Monthly dividend payments by UAE companies

In the context of business globalization and the increasing popularity of countries with flexible corporate regulations, companies are reconsidering traditional methods of profit distribution. One such approach is the monthly dividend payment, which is no longer seen as an exceptional event but rather as a tool to provide a regular cash flow for owners. Particular attention is drawn to this model by companies registered in the United Arab Emirates, where corporate law combines a relatively high level of contractual flexibility with strict requirements for financial transparency.

The practice of monthly dividend payments often raises questions among owners, accountants, auditors, and banks. These questions include whether such frequency is permissible, what requirements are imposed by the International Financial Reporting Standards (IFRS), and why the first dividend payment is crucial from a compliance standpoint.

In this article, we provide a detailed analysis of the monthly dividend payment phenomenon in the UAE, examining it from legal, accounting, and banking angles. We propose a practical dividend payment structure that businesses can adopt.

From an economic perspective, dividends are the distribution of a company's net profits to its shareholders. Unlike salaries or directors' compensation, dividends are not tied to job performance and do not decrease taxable income.

At the same time, dividend frequency is not a constant economic factor. It depends on:

• the nature of the business;
• cash flow stability;
• owners’ expectations;
• requirements of creditors and banks.

This is why the monthly model is increasingly seen as a natural progression from the practice of interim dividends.

UAE corporate legislation does not specify a mandatory frequency for dividend payments. The regulatory acts do not include provisions requiring profit distribution on an annual basis exclusively. This fundamentally distinguishes the UAE from other jurisdictions with more strict regulations, where interim dividends are either directly prohibited or require specific approval from regulatory authorities.

In the UAE, the key sources of regulation are:

• the company’s corporate documents (Memorandum & Articles of Association);
• resolutions of shareholders or the board of directors;
• the company’s actual financial position.

Therefore, the issue of dividend frequency is more a matter of corporate governance than a direct legal obligation.

Despite its flexibility, UAE corporate law is based on two fundamental principles:

These principles are universal and apply regardless of whether dividends are paid annually or monthly.

Interim dividends are dividends declared and paid during the financial year before the official closing date. These payments do not require the approval of annual financial statements and are based on interim financial data.

In essence, monthly dividends represent a series of interim dividends distributed on a regular basis.

UAE law regarding dividends does not:

• limit the number of interim payments;
• establish a minimum interval between dividends;
• require interim dividends to be exceptional in nature.

Accordingly, monthly dividend payments are not in conflict with corporate law, provided the basic principles of profit distribution are followed.

In practice, the first dividend payment is crucial. It establishes the initial level of trust with banks, auditors, and other parties involved. Unlike subsequent ones, the first dividend payment:

• requires more thorough documentary support;
• is more likely to be subject to bank review;
• determines the future level of compliance control.

In light of the above, before the first dividend payment it is recommended to prepare a minimum set of documents:

• Balance Sheet;
• Profit and Loss Statement (P&L).

These reports allow you to:

• confirm the existence of profit;
• determine the amount of retained earnings;
• assess the structure of assets and liabilities;
• demonstrate the company’s solvency.

Although the law does not explicitly require financial statements before each dividend payment, the lack of a balance sheet and profit and loss statement at the initial payment stage significantly increases the risk of banking and compliance issues.

IFRS do not regulate the frequency of dividend payments. The standards do not contain provisions limiting profit distribution to the reporting year or specific intervals.

This is because IFRS are not a source of corporate law and regulate only accounting treatment and disclosure.

From an IFRS perspective, dividends are not recognized as an expense but are recorded as a distribution of equity. The obligation to pay dividends arises on the date the decision is made.

Accordingly, dividends do not affect profit or loss for the period, but reduce retained earnings.

IFRS allow the use of interim reporting, management data, and interim financial statements. This is particularly important for monthly dividends, as they do not require year-end closing or an audit for each payment.

Banks in the UAE are required to comply with strict Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements. From this perspective, dividends can be seen as:

• a regular outflow of funds;
• a potential capital outflow risk;
• transactions requiring confirmation of the source of funds.

Therefore, requests for financial statements in connection with dividend payments are a procedural requirement rather than a restriction of the company's rights.

After the first payment, supported by a balance sheet and P&L, subsequent monthly dividends are typically reviewed in a more formal way and with less scrutiny. With consistent accounting, banks require a full set of documents less often, and transactions become more predictable from a compliance perspective.

To comply with legal requirements, IFRS, and banking practices, use the following structure for dividend payments:

In conclusion, monthly dividend payments in the UAE are legal, economically justified, and comply with IFRS requirements. Corporate law does not restrict the frequency of dividends, and IFRS does not regulate the timing of profit distribution, instead focusing on accounting and disclosure.

The key element of this model is the first dividend payment, which must be based on prepared financial statements — a balance sheet and a profit and loss statement.

After that, the company may switch to regular monthly interim dividends, assuming there are profits available for distribution, the solvency principle is upheld, and proper accounting practices are in place. A well-organized system of reporting and record-keeping allows companies to utilize monthly dividends as a reliable profit distribution method, minimize compliance issues, and ensure the transparency of financial transactions for shareholders and banks.