Small business owners and employees who receive dividends as part of their remuneration could see an income boost from a change put forward in the Budget Statement.

A proposed increase in the local dividend exemption — from $10,000 to $20,000 a year — doubles the amount that employee-shareholders of local companies can earn untaxed.

Dividends of more than $20,000 per year will be treated as part of gross pay for payroll tax purposes.

Erica Smith, executive director of the Bermuda Economic Development Corporation, which helps entrepreneurs to establish and grow small businesses, said: “We welcome measures that provide tax relief or greater clarity for local businesses, and we appreciate the Government’s efforts to address how dividends paid to shareholder-employees are treated under the payroll tax regime.”

Ms Smith added that the practical impact on BEDC’s client base may be limited, since many of the entrepreneurs and small business owners it supports operate as sole proprietors, and are not structured as incorporated companies with shareholders who receive dividends.

“For incorporated small businesses that do distribute dividends to shareholder-employees, the exemption will offer some relief, particularly for those with more modest annual dividend payments,” Ms Smith added.

“As always, we encourage business owners to review their individual circumstances with a qualified tax professional to understand how the changes may affect them.”