomes a powerful way to reward shareholders and show your business means business.

Need help automating your dividends? Get in touch to make use of our automated dividend functionality. We can also automate interest payments and other distributions. PIE compatibility is included.

Disclaimer:
The information in this blog post is for general informational purposes only and is not intended as legal, financial, or tax advice. While we aim to keep content accurate and up to date, laws and regulations may change and can vary based on individual circumstances. Before making any business, financial, or legal decisions—especially regarding the payment of dividends—you should consult with a qualified professional such as a lawyer, accountant, or financial adviser.

By Colin Magee