Calculation of dividends and withholding taxes on tokenized shares

Clients of the FREE2EX Crypto Exchange Can Receive Dividend Payments on Tokenized Stocks and Indices

We have gathered answers to popular questions for you.

What is a dividend payment?

A dividend payment is the distribution of a company's profits among its shareholders. The amount of payments is regulated by the dividend policy of each individual company and is approved at the general meeting of shareholders. When a company makes a profit, this profit can also be reinvested in the company and/or distributed among the shareholders.

Dividends can be issued in the form of shares, cash, or property. When a company decides to pay dividends to shareholders, it determines a fixed amount of payment per share and makes the payment on a specific date. Most often, dividend payments occur once a year.

What transactions qualify for dividend accrual?

The ex-dividend date is the day on and after which the shares are sold without the right to receive dividends. It is determined by the dividend policy of each specific organization. Clients who have transactions with assets that were made and remained active before the ex-dividend date will be entitled to receive dividends or will be obliged to pay the corresponding amount depending on the type of open operation – long operation or short operation.

Those who open a transaction on the ex-dividend date will not be entitled to receive dividends and will not be obliged to pay the corresponding amount.

How are dividends paid on indices?

Indices represent the weighted average price of the shares of several assets combined into one pool. When a dividend payment is announced for one of the assets included in the index, the price of the respective share decreases by the amount of the dividend. Accordingly, the price of the index will also decrease by the equivalent weighted average amount of the same dividend on the ex-dividend date. Clients who perform transactions with indices will receive or pay the equivalent weighted average amount of the same dividends on the ex-dividend date.

Do tokenized index holders receive dividends?

Index holders receive dividend payments just like holders of tokenized assets. Dividends are automatically credited to the user's account on the exchange, minus taxes. Tax deductions are made automatically on the side of liquidity providers.

Do dividends only generate profit?

Dividends can both generate profit and lead to losses. In the case of purchasing assets in a long operation, dividends can yield a positive financial result, and the funds will be automatically credited to your account. If the shares or indices were purchased in a short operation, such a transaction might result in negative financial outcomes, and the number of tokens in your account may be reduced proportionally to the amount of dividends paid by the respective company, meaning the money will be automatically debited from your account.

Tax payment on dividend profit?

FREE2EX does not withhold taxes. However, our liquidity providers, who pay dividends or collect payments from clients, make an automatic deduction of US taxes on the ex-dividend date.

The necessity to pay income tax is determined by the client based on their tax residency.

For detailed information on tax payments, we recommend consulting a tax advisor.

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