Receiving dividends from a foreign company is a process that only seems like a simple formality at first glance. In practice, it requires attention to several aspects at once: the proper execution of the corporate grounds for the payment, the tax implications for the recipient, and the banks’ requirements for the compliance document package. It is important to understand which documents confirm the right to receive dividends and what information is required when opening an account and receiving funds.

 

A client approached us with this request – a tax resident of Ukraine and a shareholder of a Hong Kong company. He was due to receive dividends of approximately USD 100,000, as well as open a personal foreign account to hold and subsequently use these funds. The client needed not only to understand the tax implications of such a transaction but also to choose a suitable banking solution.

 

Below, we will explain how we structured our work and what we managed to achieve.

 

What Challenges Did We Have to Address?

Such requests are often associated with a number of typical tasks, and this project was no exception. To take all aspects of the upcoming transaction into account in advance, we had to address issues in three key areas:

  • Documentation:
    • Check the readiness of the Hong Kong company’s corporate documentation for the payment of dividends.
    • Clarify the additional information that may be required when opening a personal foreign account.
    • Ensure consistency between the documents, banking requirements, and information about the recipient of the funds.
  • Compliance:
    • Analyze the bank’s requirements for the client and the nature of the planned transaction.
    • Compare the specifics of receiving funds into Ukrainian and foreign accounts.
  • Tax:
    • Determine the tax implications for the client as a tax resident of Ukraine when receiving dividends from a foreign company.
    • Compare the tax implications of different options for crediting the funds.
    • Develop a solution taking into account tax, banking, and corporate requirements.

Each of these areas affects the other two (for example, an unaccounted-for bank requirement may change both the tax calculation and the procedure for preparing the documents). To systematically address all aspects of the project, we combined the analysis of documents, banking requirements, and tax implications into a single action plan. This allowed us to move from the initial analysis to the preparation of specific solutions.

 

Our Actions Within the Project

We went through the following stages step by step:

 

  1. We studied the corporate and financial materials of the Hong Kong company and established which grounds confirmed the upcoming dividend payment.
  2. We compiled a list of documents that the client would need to open a personal foreign account and pass the bank’s verification process.
  3. We determined which additional documents needed to be prepared for banking compliance.
  4. We developed the structure of the Source of Funds package and identified the supporting documents that needed to be provided to substantiate the origin of the funds.
  5. We conducted a tax analysis of the upcoming receipt of dividends, taking into account the client’s status as a tax resident of Ukraine.
  6. We worked through two options for receiving the funds (into a Ukrainian and a foreign account) and compared their tax and practical aspects.
  7. Based on the analysis, we prepared an algorithm for further actions and recommendations on the banking solution.

 

We correlated the interim result with the requirements of the next step. This helped us avoid a situation where documents that had already been collected would have to be supplemented or reissued retroactively. Our client received a structured dividend payment plan, an understanding of the necessary procedures, as well as recommendations for opening a personal account to receive and hold the funds.

 

Current Status and Further Steps

At present, we are assisting the client with opening a personal account at a traditional bank – options in Switzerland and Georgia are being considered. The work is focused on the practical implementation of the prepared plan, taking into account the requirements of the specific jurisdiction. In addition, we are working on opening an account with a payment system for day-to-day transactions with the funds after the dividends are received.

What has already been achieved:

  • determined the grounds and procedure for the payment of dividends from the Hong Kong company;
  • established the requirements for the Source of Funds package;
  • assessed the tax implications of receiving dividends for a tax resident of Ukraine;
  • compared the tax and banking aspects of different options for receiving the funds;
  • prepared a step-by-step action plan and recommendations on choosing a banking solution.

 

The client received not just a consultation, but an understanding of what steps need to be taken to receive dividends and open a personal account.

 

Are you planning to receive dividends from a foreign company and don’t know where to start? Contact the Lawrange team. We will help you navigate the tax, banking, and documentation matters.