Unpaid Dividends: Passive Payable or Shareholder Loan?

On the surface, an unpaid dividend may appear to be a routine deferral. However, when examined under IFRS and UAE regulations, the treatment of such amounts could significantly impact your financial reporting, tax compliance, and audit readiness

Under IFRS (IAS 32 & IFRS 9)

An unpaid dividend that remains outstanding for an extended period — especially when it supports company operations — may be considered a de facto shareholder loan.This reclassification triggers implications:

·       Financial liability recognition

·       Related party disclosure (IAS 24)

·       Possible accrual of interest using the effective interest method (IFRS 9, B5.4.1-2)

 From a UAE regulatory standpoint

·       While Federal Decree Law No. 32 of 2021 does not explicitly prohibit unpaid dividends, economic substance and the intent behind the deferral matter.

·       Under Federal Decree Law No. 47 of 2022 on Corporate Tax:

        Transfer pricing (Article 34) may apply if interest is accrued.

       Interest deductibility rules (Article 30 & 31) and GAAR (Article 50) must be considered.

 Article 69(3) – ADGM Rulebook
No interest on dividends unless contractually agreed.

Practical Implications
To stay compliant and audit-ready:

·        Benchmark interest rates to prove arm’s length

·        Draft formal loan agreements if reclassified

·        Document transfer pricing, if thresholds are met

·        Disclose under IAS 24 if shareholder is related

If unpaid dividends begin acting like capital financing, it’s time to assess if you’re holding a loan — not just a payable.

 Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.