What is Repatriation

Repatriation, in finance, refers to converting any foreign currency into one’s own local currency. Repatriation sometimes becomes necessary due to business transactions, foreign investments, or simply  due to international travel.

For example, Americans returning from a visit to Japan typically repatriate their currency, converting any remaining yen into U.S. dollars. The number of dollars they get when they exchange their remaining yen will depend on the exchange rate between the two currencies at the time of the repatriation.

Repatriation in a larger context refers to anything or anyone that returns to its country of origin. This can include individual people, including foreign nationals, refugees or deportees.

BREAKING DOWN Repatriation

Repatriation in the context of investments and corporate earnings usually refers to the conversion of any offshore capital back to the currency of the country in which a corporation or investor is based.

In the global economy, many corporations based in the United States also generate revenues and earnings abroad. However, today many companies choose not to repatriate their offshore earnings in order to avoid corporate taxes charged on repatriated funds.

In the US, the Tax Cuts and Jobs Act, signed into law in late 2017, cut the corporate repatriation tax from its former rate of 35 percent. For a limited time, the new law allows U.S. companies to repatriate money earned overseas at rates as low as 8 percent.

At the time that the law was passed, Apple had the largest amount of cash holdings abroad of any US company, totaling $252.3 billion. As a response to the new tax law, Apple agreed to a one-time tax payment to the IRS of $38 billion to repatriate its foreign cash holdings.

Foreign Exchange Risk and Repatriation

When companies operate in more than one country, they generally accept the currency of the local economy where they operate. For example, though Apple is an American company, an Apple store in France will necessarily accept euros, since that is the currency that French consumers would use at a French location.

When a company holds onto foreign currencies, those funds are subject to foreign exchange risk, meaning they could potentially lose or gain value based on fluctuations in the value of either currency.

So, if an Apple store in France charges 1,000 euros for a new laptop, and sells 25 laptops in a week, it will have collected 25,000 euros by the end of one week. Apple may have set the price of 1,000 euros when one euro was equal to $2.00. In this case, those 25 laptops would earn Apple $50,000. However, if during that week an economic crisis hits Europe and the euro sharply declines in value and is suddenly worth only $1.00, Apple has now only earned $25,000 on those laptop sales.

If Apple chooses to wait to repatriate those earnings, it could avoid that loss. If the following week the euro shoots up to being worth $2.10 and Apple repatriates those earnings at that time, it stands to make an even greater profit.