International Expansion Blog

Cash Repatriation: You’ve Made the Money, Now Bring it Home

By Gianluca Queiroli, Director, Advisory Services

Gianluca Queiroli, Director, Advisory Services, High Street Partners

Congratulations. You’ve identified an overseas market opportunity and successfully gotten a foreign operation off the ground. Now it’s humming along and the profits are piling up. Time to sit back, relax, and reap the rewards, right?

Not unless you’re prepared to go on a shopping spree in the foreign jurisdiction. Otherwise, you’ll want to get that money out and bring it home, and there are multiple roadblocks on the way. First, determine if cash repatriation is worth the costs. Then, evaluate the best way to get it done.
 
Is It Worth It?
 

For American companies, the first obstacle is taxation. If a business has paid taxes in the jurisdiction where the money was made, most other countries will let it bring home profits tax-free. When companies bring cash home to the United States, they receive a credit for taxes paid in foreign jurisdictions, but must make up the difference between the foreign tax rate and the U.S. corporate tax rate, which tops out at 35 percent.

Because of this, many American businesses decide repatriation isn’t worth it, and they simply sit on their foreign cash. You could find yourself in the unusual position of borrowing money in the U.S. while your unproductive cash reserves sit unused in a foreign bank. That’s the position Apple finds itself in as it plans to issue debt to finance dividends and stock buybacks rather than pay the IRS to repatriate its own cash.

It’s possible the repatriation math will change. Apple’s complex tax strategies landed Tim Cook in the hot seat before a congressional subcommittee in May, where he advocated for a single-digit tax on repatriated cash to encourage more companies to bring money home. In July, President Obama proposed the broad outlines of a corporate tax overhaul, which could have ramifications for repatriation. For years, big business has lobbied Congress for a repatriation holiday that would give them a one-time opportunity to repatriate tax-free.

But the economic benefits to the U.S. of easing up on the taxation remain a matter of debate, and waiting on Congress to act is not exactly considered sound business strategy these days. So, evaluate whether repatriation is worth pursuing for your company in the current tax environment.

Corporate Taxation

If You Do Repatriate...

If you decide that repatriation is worthwhile, you’ll first want to determine what method of repatriation to use. The most obvious form of the practice is repatriating profits in the form of dividends.

But there are other ways to structure the remittance. Your firm’s foreign entity could pay royalties to headquarters for the use of trademarks, technology etc. The foreign entity could also pay the parent company fees for management and advisory services. Or,  parent company could receive interest on loans made to a foreign subsidiary.

The optimal mix of methods for your business will depend on a variety of factors, including its corporate structure and the overseas jurisdictions from which it’s repatriating cash.

No matter the chosen approach, you’ll need to plan well ahead and be patient. Cash repatriation requires detailed documentation, and the process can move slowly.

Want to learn more? View the Radius webinar Show Me the Money: Cash Management for your Global Business.