Instant Tax Solutions Discusses Responsibilities of Business Owners to Pay Payroll Taxes

When it comes to understanding the tax system, Byron Pedersen of Instant Tax Solutions is becoming widely respected. Instant Tax Solutions understands in depth what it means for businesses to handle payroll taxes. Recently Byron Pedersen sat down to discuss the responsibilities of a business owner in handling payroll taxes.

Question: First off, thank you Byron Pedersen for your time today.

Byron Pedersen/Instant Tax Solutions: The pleasure is mine.

Question: Let's start with a little background.

Byron Pedersen/Instant Tax Solutions: Sure.

Question: From what we read, Instant Tax Solutions started with three or four people. And in a very short time, Instant Tax Solutions grew to how many employees?

Byron Pedersen/Instant Tax Solutions: Yes, we started with four people in a single room. Today we have over forty tax professionals.

Question: Define what you mean by tax professionals.

Byron Pedersen/Instant Tax Solutions: A tax professional is a tax attorney, former IRS agent, or an individual who has worked with tax relief groups similar to ours, and so on. In short, someone with vast experience in working with the IRS is a tax professional.

Question: To what do you attribute the growth?

Byron Pedersen/Instant Tax Solutions: Well, when we started in that room with just four people, we had written a code of honor. We had a value system that said we would always function with integrity and always put first the taxpayer seeking our help. I believe that has truly paid off.

Question: With that said, let's talk about payroll taxes.

Byron Pedersen/Instant Tax Solutions: Well, payroll taxes cover Social Security, Medicare, and Federal taxes that a business withholds from an employee's pay check. Businesses, by law, are required to match Social Security and Medicare taxes. And they have to pay unemployment taxes on each employee as well.

Question: Can you give us a brief synopsis of the process a business must go through in handling payroll taxes?

Byron Pedersen/Instant Tax Solutions: I can. First off, every employee when hired must fill out a W-4 form.

Question: And I am assuming that the business has to keep that on file.

Byron Pedersen/Instant Tax Solutions: You are correct. This form helps determine the amount of tax to be withheld from the employee's check. As well, many states use this Federal form to determine the amount of taxes to be withheld for state tax.

Question: Before we continue, I keep seeing the acronym FICA. What is that?

Byron Pedersen/Instant Tax Solutions: FICA stands for Federal Insurance Contributions Act and it encompasses what I mentioned earlier Medicare and Social Security. This provides federal funds, tax dollars, for retirees, the disabled, and the minor child of a decedent.

Question: So we have a form, and from that form the tax amount per employee is determined. What else is important?

Byron Pedersen/Instant Tax Solutions: An EIN number.

Question: What does an EIN number do?

Byron Pedersen/Instant Tax Solutions: An EIN number allows the federal government to track a business. By law a business must establish an EIN number.

Question: When does a business establish this number?

Byron Pedersen/Instant Tax Solutions: Before establishing the business or even hiring one employee. And this will allow the government to make sure said business is paying their payroll taxes.

Question: And when are payroll taxes required to be paid?

Byron Pedersen/Instant Tax Solutions: It can vary and is based on the entire amount of the payroll. It can be weekly, bi-weekly, monthly, or quarterly.

Question: And is that it?

Byron Pedersen/Instant Tax Solutions: Far from it. Actually, there are four different forms that a business owner must complete.

Question: As we conclude, if this gets confusing

Byron Pedersen/Instant Tax Solutions: The business should hire a tax attorney. Better to be clear in understanding than try and cry ignorance later.

Byron Pedersen is the co-founder of Instant Tax Solutions. Instant Tax Solutions is a tax relief organization helping individuals and businesses dealing with a wide range of tax issues. Instant Tax Solutions believes that the taxpayer, not the relief organization, should come first. Instant Tax Solutions can be found online at http://instanttaxsolutions.com

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Singapore Corporate Tax System

Key features of Singapore Corporate Tax Regime Singapore Corporate Tax Rate and Tax Exemption Scheme Singapore 1-Tier Corporate Tax System Singapore Tax Deductions Singapore Capital Allowances Unutilised Tax Losses, Capital Allowances and Donations

Key features of Singapore Corporate Tax Regime

Low tax rates (corporate tax - 17%, individual tax - 20%, GST - 7%) No capital gains taxes 1-Tier tax system with no dividend withholding tax Liberal rules for unutilised capital allowances / losses / donations set-offs Availability of group relief and carry-back tax mechanisms No thin capitalisation rules No foreign currency restrictions Availability of foreign tax credit / tax exemption for foreign-sourced income Availability of many types of tax incentives Wide tax treaty network

Singapore Corporate Tax Rate and Tax Exemption Scheme

Singapore only taxes income (not capital gains) on a territorial basis. Currently, companies are subject to income tax in Singapore at the prevailing corporate tax rate of 17% in respect of their income accrued in or derived from Singapore, or received in Singapore from outside Singapore. Newly incorporated companies and start-ups may enjoy a full tax exemption on their first S$300,000 income chargeable to tax at 17%, subject to qualifying conditions (See Example A below).

Example A: Company A has S$300,000 taxable profits in Year 1 (year of incorporation) and qualifies for the tax exemption scheme.

Singapore 1-Tier Corporate Tax System

With effect from 1 January 2008, all dividends paid by any Singapore tax resident company in Singapore are tax exempt (1-tier) dividends and such dividends are not subject to further tax in the hands of the shareholders. This 1-tier tax system benefits all Singapore Tax resident companies since they can now pay dividends out of its retained profits without the need to account for franking credits.

Singapore Tax Deductions

Generally, you may claim tax deduction for expenses that are incurred for business. To qualify for tax deduction, these conditions must be met:

The expenses must be revenue in nature, (generally refers to the normal day-to-day operating expenses). Capital expenditure is not allowed as a tax deduction but certain expenditure may qualify for capital allowances (see below). The deduction must not be prohibited under the Singapore Income Tax Act (eg. domestic and private expenses). The expenses must be incurred. Contingent liability is not allowable as a tax deduction.

Currently, companies are allowed to deduct up to 400% of certain expenses such as qualifying R&D and staff training expenses under the Productivity and Innovation Credit (PIC) Scheme.

Singapore Capital Allowances

In Singapore, capital allowances are available on most classes of capital expenditure with some important exceptions. For example, capital allowances are not granted for capital expenditure on the acquisition of shares and other forms of securities, nor on land, goodwill, nor on the construction of office or residential property.

There are 2 categories of capital allowance available on plant and machinery - the "accelerated allowances" and the "normal allowances".

Under the system of accelerated allowances, tax relief for the full cost of an asset is given over three years, at a rate of 33 1/3% per annum, or in the case of computers and prescribed automation equipment over 1 year at 100% in the year of claim. As announced in the Singapore 2009 Budget Statement, capital expenditure incurred on plant and machinery acquired in the basis periods for the Years of Assessment 2010 and 2011 can be allowed an accelerated write-down over 2 years instead of 3 years.

Normal allowances consist of an "initial" allowance of 20% available for the Year of Assessment in the basis period for which the expenditure is incurred together with annual allowances in the first and subsequent years calculated on a straight line basis based on the economic life of the asset. The initial and annual allowances together give tax relief for no more than the full cost of the asset.

Currently, companies are allowed to deduct up to 400% of qualifying capital expenditure such as prescribed automation equipment (eg. laptops, desktop computers and printers) under the Productivity and Innovation Credit (PIC) Scheme.

Unutilised Tax Losses, Capital Allowances and Donations

Capital allowance, trade loss or donation in excess of a company's income from all sources (i.e. unabsorbed capital allowance, unabsorbed loss or unabsorbed donation) for a current year may be carried forward to future years and/or transferred to another company within the same group for set-off against the income of the other company, subject to conditions.

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Singapore Corporate Tax System

Key features of Singapore Corporate Tax Regime Singapore Corporate Tax Rate and Tax Exemption Scheme Singapore 1-Tier Corporate Tax System Singapore Tax Deductions Singapore Capital Allowances Unutilised Tax Losses, Capital Allowances and Donations

Key features of Singapore Corporate Tax Regime

Low tax rates (corporate tax - 17%, individual tax - 20%, GST - 7%) No capital gains taxes 1-Tier tax system with no dividend withholding tax Liberal rules for unutilised capital allowances / losses / donations set-offs Availability of group relief and carry-back tax mechanisms No thin capitalisation rules No foreign currency restrictions Availability of foreign tax credit / tax exemption for foreign-sourced income Availability of many types of tax incentives Wide tax treaty network

Singapore Corporate Tax Rate and Tax Exemption Scheme

Singapore only taxes income (not capital gains) on a territorial basis. Currently, companies are subject to income tax in Singapore at the prevailing corporate tax rate of 17% in respect of their income accrued in or derived from Singapore, or received in Singapore from outside Singapore. Newly incorporated companies and start-ups may enjoy a full tax exemption on their first S$300,000 income chargeable to tax at 17%, subject to qualifying conditions (See Example A below).

Example A: Company A has S$300,000 taxable profits in Year 1 (year of incorporation) and qualifies for the tax exemption scheme.

Singapore 1-Tier Corporate Tax System

With effect from 1 January 2008, all dividends paid by any Singapore tax resident company in Singapore are tax exempt (1-tier) dividends and such dividends are not subject to further tax in the hands of the shareholders. This 1-tier tax system benefits all Singapore Tax resident companies since they can now pay dividends out of its retained profits without the need to account for franking credits.

Singapore Tax Deductions

Generally, you may claim tax deduction for expenses that are incurred for business. To qualify for tax deduction, these conditions must be met:

The expenses must be revenue in nature, (generally refers to the normal day-to-day operating expenses). Capital expenditure is not allowed as a tax deduction but certain expenditure may qualify for capital allowances (see below). The deduction must not be prohibited under the Singapore Income Tax Act (eg. domestic and private expenses). The expenses must be incurred. Contingent liability is not allowable as a tax deduction.

Currently, companies are allowed to deduct up to 400% of certain expenses such as qualifying R&D and staff training expenses under the Productivity and Innovation Credit (PIC) Scheme.

Singapore Capital Allowances

In Singapore, capital allowances are available on most classes of capital expenditure with some important exceptions. For example, capital allowances are not granted for capital expenditure on the acquisition of shares and other forms of securities, nor on land, goodwill, nor on the construction of office or residential property.

There are 2 categories of capital allowance available on plant and machinery - the "accelerated allowances" and the "normal allowances".

Under the system of accelerated allowances, tax relief for the full cost of an asset is given over three years, at a rate of 33 1/3% per annum, or in the case of computers and prescribed automation equipment over 1 year at 100% in the year of claim. As announced in the Singapore 2009 Budget Statement, capital expenditure incurred on plant and machinery acquired in the basis periods for the Years of Assessment 2010 and 2011 can be allowed an accelerated write-down over 2 years instead of 3 years.

Normal allowances consist of an "initial" allowance of 20% available for the Year of Assessment in the basis period for which the expenditure is incurred together with annual allowances in the first and subsequent years calculated on a straight line basis based on the economic life of the asset. The initial and annual allowances together give tax relief for no more than the full cost of the asset.

Currently, companies are allowed to deduct up to 400% of qualifying capital expenditure such as prescribed automation equipment (eg. laptops, desktop computers and printers) under the Productivity and Innovation Credit (PIC) Scheme.

Unutilised Tax Losses, Capital Allowances and Donations

Capital allowance, trade loss or donation in excess of a company's income from all sources (i.e. unabsorbed capital allowance, unabsorbed loss or unabsorbed donation) for a current year may be carried forward to future years and/or transferred to another company within the same group for set-off against the income of the other company, subject to conditions.

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Dividend Policy: Malaysian Public Listed Companies 2006 to 2009

1. Introduction

The study of corporate dividend behaviour has been a key research area in finance. Yet we do not have an acceptable explanation for the observed dividend behaviour of companies and the ''dividend puzzle'' still remains unsolved (Black, 1976). It is a long-standing position of well-known finance researchers that dividends are irrelevant, and they have no influence on the share price, given that the capital markets are perfect (Miller & Modigliani, 1961). Some researchers have held a contrary position that considers that since capital markets are not perfect, dividends do matter. Several empirical surveys indicate that both managers and investors favour payment of dividends. Lintner (1956) found that US companies in the sixties distributed a large part of their earnings as dividends, and they also maintained stability of dividends. Firms are always searching for an optimal dividend policy, one that strikes a balance between current dividends and future growth and maximiz es the firm's stock prices. These findings have been vindicated in different countries and at different time periods.

The focus of this research is to study how companies trading in the KLSE, an emerging market in Southeast Asia, decide their dividend payments and to examine empirically whether they follow stable dividend policies, as is generally the case in developed markets. This study provides evidence that the KLSE firms follow less stable dividend policies and their dividend payments are closely related to changes in earnings but they do not immediately omit dividends when earnings decrease.

In Malaysia, there is no standard policy or procedure governing dividend payments. As such, companies are free to decide when and how much to pay out in dividends for a specific financial business year as long as they comply with Companies Act, 1965. Section 365 of the Act states that "No dividend shall be payable to the shareholders of any company except out of profits or pursuant to Section 60." In other words, the Act requires that dividends of a company can only be distributed from the profits of the company except pursuant to Section 60 of the Act.

Since there is a dearth in the academic literature that describes the current dividend policy for Malaysian companies, this paper is set to fill the gap by examining the dividend policy for public listed companies in Malaysia. Thus, the objectives of this study are:

1. To identify the dividend-paying company and non dividend-paying company listed on the main board.

2. To observe the trend of dividend distribution of Malaysian public listed companies by looking at the dividend yield and dividend payout ratio.

3. To distinguish the characteristics of dividend-paying companies and non dividend-paying companies by analysing their financial and performance factors.

4. To analyse the relationship of financial and performance factors with dividend distribution.

5. To test the validity of smoothing hypothesis of dividend determinant for Malaysian public listed companies by analysing the relationship of dividend and earning over times which suggests that dividend decision is influenced by past and current earnings.

The rest of the paper is organised as follows: The next section reviews some important previous studies conducted abroad and in Malaysia. The third section describes the data and methodology. In the fourth section, the results are presented and the last section contains the main conclusions of the study.

2. Literature Review

Lintner (1956) for the first time uncovered that firms maintain a target dividend payout ratio and adjust their dividend policy to this target. The long-term sustainable investment and growth objectives determine the firms' target payout ratios. Further, Lintner found that firms pursue a stable dividend policy and gradually increase dividends given the target payout ratio. This implies that firms set speed to move towards the full achievement of payout. These findings suggest that firms establish their dividends in accordance with the level of current earnings as well as dividends of the previous year. Lintner also pointed out that managers believe that investors prefer firms with stable dividend policies.

A number of survey and empirical studies have been conducted in USA and other countries using Lintner's framework. In USA, Fama and Babiak (1968) and Brittain (1966) use a modified and extended Lintner model to confirm his findings. A survey of the NYSE companies by Baker, Farrelly, and Edelman (1985) supports the Lintner findings, and they conclude that the major determinants of dividend payments are future earnings and past dividends. The subsequent survey study of Pruitt and Gitman (1991) also confirms these results.

Lintner's model has been generally found applicable in a number of developed markets. It has been tested by Chateau (1979) in Canada, Shevin (1982) in Australia, McDonald, Jacquilland and Nussenbaum (1975) in France, Leithner and Zimmermann (1993) in West Germany, UK, France and Switzerland and Lasfer (1996) in UK. Dewenter and Warther (1998) compare dividend policies of firms in USA and Japan for the period from 1982 to 1993. Their results show that USA firms tend to choose stable dividend policies whereas Japanese firms prefer to omit dividends and follow relatively unstable dividend policies.

Researchers have recently started looking at the dividend policy and behaviour of companies in regulated and emerging markets. Glen, Karmokolias, Miller and Shah (1995) find substantial differences in dividend policies of companies in developed and emerging markets. They show that dividend payments are much lower in emerging markets and companies follow less stable dividend policies, although they do have target payout ratios. A study by Pandey and Bhat (1994) in India supports the Lintner findings and reveals that Indian managers confirm that companies maintain an uninterrupted record of dividend payments and also try to avoid abrupt changes in their dividend policies. Ariff and Johnson (1994) confirm Lintner's model for firms in Singapore. In Turkey, Adaoglu (2000) finds that earnings are the main determinant of dividend payments. Until 1994, companies in Turkey were required to distribute 50% of the distributable profits as cash dividends. His results show that because of regulation of compulsory distribution of profits, the ISE (Istanbul Stock Exchange) companies followed stable dividend policies until 1994, but once the companies were given the flexibility of choosing their own dividend policy, they followed unstable dividend policies. Gul (1999) provides evidence on dividend policy in Japan, and studies by Gul (1999) and Zhao (2000) relate dividend policy to ownership structure in China.

How firms determine their dividend policy has been a puzzle to financial economists for many years. Miller and Modigliani's (1961) irrelevance theorems form the foundation for modern corporation finance theory. In their seminal paper, Miller and Modigliani showed that under certain assumptions (perfect capital market, rational behavior, and perfect certainty), dividends are irrelevant. All that matters is the firm's investment opportunities. They show that under certain assumptions, the payment of a cash dividend should have no impact on a firm's share price.

According to Lease et. al (2000), some of Miller and Modigliani simplifying assumptions, especially those involving perfect markets, require modifications. Important market imperfections, which include asymmetric information, agency costs, taxes, transaction costs, flotation expenses, and behavioral factors, also exist and are necessary to be taken into considerations.

Studies of dividend behaviour of companies in Malaysia support Lintner's model. In a survey study, Isa (1992) finds that firms in Malaysia follow stable dividend policies and a number of internal and external factors govern these policies. Kester and Isa (1996) also confirm these results. Other studies confirming the applicability of the Lintner model in Malaysia include Annuar and Shamsher (1993) and Gupta and Lok (1995). Consistent with the tax imputation hypothesis, Isa (1993), in a study of Malaysian companies for the period from 1981 to 1992, finds a positive relationship between P/E ratio and payout ratio. The relation between dividend yield and P/E ratio is negative, which contradicts the tax imputation hypothesis. Isa finds a positive relation between dividend yield and payout. In addition Minority Shareholder Watchdog Group and University of Technology MARA (MSWG, 2006). They examine top 100 companies as per market capitalization on 31 December 2005. The survey ex amines the companies' behaviour on dividend distribution over a three-year period of 2002-2004. The market value of the top 100 public-listed companies ranged from RM983 million to RM41,972 million as at 31 December 2005. The survey found that most of the companies paid dividends in the three-year period. By examining the characteristic of the dividend payers and non-dividend payers, the survey proposed that profitability and liquidity are two essential ingredients for a healthy, dividend-paying public listed company. Companies with these two healthy components send out signals that they are able to sustain their dividend payment in the future.

Researchers have tried to explain the importance of dividends by looking for "imperfections" that can undermine the irrelevance position. Among these, the most important ideas are smoothing hypothesis and signaling hypothesis, which are at odds over the predictive power inherent within dividends. The role of dividends in conveying useful information about the future performance of the firms is a contentious issue in dividend policy research.

In this article I will be testing smoothing hypothesis, which suggests that the dividend decision is influenced by past and current earnings, and this hypothesis was initiated by Lintner (1956). He finds that managers believe that stable dividends lessen negative investor reactions. The reluctance to change the dividend was evident in a study carried out by DeAngelo and DeAngelo (2000). They find that for 80 New York Stock Exchange (NYSE) firms in financial crisis, managers are more willing to cut the level of dividend than to omit the dividend altogether. They also reported that the longer the company has been paying dividends the stronger is the reluctance of the managers to reduce dividends. DeAngelo et al. (1996) have also documented managerial aversion to cut and omit dividends for US companies.

3. Data and Research Methodology

This study uses data of listed companies in Bursa Malaysia sourced from Bursa Malaysia website, individual companies website, Dynaquest, Bloomberg and online worldwide stock information. Annual reports, which are obtained from Bursa Malaysia's website, have also been used as supplementary source (for instance, to get information on the main shareholder). 100 proportional stratified samples are randomly selected based on the market capitalization from companies listed on the Main Board.

For a firm to be included in the sample, several criteria had to be met. First, the firm had to be listed on the Bursa Malaysia for the period under consideration (2006- 2009). Real Estate Investment Trust (REIT), closed-end fund and exchange traded fund have also been excluded from the sample. This is a current practice in empirical literatures, since it is generally assumed that the different regulatory environment of these companies would influence dividend policy (Short et al. 2002, Baker et al., 2006).

Currently there are 844 companies listed on Main Board. 116 companies are listed in the ACE Market. Total number of listed companies is 960. The main industries listed on the Bursa Malaysia are consumer products, industrial products, construction, infrastructure project, trading/services, finance, properties, plantation, technology, hotel and mining. After excluding the companies which are publicly reprimanded by Bursa Malaysia, closed-end fund, exchange traded fund, and REITS companies 100 samples selected from the Bursa Malaysia are allocated based on their market capitalization.

The 100 companies studied in this research come from industrial products (28 firms), trading and services industry (23 firms), consumer products industry (13 firms), properties industry (12 firms), finance (5 firms), plantation (5 firms), construction industry (8 firms), technology industry (3 firms), and 1 from each of hotel, mining and infrastructure industries.

3.2 Selection of Measures

The characteristics that influence Malaysian public listed companies' dividend policy are discussed first. To distinguish between companies that pay dividend and companies that do not pay dividend, dividend-paying companies are defined as companies that have at least one dividend payment over the 4-year period of study 2006 2009. On the other hand, non dividend-paying companies are defined as companies which had not make any dividend payment during the period of study.

The trend of dividend distribution of Malaysian public listed companies is observed through their dividend yield and dividend payout ratio. Dividend yield of a company's stock is the company's annual dividend payments divided by its market capital. As for dividend payout ratio, it provides an idea of how well earnings support the dividend payment and it is calculated as the ratio of dividend per share to earnings per share. The analysis of dividend yield and dividend payout ratio uses yearly observation and is carried out over the 4-year period of 2006-2009.

Subsequently, the relationship between the variables that are considered in the cross-sectional comparisons and the dividend yield and dividend payout ratio are examined using the simple analysis of correlation. Both dividend yield and dividend payout ratio are used as dividend variables.

To examine the factors that causes the variations in dividend policy across firms, several groups of variables are used. The comparisons are based both on averages for the 2006-2009 periods (to investigate their general influence on a firm's dividend policy) and on data for the single year 2009 (to ensure the consistency of the average 4-year data with the most recent single year data). The variables that are considered in the cross-sectional comparisons are:

Market to book ratios, as a proxy for growth opportunities Return on assets and return on equity, as measures of firm profitability Total revenue, as proxy for firm size The firms' beta, as proxy for firm risk Equity to debt ratio, as measure of leverage in book terms Ownership structure of these companies.

All these variables are selected in accordance with previous studies carried out by Chen et al. (2005), Collins and Kothrai (1989), Chung and Charoenwong (1991), Stacescu (2006) Grullon et.al. (2002), La Porta et al. (2000), Ghosh (2006), Gugler (2003) and Fama and French (2001).

After distinguishing the characteristics of dividend-paying companies and non dividend-paying companies, we will examine how strong are the relationship of the financial variables with dividend policy. Coefficient of correlation of the various financial variables against the dividend yield and dividend payout ratio will be calculated to determine the relationship as mentioned.

We now turn to test the validity of smoothing hypothesis of dividend determinant for Malaysian public listed companies by analysing the relationship of dividend and earning over times which suggests that dividend decision is influenced by past and current earnings. To test for smoothing hypothesis, the relationship between dividends and earning over time will be examined. We will look at the changes in dividend per share over changes in earning per share of Malaysian public listed companies over a period of 10 years from 1999-2009. Earnings per share and dividend per share are used to analyse the relationship between earnings and dividend policy. Both have been widely used in previous studies.

The result of the calculation will be used to correlate the relationship of dividend per share with the current and past earnings per share. Linear relationship of the two variables, or more specifically, how well they are related to each other, is investigated using their coefficient of correlations.

4. Research Results

This section presents the findings of the paper. Each sub-section is structured to reflect each of five objectives of the study.

4.1 Dividend Payers and Non-Dividend Payers

Dividend payer is defined as company that had at as least one dividend payment in one of the 4 years under study (2006-2009). This definition of dividend payer has been used throughout the analysis. Table 4-1 below shows the number of dividend payers and non-dividend payers in the sample, as per industry. 79% of the 100 samples are dividend payers over 2006-2009. Most industries show that there are more dividend payers over non-dividend payers.

It is common perception that there is an industry norm for dividend policy. Firms just follow the fashion or their dividend policy is governed by some special characteristic in a particular industry. The relationship of dividend payout patterns according to industry have been studied by Chin-Bun Tse (2005) based on UK listed companies featured in the FTSE as well as byI. M. Pandey 2003) in the Malaysian case . Chin-Bun Tse (2005) found no strong evidence that payout patterns are affected by industry. Both of them argue that dividend policy is very much decided at individual firm level.

Table 4-1: Analysis of Dividend Payers and Non-Dividend Payers from Main Board

And it's Industries

Board

Industry

Dividend payer

non-Dividend payer

Consumer product

12

1

Industrial Products

24

4

construction

5

3

IPC

1

0

Trading services

15

8

Main Board:

Finance

4

1

Properties

9

3

Plantation

4

1

Hotel

1

0

Mining

1

0

Technology

3

0

TOTAL:

79

21

4.2 Dividend Yield and Dividend Payout Ratio

Figure 4.1 below presents the average dividend yield and dividend payout ratio over the 2006-2009 period for all the sample companies. The mean for the dividend yield over the 4 years is 3.31%, and the mean for the dividend payout ratio over the 4 years is 0.40. Dividend payout ratio has a decreasing trend over the 2006-2009. In recent years, perhaps due to the financial crisis and general economic slowdown, payout ratios of all sectors have declined. The results show that a large number of Malaysian firms increase payment of dividends when their earnings increase. They are reluctant to skip dividends when earnings fall. But Malaysian firms tend to omit dividends when they suffer losses. A formal analysis employing the multinomial logit technique reveals that the dividend actions of the 28 corporate dividend policy and behavior Malaysian firms are very sensitive to earnings changes. There is a high probability of dividend increase when earnings increase. Similarly, the cha nces are high that dividends will be reduced if earnings fall. There is a very high probability of dividend omission when the Malaysian firms face negative earnings. (I. M. Pandey 2003)

On the other hand, the dividend yield shows constant trend for 2006-2007, increasing trend for 2007-2008 and decreasing trend for 2008-2009. The dividend yield shows a relatively volatile trend as its variation is influenced by both changes in dividends and movements in share prices.

Figure 4-1: Dividend Yield and Dividend Payout Ratio From 2006 2009

4.3 Comparison of Financial and Performance Variables for Dividend-Paying and

Non-Dividend-paying Companies

The financial and performance variables of growth opportunities, firm size, firm risk, leverage, and firm profitability are compared between dividend-paying companies and non dividend-paying companies. The analysis shows that there are several features that distinguish dividend-paying companies and non dividend-paying companies. The comparisons are based on the averages (mean) of the variables for 2006-2009. Table 4.2 summarises the variables that distinguish dividend-paying companies and non dividend-paying companies.

Table 4-2: Comparison between Dividend-Paying and Non Dividend-Paying

Companies

Variables

Dividend paying Companies Mean for (2006-2009)

Non- Dividend Paying Companies (Mean for 2006-2009)

Market to book ratio

(growth opportunities)

0.016

0.017

Annual Revenue

(Normalized with total assets)

(Firm Size)

0.47

0.38

Beta

(Firm Risk)

0.63

0.77

ROA

(Firm Profitability)

2.67

1.01

ROE

(Firm Profitability)

2.80

1.51

Debt over Equity Ratio

(Leverage)

0.59

0.76

The variable used to measure the growth opportunities is market to book ratio. Over the years 2006 2009, the study shows that non-paying companies have a higher market to book ratio of 0.017 as compared 0.016 for dividend-paying companies. Higher market to book ratio indicates that company has higher growth opportunities than their counterparts. With regard to this, it is concluded that dividend-paying companies which have lower market to book ratio would have lower growth opportunities. This phenomenon can be explained, as a company has much room to grow and expand, it tends to use its resources to fuel it, rather than limiting this opportunity by paying dividend to its stockholders. This is consistent with the studies done by Stacescu (2006) and Smith (1992). Non dividend-paying companies have lower annual revenue (normalised by total assets) as compared to dividend-paying companies, although the difference is not significant (0.47 for dividend-paying companies, 0.38 fo r non dividend-paying companies). We argue that annual revenue does not differ significantly between dividend payer and non-dividend payer companies of Malaysia. Companies that do not pay dividend during 2006-2009 also carry higher betas, therefore they have higher risks. The values for dividend-paying companies and non dividend-paying companies are 0.63 and 0.77, respectively. The finding of growth opportunities, size of the companies and the firm risk are supported by the maturity hypothesis suggested by Grullon et al. (2002). This hypothesis suggests that riskier, smaller and younger firms tend to retain earnings and pay lower dividend as compared to matured, established and stable firms. The variables used to measure companies' profitability are Return of Asset (ROA) and Return on Equity (ROE). The study shows that dividend-paying companies have a higher ROA and ROE, amounted to 2.67 and 2.80, respectively, as compared to 1.01 and 1.51, respectively, for non dividend-pay ing companies over 2006-2009. It is also observed that dividend-paying companies have greater profitability than those do not pay dividend during 2006-2009. This finding is consistent with Fama and French (2001), Grullon et al (2002), DeAngelo and DeAngelo (2000). The debt over equity of dividend-paying companies is significantly lower than the non dividend-paying companies for 2006-2009. The mean for debt over equity for dividend-paying companies over the 4 years is 0.59 as compared to 0.76 for non dividend-paying companies. The finding is supported by Stacescu (2006), who noted that highly leveraged firms find additional debt very expensive and tried to increase their retained earnings. Thus high leverage firms tend to pay lower dividends as compared to low leverage firms.

In summary, dividend-paying companies of Malaysian public listed companies for 2006-2009 have lower market to book ratio, lower beta factor and lower debt to equity ratio as compared to non dividend-paying companies; and dividend-paying companies have higher return on asset and return and equity, and higher annual revenue as compared to non dividend-paying companies. The findings show that dividend-paying companies have lower growth opportunities, facing lower firm risk and have lower firm leverage as compared to non dividend-paying companies; and dividend-paying companies achieve higher profitability and bigger firm size as compared to non dividend-paying companies.

4.4 Relationship Between Dividend Distribution and Financial and Performance

Variables

This part focuses on the relationship between dividend yield and dividend payout ratio with the financial and performance variables as mentioned in above section for four years over 2006-2009 for dividend-paying companies.

Table 4-3: Coefficient of Correlation for Dividend Payout Ratio and Financial and

Performance Variables

Financial and

Performance Variables

Coefficient of

Correlation (average

2006-2009)

Coefficient of

Correlation (2009)

Market to Book Ratio

0.203229

0.167183

Return of Assets

0.098939

0.069584

Return of Equity

0.034612

0.047191

Total Revenue

0.068367

0.017607

Debt over Equity

-0.166805

-0.209516

Beta

-0.106292

-0.205854

Table 4.3 shows that market to book ratio, return of assets, return of equity and total revenue have positive coefficient of correlation with dividend payout ratio over 2006- 2009. Return of assets and return of equity show a linear relationship with dividend payout ratio over the four years with 0.098939 and 0.034612 respectively. In addition, total revenue and market to book ratio also show linear relationship with dividend payout ratio over the four years with 0.0836 and 0.0040, respectively. Debt over equity and beta show negative linear relationship with dividend payout ratio over 2006-2009 with -0.166805 and -0.106292.

The analysis of single year data on 2009 shows same positive and negative results as the average data of 2006-2009. This will be further explained after we look into the relationship between dividend yield and financial variables.

Table 4-4: Coefficient of Correlation for Dividend Yield and Financial Variables

Financial and

Performance Variables

Coefficient of

Correlation (average

2006-2009)

Coefficient of

Correlation (2009)

Market to Book Ratio

0.209179

0.254384

Return of Assets

0.011705

-0.034264

Return of Equity

0.119105

0.009381

Total Revenue

0.142454

0.090383

Debt over Equity

-0.119921

-0.249632

Beta

-0.081468

-0.231817

Table 4.4 above summarises the coefficient of correlation for dividend yield and financial variable. This result is similar to the result of dividend payout ratio. Market to book ratio, return of assets, return of equity, total revenue have positive coefficient of correlation with dividend yield ratio over 2006-2009, debt over equity and beta have negative linear relationship with dividend yield.

The analysis of single year data on 2009 shows different result as compared to the average data of 2006-2009. Other financial variables except beta, debt over equity and ROA have positive linear relationship with dividend yield for year 2009. The reason why ROA has a negative relationship is that a large number of Malaysian firms increase payment of dividends when their earnings increase. However they are reluctant to skip dividends when earnings fall. This is consistent with I. M. Pandey's findings.

The results show that both dividend payout ratio and dividend yield is positively correlated to growth opportunities, profitability and firm size. This is consistent with the consensus that as a company is making a lot of profit, it distributes the profit to its shareholders as dividend. On the other hand, a company's leverage and risk tend to put a dampening effect on its dividend policy. A risky or debt-burdened company generally omits dividend. Baker (2006) has similar finding in his research on Norwegian companies.

4.5 Smoothing hypothesis: Relationship of Dividends and Earnings over time

Table 4-5: Coefficient of Correlation for Changes of DPS and Changes of Past and Current EPS

% Changes of EPS

Coefficient of Correlation

(average 10 years)

Past Year EPS

0.532317

Current Year EPS

0.85193

The smoothing hypothesis suggests that the dividend decision is influenced by past and current earnings, and this hypothesis was initiated by Lintner (1956). As we can see from my findings also that DPS is positively correlated with past and current EPS. Litner finds that managers believe that stable dividends lessen negative investor reactions. The reluctance to change the dividend was evident in a study carried out by DeAngelo and DeAngelo (2000). They find that for 80 New York Stock Exchange (NYSE) firms in financial crisis, managers are more willing to cut the level of dividend than to omit the dividend altogether. They also reported that the longer the company has been paying dividends the stronger is the reluctance of the managers to reduce dividends. DeAngelo et al. (1996) have also documented managerial aversion to cut and omit dividends for US companies.

There is evidence that Malaysian companies consider past dividends as an important benchmark for deciding the current dividend payment. Further, the high adjustment factors together with low payout ratios indicate that the KLSE firms frequently change their dividend payments with changes in earnings, and dividend smoothing is of a lower order. This indicates that managers of those companies try to maintain investors' confidence and use dividend as a tool for this purpose, hinting a correlation to the theory of dividend rigidity.

6. Conclusion and Recommendations

This paper examines the dividend policy for public listed companies in Malaysia by identifying the financial and performance factors that influence the dividend policy of Malaysian listed companies. It also studies the different characteristics of dividend paying companies and non dividend-paying companies. Besides that, it also tests whether the dividend policy of Malaysian public listed companies contain information as suggested by smoothing hypothesis.

I have found that there are more dividend-paying companies than non dividend-paying companies in Malaysian public listed companies over 2006-2009. This is true for all of the industries during that period. In years 2006 2009, dividend distribution of Malaysian public listed companies is shown to be volatile. The trend becomes downward after 2008 till 2009. And as the dividend payout ratio indicates a downward sloping trend. This can be explained that in recent years, perhaps due to the financial crisis and general economic slowdown, payout ratios of all sectors have declined. Our results show that a large number of Malaysian firms increase payment of dividends when their earnings increase. They are reluctant to skip dividends when earnings fall. But Malaysian firms tend to omit dividends when they suffer losses. There is a high probability of dividend increase when earnings increase. Similarly, the chances are high that dividends will be reduced if earnings fall. There is a very high probability of dividend omission when the Malaysian firms face negative earnings.

This paper concludes there are different characteristics between dividend-payer and non-payer for Malaysian public listed companies. The former are companies that have relative lower growth opportunities, lower firm risk and lower firm leverage as compared to non dividend-paying companies. They tend to achieve higher profitability and are bigger, in terms of revenue, as compared to non dividend-paying companies.

With regards to the testing the smoothing hypothesis there is evidence that Malaysian companies consider past dividends as an important benchmark for deciding the current dividend payment. Further, the high adjustment factors together with low payout ratios indicate that the KLSE firms frequently change their dividend payments with changes in earnings, and dividend smoothing is of a lower order. This indicates that managers of those companies try to maintain investors' confidence and use dividend as a tool for this purpose, hinting a correlation to the theory of dividend rigidity. The smoothing hypothesis suggests that the dividend decision is influenced by past and current earnings, and this hypothesis was initiated by Lintner (1956). He finds that managers believe that stable dividends lessen negative investor reactions. The dividend policy for Malaysian public listed companies is rigid and sticky as managers are reluctant to cut or avoid omit dividend even when the perf ormance of the companies are deteriorating.

As for limitations of this study, this study observes the dividend-paying companies and non dividend-paying companies according to boards and industries. However, it is not studied further whether there is any relationship between industry and dividend policy. It is commonly perceived that there is an industry norm for dividend policy, and the company's dividend policy might be greatly influenced by such macro factor. It is recommended that the relationship of dividend policy and industries' macro factors to be analysed in future study. I.M. Pandey (2001) could be used as a reference paper to test the relationship between industry and dividend policy.

Reference

F. S. Ling, M. L. A. Mutalip, A. R. S. & M. S. Othman (2007), "Dividend Policy: Evidence from Public Listed Companies in Malaysia" University of Malaya, Malaysia

I M Pandey, (2001)," Corporate Dividend Policy and Behaviour: The Malaysian Experience" IIMA Working Paper No. 2001-11-01

Baker H. Kent, Tarun K.Mukherjee and Ohannes George Paskelian (2006), "How Norwegian Managers View Dividend Policy", Global Finance Journal, Vol. 17(1), 155-176

Asquith, P and Mullins, D. W Jr (1983), "The Impact of Initiating Dividend Payments on Shareholders' Wealth." Journal of Business, Vol. 56, 77-96

Beaver, W. and D. Morse (1978), "What Determines Price-Earnings Ratio?" Financial Analysts Journal, 65-76

Bhattacharya, S. (1979), "Imperfect Information, Dividend Policy, and the Bird in the Hand Fallacy", Journal of Econ., 10, 259-270

Black (1976) "The Dividend Puzzle", Journal of Portfolio Management, Vol.2, 5-8

Brav, Alon. John R. Graham, Campbell R. Harvey, Roni Michaely (2005), "Payout Policy in the 21st Century", Journal of Financial Economics, Vol. 77 (3), 483 527.

Chen, Z, Yan-Leung Cheung, Aris Stouraitis and Anita W.S. Wong (2005), "Ownership Concentration, Firm Performance, and Dividend Policy in HongKong", Pacific-Basin Finance Journal, Vol.13(4), 431-449

Chin-Bun Tse (2005), "Use Dividends to Signal or Not: An Examination of the UK Dividend Payout Patterns." Managerial Finance, Vol. 31(4), 12-33

Chung, K.K. And C. Charoenwong (1991), "Investment Options, Assets in Place, and the Risk of Stocks." Financial Management, Vol. 20, 21-33

Collin, D.W., S. P. Kothari (1989), "An Analysis of Intertemporal and Cross-Sectional Determinants of Earnings Response Coefficients." Journal of Accounting and Economics, Vol. 11, 143-181

DeAngelo, H. and DeAngelo, L., (2000), "Controlling Stockholders and the

Disciplinary Role of Payout Policy: a study of the Times Mirror Company." Journal of Financial Economics, Vol. 56, 153-207

DeAngelo, H., DeAngelo, L. and Skinner, D., (1996) "Reversal of Fortune Dividend

Signaling and the Disappearance of Sustained Earnings Growth" Journal of Financial Economics, Vol. 40, 341-371

DeAngelo, H, DeAngelo, L and Skinner, D (2004), "Are Dividends Disappearing?

Dividend Concentration and the Consolidation of Earnings". Journal of Financial Economics, Vol. 72(3), 425-456

Fama, E and Babiak, H. (1968) "Dividend Policy:an Empirical analysis", American Statistical Association Journal, Vol.63, 1132-1161

Fama, E.F., French K.R. (2001) "Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay?" Journal Financ. Econ. Vol. 60, 3-43

Ghosh, C and D.F. Sirmans (2006), "Do Managerial Motives Impact Dividend Decisions in REITs?", Journal of Real Estate Finance Econ, 32, 327-355

Grullon G. Michaely, R. and Bhaskaran Swaminathan (2002), "Are Dividends Changes a Sign of Firm Maturity?" Journal of Business, Vol.75, 387-424

Grullon, G., Michaely, R. Benartzi, S., Thaler, R.H. (2003) "Dividend Changes do not Signal Changes in Future Profitability." Journal of Business (in press).

Gugler, Klau, B. Burcin Yurtoglu (2003), "Corporate Governance and Dividend Payout Policy in Germany", European Economic Review, Vol. 47 (4), 731 758.

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La Porta, R. et al. (2000), "Agency Problems and Dividend Policies around the World," Journal of Finance, Vol. 55 (1), 305-360

Lease, K. John, A.Kalay, U.Loewenstein and O.h. Sarig (2000), " Dividend Policy: It impact on firm value." Harvard Business School Press, Boston.

Lintner, J (1956), "Distribution of Incomes of Corporations among Dividends, Retained Earnings, and Taxes", America Economic Review, 46, 97-113

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(UiTM) (2006), "Dividend Scanner 2005"

Short, Helen, Hao Zhang and Kevin Keasey (2002), "The Link Between Dividend Policy and Institutional Ownership" Journal of Corporate Finance, Vol.8, 105-122

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Nov, 1-44

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NRAS Properties for Sale: Valuable Tariffs to Australian Shareholders

National Rental Affordability Scheme or NRAS is a scheme proposed by the Australian Administration to build real estate categories for investors and shareholders. With its main purpose to establish wide-ranging venture breaks throughout the Australian market. Majority of shareholders rummage around to be enlisted within this method to obtain the advantages of greater proceeds on their constant assets and resources. The underlying principle following the NRAS system is to present tax-free incentive for every housing property to investors who make and lend out standard residences that are priced below 20% of the reigning market prices on behalf of assisting underprivileged and restrained revenue owners. With the aid of this system the Australian administration finds techniques to lessen the occupancy dilemmas within their country. The scheme is shored up by the Queensland administration and hunts for further strategies to deliver reasonable rental housing properties in Austr alia by 50,000 by the year 2014.

Considerably, this is considered as a wonderful opportunity for all prospective depositors and shareholders. How do I say so? This is a sole government asset incentive that you can be regained as tariff acknowledgements into ready money. Investors bring in a number of remarkable advantages in the course of NRAS properties for sale such as upbeat earnings, improved leasing income, least amount of $9,140 tax free incentive annually per asset put in and above $90,000 of tax free incentives over 10 years. You can benefit from high charges and catch attention from leaseholders in the vicinity and globally as a result of abridged leasing prices. On the other hand, there are definite specifications and rules to be qualified in order to avail privileges from NRAS properties. The Australian administration has presented a directory of localities of assets that are entitled for this plan. To get hold of the advantages, one must comply with the procedures and bylaws as well as investi ng on areas that are authorized and included with their listings. NRAS properties for sale indicate marketable and advantageous outlays for its every contributor.

Businessmen and shareholders who put in their assets within NRAS properties can obtain advantages from its yearly incentives, leasing profits and principal achievements. The foremost distinctive aspect of NRAS properties for sale compared to other customary built-up property ventures is that NRAS investments meet the expense of enhanced cash returns to investors relatively that obtain payment at a market price. NRAS promotes merely on major depositors to get hold of the encouragements, for these reason minor investors are not qualified for this program.

For those exclusive and lone property shareholders that aim to benefit from NRAS properties through putting in one or two assets, we can organize and utilize function methods while getting engage in major investments. We are teamed up with skilled and experienced property investors that are knowledgeable with all the standards and course of actions that are required to be qualified for the scheme and will assist you all throughout the process. We make it certain that we are rationalized with the most up-to-date improvements and innovations with the NRAS system. It is our craft to present good-quality services to every potential depositor for the program. We are just within anyone's reach, just log on at http://nraspropertiesforsale.net.au/ and talk with us with regards to your financial resources, areas for your ventures and kinds of properties. We will help you to put your investments where they should be.

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Let us know about the functions of Patent and Trademark Attorney Los Angeles

In the event that you have an original idea for a product, process or service, you need to protect that idea by obtaining a patent for it. To obtain a patent, you need the legal guidance of a Patent Attorney. A Patent Attorney deals with all issues relating to patents, copyrights, trademarks, marketing rights and the like.

To ensure that your idea or product is successful, you have to be very careful that your idea is protected and secure and cannot be stolen or copied by others. Broadly, aPatent Attorney in Los Angeles and Ventura will help you to secure a patent so as to protect your original invention or idea, provide legal advice on patentability, and take legal action against those who infringe upon your idea.

The main function of a Patent Attorney, Los Angeles is to assist you in filing a patent application with USPTO. This is a complex process and involves the following:

The Los Angeles Patent Attorney will conduct a patent search not only nationally but also internationally, to verify the originality of your idea. They will have to search and see if the same product has been patented elsewhere already.

Next, thePatent Attorney Los Angeles will draft the proper patent application which will offer your product the maximum protection. The Patent Attorneys have excellent drafting skills: they will create the draft with the right specifications and descriptions, such that your product stands out as unique.

After theLos Angeles Patent Attorney finishes drafting the patent application, he prosecutes the application. That means he files it with the USPTO (United States Patents and Trademarks Office). There a patent examiner will conduct his own search and decide if your idea is patentable. Only then will your invention be patented.

If however, the USPTO rejects the application on the grounds that the idea is already patented or is an obvious improvement on another patented idea, then theLos Angeles Patent Attorneywill help you fight the patent denial. The Patent Attorney, Los Angeles can help you to revise your patent and determine all the original ideas within your patent such that it becomes patentable. ThePatent Attorney in Venturawill aggressively fight for your interests. They will also help you to differentiate your idea from any existing patent.

Once your product is patented, it will protect you against infringement. Should someone infringe on your patent, then thePatent Attorney in Venturawill thoroughly protect your intellectual property rights in court.

ThePatent Attorney in Los Angelescan also assist you to file for patent protection in other parts of the world also, working through their associates in other countries.

You can also protect your intellectual property by registering your Trademark. A trademark is a name or symbol used to distinguish your product from others. ATrademark Attorney, Los Angeleswill help you to register your trademark and prevent others from infringing on your mark. If the USPTO denies the trademark application, then theTrademark Attorney, Los Angeles can argue for your rights. Further, if someone uses your trademark or even a very similar one, then your Trademark Attorney, Los Angeles will enforce your rights through IP litigation.

For more info kindly visit: http://www.acordiaiplaw.com/

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Why You Should Not Own Mutual Funds

CoatingsPro - Money Matters

March 2010 Why You Should Not Own Mutual Funds

By Lance Wallach

Taxes take a large bite out of taxable mutual funds. Recent tax-break laws will end in 2010 and it would be smart for mutual fund investors to keep an eye on one of the main drags on performance: taxes.

One key reason why mutual funds paid out such hefty taxable distributions in recent years is because they can no longer carry forward the steep losses incurred during the 2000-2002 bear market, which had been used to offset gains in recent years.

The estimated taxes paid by taxable mutual fund (MF) investors increased 42 percent from those paid in 2006. Buy-and-hold taxable MF holders surrendered a record-setting $33.8 billion in taxes to the government, surpassing 2000's record amount of $31.3 billion!

Over the past 20 years, the average investor in a taxable stock fund gave up the equivalent of between 17 percent and 44 percent of their returns to taxes. In 2006, the tax bite amounted to a hefty 1.3 percent of assets, which surpasses the average stock fund expense ratio of 1.2 percent.

Mutual funds probably have no place in high-net-worth client portfolios. There are many strong reasons in favor of this position but most immediately you have probably noticed that every year you receive mutual funds statements with end-of-year form 1099s in the mailbox and discover that a sizeable amount of your hard-earned cash is going to Uncle Sam.

If you were to subtract 50 percent (93 million plus) of mutual fund holders who hold stock fund assets in tax-free accounts (such as 401(k) plans and IRAs), and a small number in institutional and trust funds that make a few investors tax-exempt, this would leave around 48 percent of the nation's mutual fund investors in taxable funds.

The SEC says the average mutual fund investor in this taxable group loses 2.5 percent of annual returns to taxes each year, while other research puts it at 3 percent. Throughout your lifetime you can see that capital gains taxes will reduce investable income substantially when you retire.

You know the figures. Sure, during the 1980's and 1990's, people made money by selectively investing in mutual funds. Even today, it still can be done; however, more than 90 percent of mutual funds have underperformed the stock market as a whole for the past five years. You can get better odds at the horse track.

It works like this: Mutual funds with higher trading costs and built-in high tax limitations create a post-tax return that potentially delivers fewer returns than a similar separate account.

Mutual funds kill their potential for becoming performance superstars by their high volume of trading and killer fee structure. Too much trading causes increased taxes, while high fees reduce performance return on investment (ROI) period.

If you own your stocks, you are in control. With mutual funds there is: no control over which securities fund managers buy and sell; no purchases of one particular type pf stock to balance out a portfolio; and no opt-out of any particular asset class or company.

On the other hand, if you put yourself in a separate account, you are the boss. Having a separate account means you are in charge. You set the strategy and decide what stocks or bonds make up the portfolio. You also have access to top money managers and can even change a manager if you wish.

The mix-and-match of separately managed accounts (SMAs) makes them attractive to the new breed of investor who wants more control and input into their portfolio. Don't you want more control after the Madoff escapade and the Wall Street blowup?

With mutual funds, you should be advised early that you do not own the stocks in the portfolio, but merely have shares of stocks along with a large pool of people. So what do you give up when investing in mutual funds? Control.

The individual in control of mutual funds is the fund manager. Too often, this manager is tasked with dozens or even hundreds of stocks residing in one fund. This is exactly the situation in many of the 8,000 or more funds out there on the market- span, or lack of control.

In addition, you are tied to the whims of fund managers, who are often known to depend on "style drift" (buying securities that have no relationship to fund objectives), excessive trading (to pump up a fund's value as a means of boosting commissions), and other nefarious actions first uncovered by the Attorney General of New York State in 1993 and reoccurring ever since.

The mutual fund companies are good at cloaking information and spinning their marketing pitches to prevent investors from figuring out exactly what they are paying to own a mutual fund.

Space limits us to expand on all the fees you pay for the privilege of owning mutual funds, but management fees, distribution or service fees (12b-1), expense ratios, trading costs, commissions, purchase fees, exchange fees, load charges (load funds), account feed, custodial expenses, and so on, are a part of the mix that the mutual fund companies utilize to nickel and dime you to death without most of them ever knowing the billing score.

The SEC wants every investor to be fully equipped to make informed decisions before they hand over their hard-earned cash. The SEC requires all corporations to disclosure any and all information impacting their financial positions so investors can make prudent decisions. Transparency is most important due to the recurring events of the last 18 months.

Mutual fund companies provide notoriously slow reporting. It's most difficult to find out about all the real nuts and bolts (specific equities, bonds, or cash holdings) of a mutual fund. A mutual fund gives you data twice annually sometimes quarterly so the data is out-of-date long before you receive it. Most investors do not read their prospectus reports and fund companies know this fact. Even with the introduction of the Internet, which has sped up the tracking for securities immensely, the major fund companies have been painfully slow to keep investors current as to what stocks the investors hold, and if and when those stocks are being traded.

Nowhere is the lack of transparency more apparent among fund companies than in costs and fees. Most investors are aware of management fees and commissions, but other fund fees like the 12b-1 and trading fees are sublimated. Other fees are hidden and, therefore, keep investors completely in the dark as to what they are paying.

With mutual funds, companies are slow on reporting results; the investor seldom knows in real time what socks are in his account and companies are known to hype performance results.

Unless Congress steps up and puts mutual funds on a level playing field with other investment strategies, taxable mutual fund investors will have to fend for themselves.

Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters. He writes about 412(i), 419, and captive insurance plans. He speaks at more than ten conventions annually, writes for over fifty publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Pubic Radio's All Things Considered, and others. Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk Education's CPA's Guide to Life Insurance and Federal Estate and Gift Taxation, as well as AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and has never lost a case. Contact him at 516.938.5007, wallachi nc@gmail.com or visit www.taxaudit419.com.

The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.

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Is there Federal tax lien foreclosure sale in Alabama?

This is the age whenforeclosed homes are more attractive and practical as investments. That is because as the volume of foreclosures reach record-highs, prices drop to interesting and surprising levels.Alabama foreclosures are among the most sought-after. But have you heard about so-calledfederal tax lien foreclosure sale? Is it true you could generate more savings upon buying in such auction?

To begin with, a tax lien is incurred if there is unpaid property tax or utility bill. In 29 states in the country, including Alabama, such liens could be gathered to be resold to investors through a federal tax lien foreclosure sale. The buyer of the liens gains the privilege or right for debt collection. Thus, it is considered a good investment.

How is Alabama foreclosures linked to federal tax lien foreclosure sale? You may not be fully aware of it, but a number of Alabama foreclosures that are up for sale in the market could be tax liens. There is nothing illegal about buying such properties. However, sellers of such tax liens (mostly banks) are not comfortable in disclosing their identities during sale.

In May to June last year, Bank of America and Fortress Investment Group acquired tax liens through various auctions in Florida. It was found that the companies bid for same parcels for up to 8,000 times. There is irregularity in the process. Many critics say this practice inappropriately revs up the system to cause confusion. It could also indicate the greed of some businesses.

If you could identify sellers in any federal tax lien foreclosure sale, you could be in the right direction. As you scour the market for Alabama foreclosures, you might come across several tax lien foreclosures that are up for sale. There is nothing wrong with buying such distressed properties. But sometimes you may get to wonder how the original owner fell into tax liens.

Meanwhile, Alabama foreclosures are 23rd highest in the US last November, according to data released by a property tracking firm there were 2,754 foreclosed homes. Some of those foreclosed homes could have been sold in any federal tax lien foreclosure sale.

BuyForeclosuresSale.com is a complete source of information related to foreclosures. Updated and accurateforeclosure listings you find here as well.

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Invest in the UK - Top 10 considerations...A guide to succeed in the UK

Top 10 considerations A guide to succeed in the UK

1. Choose a trusted UK business advisor

Researching the UK and European market opportunities can be a minefield. In order to make sure you are getting the most appropriate advice, you need to talk to the right people. Ask yourself if they are a UK national or someone with experience of working in or with the UK? Do they understand the UK market? Are they able to advise on general business matters, as well as employment contracts, culture and tax.

So often these choices are predicated on an ad hoc basis, by talking to someone who knows someone who might help. Sometimes no help is requested, nor thought about. Yet key to a smooth entry into the UK, and ongoing success could well stem from having someone independent to help advise on a variety of aspects from a local perspective.

Doing business in the UK is a whole different challenge compared to doing business in your home country. The best way to succeed is to harness the local knowledge and experience necessary to guide you to success by avoiding pitfalls.

2. The right market place

Of course it is or else you wouldn't be doing it. However, it is important to decide if you are targeting just one market (the UK) or using it as a gateway to Europe and, possibly, the wider EMEA market. For example, a company from Brazil may choose to set up in Portugal, or one from Quebec may favour France. The language and business culture factors in these cases may seem perfectly logical, but offsetting those decisions could be the difficulties of setting up in those countries, combined with non-flexible employment legislation.

Points in favour of the UK are the universal business and science language of English and the ease of doing business with the UK ranked fourth in the world (World Bank Doing Business 2011; www.doingbusiness.org).

Once successfully established in the UK then it's time to look at forming branches or subsidiaries in other European Countries.

3. The right business model

Many companies decide to invest overseas when they have established an export trade and a customer base. So the first step could be to use a British agent and /or distributor if you are selling products or services, depending upon whether sales will be as the principal selling direct to the customer, or as agent for the parent company.

If you decide to start in the UK with a marketing facility, finding someone who can generate leads and, can test the UK market and even facilitate sales before you reach the UK would be useful.

Simple enough criteria, but you also need to consider the tax implications when making the decision. The tax treatment in the UK books could result in a full profit and loss recognition (by buying and selling at arms length) through to a cost plus basis.

4. Choose the best location when investing in the UK

The needs of your staff and your business model are the main drivers on this decision.

Your first hire may be key initially and a business could be built around that person, which can dictate the location. Using a managed office service, or a virtual office, could be useful until such time as the business becomes established.

When moving from a one person operation to a team environment then the travelling needs of the team as whole, and the location of your customers becomes important.

When it's time for the company to expand you will want to take advantage of the available skills and synergy within your industry sector. The UK has a range of clusters that can provide these in world-recognised locations. For example, hi-tech in the Thames Valley; financial services in the City of London; pharma in Cambridge; green energy in the south-west; and low carbon in north-east England.

5. The ideal business entity

For overseas companies the main choices are between a UK Subsidiary or a UK Branch.

A Subsidiary is a company in its own right and requires the establishment of a UK registered company. Most foreign companies set up a private limited company' that becomes a subsidiary of the foreign parent company. A company can be registered within a few days, if standard documentation is used. The subsidiary can be an immigration sponsor enabling it to obtain work permits meaning that key personnel can be sent from the home country to work in the UK on a regular basis. It will file its own accounts, although the content depends on the size of the group. Those accounts must be audited by a UK firm of accountants.

It is also possible to have a Limited company that is owned by an individual(s) not located within the UK, as an alternative to a subsidiary.

A Branch is an extension of its parent company, effectively an overseas company trading in the UK. Contracts are between the overseas company and its UK customers, employees, etc. Such contracts are subject to overseas law, and may be less popular in the UK. A condition of being registered as a Branch is that the Branch must file in the UK its immediate parent company's accounts, including full profit and loss account. This is often unpopular with privately owned overseas corporations that do not have to publish their accounts in their home country.

It is also possible to trade as an LLC a partnership with Limited Liability - which requires a formal partnership agreement. An LLC is mainly used by firms of lawyers and accountants where the membership regularly changes. It may also be appropriate in certain circumstances, when its main use is to save the LLC paying Employers Social Security on the drawings (profit) attributable to the partners. Because the profits are subject to UK tax on the owner, LLP's are not normal for ownership from overseas.

6. UK Taxes an overview

Taxation matters are dealt with by Her Majesty's Revenue & Customs (HMRC). There are thousands of pages of tax legislation, but no general anti-avoidance rules. There is generally no system of prior clearance regarding the tax treatment of a particular event or procedure, although there are telephone help lines that can provide verbal advice. However, unless given in writing the advice may not actually be honoured by them! The normal procedure is that tax returns are submitted, and are then subject to checks.

There are a large number of different taxes in the UK, but this note concentrates on the three main ones that a UK business is exposed to.

Corporation Tax

Levied on the taxable profits of a business (for a Limited Company or Branch). Rates vary between 20% and 28% (marginal rates are higher). The lower rate would apply to a small company with taxable profits up to 300,000. The higher rate would apply to a company with taxable profits in excess of 1,500,000. These profit limits are reduced proportionally by the number of associated companies in a group, such that a larger group could easily be paying tax at 28% on a relatively low UK profit. Taxable profits are calculated after adding back disallowable costs such as depreciation and most entertaining, but after allowing for capital allowances on wasting asset purchases (such as machinery and computers). The total tax has to be paid nine months after the year end, with the tax return itself being due 12 months after the year end. Larger companies may have to pay the tax in advance by quarterly instalments.

Value Added Tax (VAT)

VAT is charged on sales (known as outputs) and currently stands at 20%. This is not the same as a sales tax.

When dealing with businesses, they would expect VAT to be added to prices. However, unlike a sales tax, the VAT incurred on purchases (input VAT) can generally be recovered by offsetting those amounts. The net amount is then paid over to HMRC, usually on a quarterly basis. Most businesses generally can recover the VAT from HMRC in full, although there are some exceptions such as banks and insurance companies.

For businesses a reverse charge must be made in the accounts and VAT returns in respect of goods and services being received from abroad. This takes into account recent changes that have been introduced as a result of carousel fraud, which involved cross-border transactions of high-value items and incomplete payments.

When dealing with the public, VAT has to be included in the price, unless your terms of trade (which could be on your website for on-line sales) state that VAT will be added.

Employers National Insurance (NI) [social security] This is effectively a payroll tax.

People in the UK have to pay various taxes mainly income tax on their earnings from employment and other sources of income. Current rates of income tax start at 20% (10% on savings) and go up to 50% (more on a marginal basis). Employees also have to pay NI at up to 11% (there are allowances to mitigate this effect and caps).

The rate of Employers NI is rising from April 2011 to 13.8%, and without limit. UK employers must calculate and pay the taxes and NI on a monthly basis; this is known as the PAYE scheme (Pay As You Earn).

Some employers prefer to use self-employed people, often operating through their own one-man band Limited companies, to save employers NI. This is open to challenge by HMRC, particularly where the self-employed person does not work for other companies and is therefore considered by HMRC to really be an employee. Penalties for tax evasion are outside this general note. This is a complex area!

7. Finding key staff

You may already have found the first hire to implement the set-up. If done through a personal network, the person may be good, although his recommendation is necessarily subjective. If using a recruitment company, then their advice and reference checking would be useful, but unless on a retained basis, their main aim may be to get the person hired and get their fee. You may even be sending someone over to start the business, perhaps a UK national.

But what to offer the UK hires? Start-ups generally are not expected to provide a range of benefits people accept that getting the business first takes priority over a tranche of benefits. But some well-established companies overseas are happy to provide similar benefits to their UK staff as they do for their own people. And some potential UK hires will not join unless certain benefits are included as part of the package like private health insurance.

Job offers or offer letters are typically based on the parent company's usual employment contract, including such terms as employment at will and providing 10 days vacation. However, be aware to seek advice on what would be normal in the UK (those two examples are actually illegal). Where insurances are offered care should be taken to ensure that they will actually be in place for when the hire starts. A similar US scheme, for instance, giving two times salary life cover to all employees may not extend to the UK, meaning that the UK hire is not covered (and his employer is at risk) until such time as underwriting takes place.

Companies are able to set salary and benefit packages themselves, but must comply with the statutory minimum wage legislation. It is compulsory for all companies with five or more employees to provide, or to provide access to, a formal pension plan.

8. The British culture

The UK is a nation of cultural and ethnic diversity consisting of four countries each with a clear identity: England, Scotland, Wales, and Northern Ireland. Combine this with a thoroughly multicultural society and the UK blends its rich cultural heritage with a modern and innovative outlook. Knowledge and an appreciation of the basic cultural, ethical and business values of the UK is crucial to any organisation wanting to conduct business in such a varied yet traditional country.

Decision Making

The British may appear more cautious than Americans and less willing to embrace new ideas and practices. There is a tendency to cling to tradition with no preconceived notion that new is necessarily better. Decision making is structured and often slower than in the States, with major decisions generally made at board level. There is also more of a leaning towards qualitative assessment rather than pure facts and figures in the decision process. Although moving towards US practice, the UK is still far less predisposed to defer to lawyers and less inclined to litigation.

Worldliness

Britons generally know much more about the US than Americans know about the UK - the geography, the cities, the history, sports teams and politics. Britain is a small country and its citizens are well travelled by comparison to the average American. This is partly due to compulsory 4-5 weeks paid vacation in the UK as compared to 2 weeks in the States. Less commendable however are British language skills compared to European counterparts, although there is a wide range of languages available throughout the country. For instance, there are more than 300 different languages spoken by native born people in London. Business meetings will almost certainly be conducted in English regardless of the nationality of those involved.

Healthcare

The National Health Service (NHS) is the publicly funded healthcare system in England. The NHS provides healthcare to anyone normally resident in the UK with most services free at the point of use for the patient, though there are charges associated with eye tests, dental care and prescriptions for instance. The NHS is largely funded from general taxation (including a proportion from National Insurance contributions). Emergency services, including for overseas visitors, is generally free of charge.

9. Terms of business (terms of sale)

You will instruct UK lawyers to prepare the UK Terms of Business setting out your terms and conditions, which are usually subject to UK law. They should be as clear and succinct as possible, preferably able to be printed on the back of one sheet of A4 paper.

Should an overseas parent seek to impose their country's law on a UK customer, it may risk not obtaining the work due to a reluctance to potentially having to pursue a claim outside the UK. This also applies to UK branches operating in the UK, where the contract is between the foreign parent (of the UK Branch) and a UK customer.

However, the main point so often overlooked by companies setting up in the UK is Terms of Payment specifically for the UK market. UK companies are used to paying at 30 days from date of invoice, or on presentation of invoice.

If giving generous payment terms is part of the sales strategy, then that's your decision. Otherwise seek advice as to what might be acceptable. You may be pleasantly surprised, and it could benefit your cash flow.

The method of payment is generally expected to be electronically nowadays: cheques are becoming less common. Settling invoices and paying employees can be done by BACS, CHAPS or direct transfer directly into their bank account.

10. Choose a UK accountant to help your business

Your UK business will need accountancy services the form that takes will depend upon the size and structure of your business entity.

We have particular expertise in this specialised field of helping overseas companies expand into the UK with over 20 years' experience in providing entering foreign companies with a personal, flexible and professional service tailored to their particular needs.

You gain a cost-effective CFO type resource for the effective handling of your UK accounting, administration and human resource aspects of your organisation. Our UK accounting personnel are experienced at CFO/FD level of UK subsidiaries of multi-nationals offering a pro-active and reliable support in handling your UK business matters.

We are a family run firm whose aim is to offer our clients a completely integrated package of support where we take responsibility for the setting up and running of the financial, legal, HR and fiscal aspects of a business. Relieved of these worries, you are free to concentrate on your core aims of securing orders and generating profits.

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How to Get a Hack License in New York City

How To Get A Hack License In New York City

A New York City Taxi Drivers License is called a Hack License. The Hack license allows the holder / driver to operate a Yellow Medallion Taxicab in New York City. Only Yellow Taxicabs are allowed to pick up passengers hailing from the street. The Hack license, issued through The New York City Taxi & Limousine Commission, is the only license for operating a Yellow Taxicab.

There are other licenses issued by the New York City Taxi & Limousine Commission for car service and limousines but they can not be used to operate the Yellow Taxicab. The Hack license however can be used to operate a limousine or car service vehicle. This fact makes the Hack License the most valuable of NYC T&LC issued operator licenses, as well as the most prestigious.

There are approximately 44,000 drivers carrying a Hack License in New York City today.

HOW TO GET A HACK LICENSE IN NYC

The Process and Requirements

All applicants for a New York City Taxi Hack License must be no less than nineteen (19) Years of age
Applicants are required to have, a Class A, B, C, or E N.Y. State Drivers License, or a license from New Jersey, Connecticut or Pennsylvania of a similar class.
Most licenses in New York State are Class D.
To change a license from a class D to a class E one must go to the Department of Motor Vehicles and pay an upgrade fee.
There will be no test.
The fee will be approximately fifty dollars.

An applicant may not have outstanding parking, or traffic summonses. Money owed to the New York City for parking or traffic violations must be paid, or a documented settlement agreement with the appropriate agency must be presented to the NYC T&LC licensing division at the time of application.

Applicants for a New York City Taxi Hack License must be citizens, or legal residents of the United States.

All applicants for a Hack License are required to attend a New York State certified, six-hour Defensive Driving Course.
This defensive driving class must be attended within six months of the date of application to the New York City Taxi & Limousine Commission for the Hack License.
The number one provider of defensive driving courses for New York City Taxi Drivers is the Master Cabbie Taxi Academy. Mastercabbie.com. Classes are available six days per week. The price ( On 10/29/07) is $45. or $39. with online registration.

Applicants are required to complete Form B of the New York City Taxi & Limousine Commission Taxi Drivers Application. This must be completed by a certified Medical Doctor. The application must be submitted in person to the New York City Taxi & Limousine Commission at either 32-02 Queens Blvd. Long Island City N.Y. 11101 Monday through Friday 9AM to 4PM.
A secondary location for submission is in Staten Island. Open Monday, Tuesday and Thursdays at 1893 Richmond Terrace Staten Island NY 10302.
No walk-ins are permitted at the Staten Island Location.
For an appointment call: 212-227-6324.
At the time of application the applicant will be required to pay a sixty dollar application fee by money order made payable to the NYC TLC.
At the time of application the applicant is also required to pay a seventy-five dollar fingerprinting fee by money order made payable to N.Y.S.D.C.J.S.
Applicants for a Hack License are required to be tested for illegal drugs. A Hack License will not be issued to any person not completing the test.
The only pre-licensing approved drug testing center is at 31-00 47th Ave. Long Island City NY 11101.
It is open Monday through Friday from 8:00 AM to 5:00 PM.
Payment must be by money order made payable to Lab Corp. Inc.
Failing the drug test will result in a licensing standards hearing conducted by the NYC T&LC. The application for the Hack License may be denied a license may not be issued in this case.

NYC requires mandatory pre-license training for all New York City taxi drivers. The training is conducted by approved training institutions. The minimum training requirement is a twenty-four hour program. A three day course, consisting of three eight hour components. Geography/Map Reading, Rules and Regulations / Defensive Driving and Customer Service are some of the topics of study.

There is a separate course consisting of Eighty Hours of classroom study requiring nine eight hour days of classroom training, and one day of testing. The Eighty-hour Program is the program on which the New York City Taxi driver test is based.

Other programs, for how to get a hack license which have no time constraints are also available. The most prominent program is conducted by Master Cabbie Taxi Academy. The programs are unlimited in length, so long as the student maintains a regular schedule at the school.
Other unlimited programs include all for the New York City Taxi & Limousine Commission application process. Persons utilizing credit cards make use of this option to have Master Cabbie Taxi Academy make the fees available when the student is ready for each phase of the Hack licensing process. This removes the need to purchase money orders for which only cash can be used.

The taxi driver test for how to get a hack license in New York City consists of two parts. It is administered by the New York City Taxi & Limousine Commission each week at the Master Cabbie Taxi Academy.
The Hack License applicant must successfully complete an English Proficiency as part of the exam. It is a low level ESL exam for basic, English proficiency, consisting of four parts. There are thirty questions, fifteen of which are fill-ins, and fifteen of which are multiple choice. An applicant must score twenty-one correctly to pass the exam. Applicants failing the exam are allowed to sit for a second exam on another date. Applicants failing the exam for a second time must submit a new application to the New York City Taxi & Limousine Commission if they wish to continue the process of obtaining a New York City Hack License.
The final step in the process of How To Get A Hack License in NYC is, The New York City Taxi Operators exam. The Taxi Operators exam consists of two parts. One part is open book and the other is closed book. Part One consists of ten questions. The applicant is allowed to use a Five (5) Borough New York City Atlas and a Street address locator during this portion of the exam. For this portion of the exam forty-five minutes is allowed.
Part Two of the New York City Taxi Operators exam allows the applicant seventy-five minutes and consists of forty questions. Approximately twelve questions will pertain to rules and regulations and defensive driving questions. The remaining twenty-eight questions will pertain to geography, landmarks, highways, air, bus and train terminals, etc. Applicants must answer thirty-five questions correctly, scoring seventy percent, or better, to pass the exam. Applicants failing the exam are allowed to sit for a second exam on another date. Applicants failing the exam for a second time must submit a new application to the New York City Taxi & Limousine Commission if they wish to continue the process.

Taxi drivers in New York City earn as much as one thousand dollars per week and more.

If you wish to apply for a New York City Hack License you should contact Master Cabbie Taxi Academy. At: 718-472-1699 or 1-800-955-TAXI.

Terry Gelber October 2007
Terry Gelber has a NYC Hack License.

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