A franked dividend refers to a type of dividend paid by a company that carries a tax credit for the shareholder, typically in the context of the tax systems of certain countries, such as Australia and the United Kingdom. Franking credits are designed to avoid the double taxation of corporate profits, providing relief to shareholders by recognizing the taxes already paid by the company.

Key points about franked dividends include:

1. **Tax Credit (Franking Credit):**
– When a company earns profits and pays corporate income tax, it may distribute a portion of its after-tax profits to shareholders in the form of dividends. A franked dividend includes a tax credit, known as a franking credit or imputation credit, to reflect the corporate tax already paid by the company on the distributed profits.

2. **Avoiding Double Taxation:**
– The concept of franking credits is intended to prevent the double taxation of corporate profits. Without franking credits, the profits would be taxed at the corporate level, and then the dividends distributed to shareholders would be taxed again as part of their individual income.

3. **Franking Ratio:**
– The franking ratio represents the proportion of a dividend that is franked. For example, a dividend with a 100% franking ratio means that the entire dividend amount is accompanied by franking credits, reflecting that the company has paid taxes on the full amount.

4. **Taxation of Shareholders:**
– Shareholders who receive franked dividends may be eligible to offset the franking credits against their own income tax liabilities. This reduces the shareholder’s overall tax liability and ensures that the profits are not taxed twice—once at the corporate level and again at the individual level.

5. **Unfranked Dividends:**
– In contrast to franked dividends, unfranked dividends are not accompanied by franking credits. Companies may distribute unfranked dividends for various reasons, such as having incurred tax losses or operating in a tax-free environment.

6. **Franking Credits Refund:**
– In some cases, if the franking credits attached to the dividend exceed the shareholder’s tax liability, the excess franking credits may be refundable to the shareholder. This is a feature of the tax system in certain jurisdictions.

7. **Country-Specific Regulations:**
– The rules and regulations regarding franked dividends and franking credits vary by country. Australia and the United Kingdom are examples of countries with imputation systems that provide franking credits to shareholders.

It’s important for investors to be aware of the tax implications of dividends and understand the tax rules applicable in their jurisdiction. Additionally, companies often disclose the franking status of their dividends in financial statements or dividend announcements.