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Written by Cari Scribner on July 20, 2021
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Moomoo Taxes: How Are Dividends Taxed?

Moomoo is a technologically advanced trading platform that offers commission-free trading on stocks, options and ETFs. Based in California’s Silicon Valley, Moomoo Inc. is a wholly owned subsidiary of Futu Holdings Ltd. Futu is Asia’s top-ranked online broker. Futu Holdings Ltd. is financed with venture capital from Tencent, Sequoia Capital and Matrix Partners.

Designers had a mission to give investors an intuitive and powerful investing platform with the most up-to-date technology. At the same time, Moomoo offers a creative and highly customizable internet operating experience.

They aim to improve their customers’ experiences with continuous upgrades. Their key focus is on driving industrial innovation that’s backed by independent technical research and development. These features are in place to give you maximum info before you even begin trading.

It has plenty of bells and whistles, and although the app offers educational resources for beginning traders, the wide and extremely detailed array of data that’s available may be overwhelming to newcomers to investing.

Moomoo Dividend Bonus Shares

In order to understand how investors are taxed based on their Moomoo activities, it is important to understand the nature of dividends, which are the taxable components of an investor’s annual activities.

Once a financial year is settled, a listed company will distribute part of its profits to shareholders as dividends based on the number of shares they hold.

Listed companies in China must publish their annual financial reports within 120 days of the end of the financial year, and the profit distribution plan must be announced in the annual report. Therefore, the dividend distribution is generally conducted in the second and third quarters.

How Bonus Shares Are Distributed

Moomoo pays out dividends in the form of bonus shares, or stock dividends. This means they are keeping the cash that should be doled out to shareholders in the company, and instead using it for growing the company.

Stock dividends are distributed by listed companies to shareholders in the form of additional stocks rather than cash. This is commonly referred to as giving out bonus shares. All listed companies in the Shanghai and Shenzhen stock markets generally only distribute profits in the form of stock dividends and cash dividends.

Bonus shares increase the number of shares held by stockholders and bump up the company’s overall cache of capital.

The basic procedure for dividend distribution by a listed company is:

  • The Board of Directors of the company first determines the dividend distribution plan following the profit level and dividend policy of the company
  • The Board submits the plan to the shareholder’s meeting for approval before it becomes effective
  • Finally, the Board of Directors can declare the dividend distribution plan to the shareholders and pay the dividends in an agreed manner on the set dividend payment date

The Pros Of Bonus Shares

When it comes to dividends for listed companies, Chinese stock investors generally prefer bonus shares.

This option keeps the profits that would have been distributed to the shareholders in the company as the money to fund the next year's development and production.

Bonus shares build up the operating strength of listed companies, further expanding the possibility of future profits on the horizon.

On the other hand, cash dividends require a larger amount of capital to cover dividends, and most companies do not keep a multitude of cash on hand.

Taxes To Be Paid On Dividends

Dividends are typically treated as income for tax purposes. Unless you hold your dividend-paying stocks in a tax-deferred account like an IRA or 401 (k), you'll have to include your dividends as gross income in the year of receipt. However, many dividends get taxed at lower rates than other types of income.

According to the current regulations in Taiwan, the taxation of stock dividends can be deducted based on the savings rate for the same period, i.e., certain concessions are granted. The specific tax amount is 20% stock income tax per share minus the savings rate for the same period.

Income tax = (dividends per share - current year fixed savings rate) x 20%.

When a listed company does not distribute profits in the current year or rolls over profits to the next year, the amount of dividends will inevitably increase in the next year. However, the shareholders will have one less opportunity to receive tax relief in the current year.

Tax Documents

Form 1099 tax documents will be sent to you and to the IRS. The deadlines for delivery to the recipient of 1099 forms may vary, particularly for 1099-B and 1099-MISC, because of the type of income reported. Generally, you may expect the form to be delivered by January 31 of the following year. The forms will be reported to the IRS by February 15th of the following year.

Moomoo does not give tax advice, so for specific questions about your Form 1099 tax documents, including how to file it, they recommend speaking with a tax professional.

About Moomoo

Experts launched Moomoo to be a competitive next-generation broker/dealer. Like other mobile investing platforms, Moomoo cuts out the overhead costs of running traditional physical branches for brokerage firms. Their goal was to offer an enhanced overall trading experience by blending the latest technology with the ability to trade via a mobile app.

The downside of this innovation is that because of its extensive menu of options, it may be too sophisticated for beginners. However, more advanced traders may find these capabilities to be just what they are looking for.

Moomoo Real Time Data

Moomoo works by giving traders perks they may not find on competing apps, such as Level 2 market data.  This is reliable information before you make trading decisions, and is free of charge on the platform.

Moomoo displays the real-time bids and asks at a certain price for any stock, with the trades taking place as you watch.

These are the actual price of a security at that very instant in time. Real-time quotes will give you the price you will pay when your order is filled. Some platforms offer only delayed quotes, which lag behind the real trading market by about 15 to 20 minutes.

If you base your trading cost on a delayed quote, you may find you overpaid for the shares you are adding to your portfolio.

moomoo level 2 market data

Day Trading And Short Selling

On Moomoo, you can use this real-time data to day trade.

Day trading is a strategy among active investors who buy and sell stocks and ETFs within the same day, or even repeated times over the course of a single day.

This is a short-term strategy that investors use with a goal of making profits from small fluctuations in market prices on specific stocks and ETFs. Basically, it is the polar opposite of a longer-term trading strategy.

Moomoo also allows short selling. This is an investment or trading strategy that speculates on the decline in a stock or other securities price. Keep in mind, this is also an advanced strategy that might apply to experienced traders and investors.

Paper Trading

Moomoo has a free paper trading application that’s not offered by all of its competing online investing platforms. It’s a great learning tool for beginning investors.

The term “paper trading” comes from the stock exchange, where investors would write their picks down on paper and track the market movements. Paper trading uses simulated, or fake money. This means you are just practicing buying and selling stocks and ETFs and building a diversified portfolio without worrying about losing money. You chart progress and market fluctuations up and down and tally your results at the end.

Conclusion

You will need to pay taxes each year based on income from all of your investments.  All listed companies in the Shanghai and Shenzhen stock markets generally only distribute profits in the form of stock dividends and cash dividends, known as bonus shares and cash payments.

The bonus shares option keeps the profits that would have been distributed to the shareholders in the company as the money to fund the next year's growth and expansion.

Taiwan tax regulations state the taxation of stock dividends can be deducted based on the savings rate for the same period, i.e., certain concessions are granted. The specific tax amount is 20% stock income tax per share minus the savings rate for the same period.

Moomoo is an advanced commission-free trading app with plenty of enhanced features such as real time data, day trading and short term selling. However, it does offer paper trading for those new to investing to catch up.

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Article written by Cari Scribner
Cari Scribner is a career journalist with 20 year’s experience writing for newspapers and magazines. Now a freelance writer, she is also a published fiction writer with more than 15 short stories in literary mags. She recently completed a novel that is on the desk for consideration at two publishing houses. She lives with her two small dogs, Miloh and Lucy, in Upstate NY.

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