Why Dividends Are the Wrong Way to Get Your Money Out
The most dangerous illusion in complex jurisdictions investing is paper wealth. A 30% IRR on a spreadsheet feels solid, but it means nothing if the capital is trapped behind currency controls, hostile local banking rules, or a board that simply won't approve a payout. A profitable asset in a jurisdiction that won't let you take money out is worth zero to you, no matter what the projections say.
When you invest abroad, especially somewhere unstable, you have to assume the relationships holding the deal together will eventually come under strain. When that happens, alignment tends to dissolve fast. So the way you get your money out can't be an afterthought figured out later. It has to be built into the deal before a single dollar goes in. Relying on a standard dividend to realize your return isn't a strategy. It's a risk you're choosing to carry.
Why Profitable Doesn't Mean Liquid
The mistake almost every foreign investor makes is assuming that if the local business is profitable, that profit is automatically theirs to take home. It isn't. The more cash the local entity generates, the harder it often becomes to actually extract it.
Local partners and regulators have plenty of tools, whether or not they're used in bad faith, that can keep foreign capital parked exactly where it is:
● Reserve requirements - A local board can decide that cash needs to stay in the business "for expansion" or "for compliance with local solvency rules." On paper, that money is yours. In practice, it never leaves the balance sheet.
● Board gridlock - Poorly drafted shareholder agreements sometimes require a “super-majority” just to declare a dividend. That gives a minority local partner an effective veto, one they can use as leverage for a better deal or a bigger cut.
● Bureaucratic friction. Even after a dividend is approved, local banks can slow-walk the transfer citing anti-money-laundering rules, documentation requirements, or a sudden freeze on foreign currency movements.
None of it needs to be an outright block. Delay alone accomplishes the same thing, quietly parking your money in a depreciating local currency.
If your entire plan depends on dividends, it depends on every one of these things going right, indefinitely. That's a lot of trust to place in people and systems you don't control, and not really familiar with
Why Dividends Specifically Are the Weak Link
Dividends sit at the bottom of the list of ways to get money out of a business, and for good reason:
● They're taxed last - A dividend only gets paid after the local entity has already paid local corporate tax, sometimes at rates that jump without warning during a fiscal crisis.
● They require a vote - If your return depends on a board decision, you're not really in control of your own capital. You're asking for one.
● They're politically exposed - Large dividend payments flowing out to foreign investors are an easy target during hard times, whether from populist politicians, a central bank trying to defend its currency, or a tax authority looking for revenue.
The fix isn't to abandon these markets. It's to change how you get paid.
A dividend only gets paid after everyone else, and only if the board agrees to it that year. The alternative is to structure part of your return as something the business owes you no matter what: a loan payment, a licensing fee or a service charge. Those get paid on schedule, the same way payroll or rent does, whether or not the board feels generous.
Three Better Ways to Get Paid
1. Structure part of your investment as debt, not just equity - A loan from you to the venture has to be serviced before any dividend conversation even starts. It doesn't ask permission from the board, and if things go wrong, a secured loan gives you real leverage over the underlying assets that a minority equity stake never will.
2. License your IP instead of contributing it for free - If you're bringing technology, a brand or a proven process into the deal, don't hand it to the local entity outright. Hold it in a separate company and license it in. You get paid a royalty as an ongoing operating expense, which is far harder for a hostile board to block than a dividend. If the relationship really breaks down, you can pull the license.
3. Charge for what you actually do - A real management or advisory agreement, where you charge the local entity for oversight, strategic input or access to your network, gets paid as a business expense too. It's more flexible than a fixed structure and, practically speaking, banks are far more reluctant to block payment for services that keep the local business running than they are to block a dividend.
The Importance Of Substance
None of this works as a paper exercise. If a management fee or a licensing agreement doesn't reflect something real, tax authorities will eventually treat it as a disguised dividend, and the penalties for that are far worse than the problem you were trying to solve. The pricing has to be fair and defensible. There has to be an actual, documented trail of what you delivered in exchange for what you were paid.
The Bottom Line
Profit only counts once it's sitting in an account you actually control. Everything before that is theoretical.
If you're relying on dividends as your only way to realize a return in a market like this, you're not investing for yield. You're hoping for one.
If you're structuring something now and want to think through how the extraction side should work before you commit capital, reach out. Happy to walk through it.