There is no actual cash involved in a 'deemed' dividend. The company pretends it has sent you the money. And then pretends that you used the cash to buy more shares of the company, which are issued from its treasury. Your broker's statement will show an increase in the number of shares you own. This method is frequently used to 'distribute' capital gains realized in the company that can be distributed tax-free in some countries.
In some jurisdictions, for tax purposes, certain benefits accrued from the company are considered to be "deemed dividends" and taxable. For example, in some countries if you purchase a house in the name of a company (and you are the sole shareholder) and you live in it rent free, that can sometimes be considered a "deemed dividend" of an amount equivalent to the rental income value of the property.
What's a deemed dividend?
