There are several known interpretations that define what repatriation is in terms of finance. Most experts agree that this term means a deliberate attempt by the state to return funds previously withdrawn from the country. In this case, repatriation becomes an important component of monetary policy and a regulator of the financial sector.
What is repatriation
The term "repatriation" literally translated from Latin means "return to the homeland." In the world of finance, this concept is used to refer to the return of capital that was previously used abroad for the purpose of investing in their own country. The repatriation of capital exists in several forms, including the transfer to the homeland of funds invested outside its borders, the return of profits from such investments or foreign currency that is obtained from the sale of goods (services).
Capital repatriation
Capital repatriation is directly related to its export. In a period of deterioration in their economic situation, countries that have exported capital introduce measures to ensure the return on investment. For these purposes, a special tax and credit policy is used, which provides for guarantees and benefits.
An example is France after the end of World War II, where the state authorities in charge of foreign exchange control allowed capital to be returned to the country through the precious metals market on preferential terms. This step by the government can be viewed as an amnesty for the national capital that left France on the eve and during the war. Capital importing states, with the onset of the worst times, often impose restrictions on the repatriation of capital invested in their economies.
Capital repatriation enables the country to declare amnesty to those who previously illegally transferred funds abroad. A similar problem is typical for today's Russia, where the monthly export of capital reaches $ 2.5 billion. This situation will apparently persist until the discussions regarding the legislation on capital amnesty are over.
In countries with a fully developed economy, the foreign currency earned from the sale of an economic product is returned to the country in accordance with the norms and terms of settlements that are established in international practice. In anticipation of an appreciation of the national currency, the transfer of funds to the home country usually accelerates. In the context of the impending devaluation, the opposite phenomenon occurs: the return of proceeds is slowing down. This negatively affects the country's economy.
Repatriation of loans
Repatriation of loans also takes place in the country's economy. This is the name of the return home of bonds that were previously placed among borrowers in other countries. Such an operation is carried out through the redemption of these obligations by the state and individuals. The state usually resorts to repatriation of loans if it is necessary to improve the financial situation of the country and increase foreign exchange reserves.
In the current economy, loan repatriation is slowly losing its importance. The movement of bonds of private and government loans occurs almost daily and is determined by the policy in the field of management of investment resources, as well as the specifics of regulating securities prices. Institutional and private investors play a special role in these processes. The circulation processes of bonds are influenced by various factors, including changes in exchange rates, fluctuations in interest rates and assessments of the creditworthiness of issuers.
Repatriation of foreign exchange funds
Fulfillment of the state's requirements for the repatriation of foreign exchange is carried out with the participation of special bodies that are called upon to exercise export-import control. The return of currency is carried out by crediting to bank accounts the proceeds from the export of goods, works, services, as well as in other cases reflected in the legislation. The purpose of state control is to guarantee the supply of currency in the domestic market of the country and to prevent the illegal transfer of resources abroad through the channels that serve to carry out foreign trade operations.
As part of the repatriation of foreign exchange funds, export-import control is carried out by:
- Central bank;
- second-tier banks;
- tax authorities;
- customs control authorities.
Features of repatriation
There are states that specialize in financial exports. For them, repatriation is becoming an integral part of working with capital, allowing them to improve the indicators of the balance of payments and currency exchange processes. The process of moving funds across the border includes not only the states that are the homeland for the owner of the capital, but also those countries from which the funds are withdrawn. There are many legal subtleties in carrying out repatriation. Financial flows can be subject to various types of taxation.
Any movement of funds between states is an instrument within the framework of a particular strategy of economic development. Policy directions, the choice between import or export of financial resources most often depend on the real state of affairs in the country's economy. With a relatively stable development, restrictions on the movement of capital are removed or weakened. When a crisis strikes, as a rule, strict limits are imposed on the import and export of capital.
The management of the movement of capital to the homeland can be carried out in the interests of large national monopolies. But more often than not, regulation becomes a way to adjust macroeconomic indicators.
Prerequisites for capital repatriation:
- stabilization in the economy and politics;
- formation of a favorable investment climate;
- improving the tax regime;
- reduction of commercial risks;
- increasing confidence in the government and the national currency.
A special case of repatriation can be considered the return to the country of profits received from investments outside the country. In the modern world, most often these processes are somehow associated with the securities market. Profit repatriation, as a rule, is carried out at the time of the sale of shares on the market. The investor exchanges securities for money, which he can then cash out in his home country, after which he leaves the market where the trade is carried out. In the conditions of the exchange, such transactions with shares leading to the return of funds to their homeland can be carried out several times a day. From a formal point of view, the withdrawal of profits received by foreigners on Russian stock exchanges is a full-fledged repatriation.
Capital that is associated with criminal activity cannot be transferred to the legal economy of the state. The owners of funds obtained by criminal means are not subject to the amnesty applicable to capital, and cannot apply for participation in state programs for the repatriation of income. However, the list of structures providing for capital amnesty may include economic crimes of medium gravity.
Peculiarities of settlements and taxation during repatriation
In the conditions of the domestic economy, the repatriation of funds concerns the residents of the Russian Federation who take part in foreign trade activities. In relation to these persons, there is an obligation in the legislation to ensure the receipt of money for goods and services from foreign entities. Residents' funds must be returned to Russia when their foreign partner used the right to prepayment, but did not deliver their goods or services. The exception, which does not entail the requirement of repatriation of money, are some types of debt obligations.
In some countries, there is a special tax on the return of income of non-residents. It is charged from the source when money is actually withdrawn outside the country. Usually, this type of tax applies exclusively to passive income. In the case of payment of repatriation taxes, the legislation often provides for tax deductions and compensations.
International legislation does not provide for any general rules that would regulate the procedure for paying taxes and fees for the repatriation of income, or at least determine the amount of such a tax. Each country independently establishes the rules for calculating the amounts that go to the treasury on the basis of repatriation. In some countries, these fees are zero. Cyprus is an example.
The value of repatriation of funds
Repatriation performs a number of important functions in the country's economy. Home Refund Management helps the government:
- manage inflation;
- control the exchange rate of the national currency;
- ensure the quality of financial settlements.