Everything you need
to know: repatriating funds
Everything you need to know:
repatriating funds
Repatriating funds might sound complicated, but it just means converting money from a foreign currency back into your home currency. Individuals will often want to repatriate funds after selling a car or house abroad, while businesses might repatriate funds from overseas sales so that they can pay workers back at HQ.
Repatriation can seem complex because it’s so bound up in legalities. That’s because it’s worth
an enormous amount to governments – an International Monetary Fund report concluded it could help balance the effects of foreign investors withdrawing from countries after the 2008 collapse.
Repatriating funds and doing it cost-effectively is much easier when you know the basics. That’s why we’ve put together this guide, which will talk you through taxes, legal restrictions and the cheapest way to send money home.
How much will repatriation cost me?
There are a number of factors that will affect this, and you can work all of them to your advantage.
The first is the timing. Doing a little research into when there’ll be the most demand for what you’re selling means a better price in the long run.
February to June, for example, is the best time to sell a house in the UK, while autumn and spring are generally the best times to sell a car. If you go through a broker the extra money won’t cost you any more to send home, but you will make a bigger profit on your repatriation.
The next factor is the exchange rate. It’s important not to underestimate the importance of capitalising on a good rate, and how much you can save by using certain techniques. For example, imagine you sold your car in the US for $20,000 in late December 2014. If you exchanged the money into your home currency, say, Canadian dollars, on 3 January 2015, you would’ve got $23,569. However, if you’d waited until 31 January, you’d have received $25,464. The difference is enough to buy you an extra lunch out every week for a year.
Doing a little research into when there’ll be the most demand for what you’re selling means a better price in the long run.
Exchange rates can be difficult to predict, so if there’s a good rate now but you’re not selling until later, you might want to ask your broker to set up a ‘currency exchange contract’. These let you trade at a fixed rate for an agreed period of time.
What’s the most cost-effective way to send my money home?
If you’re sending a small amount of money, an online platform like PayPal will be all you need.
For sums over £3,000, your first thought might be to use a bank. However, while banks are secure and reliable, they tend to charge higher fees than a foreign exchange (forex or FX) broker. Typically, a forex broker will also save you 3-4% on the exchange rate. That’s because they purchase currency in bulk so are able to pass on lower prices to you.
Making a saving doesn’t mean compromising on safety. Like banks, all the forex brokers we list are authorised by the Financial Conduct Authority (FCA). This means they’ll keep your funds in a separate account to their own, so if the firm runs into financial difficulties you won’t lose out.
What are the legal restrictions on repatriating funds?
In the EU, you can usually repatriate funds freely from one country to another. The global situation can be a little trickier.
Some countries place limits on the amount of money you can transfer home. In India, individuals are limited to repatriating $1,000,000 from sales (not income) a year, and in South Africa you’ll need to prove that the money you’re repatriating is reasonable in proportion to your income. To be safe, make sure that you understand the rules before transferring any currency, and consult a lawyer or accountant if you’re unsure. Some countries will allow you to repatriate funds provided you’ve met certain conditions, like declaring the money when you first brought it into the country.
Any legal restrictions you do encounter will often be there to combat money laundering. It means that when you’re transferring large lump sums, you’ll need to be able to explain where it came from.
If you’re bringing cash into a country, create a paper trail to prove its legality. Some governments, like the UK, do fine individuals if they don’t declare large sums or give incorrect information.
Typically, a forex broker will also save you 3-4% on the exchange rate.
Will I have to pay any tax?
In most cases, you will need to pay tax on the funds you’re repatriating. Dubai is a notable exception, being something of an anomaly in the tax world – in certain parts of the emirate you don’t have to pay any repatriation or even income taxes.
If you’re repatriating funds anywhere else, it’s best
to check what the local regulations are with your government or accountant.
In the UK, money from overseas sources is taxed at the same rate as income if you’re a tax resident.
Basic rate taxpayers will pay 20%, higher rate payers 40% and additional rate payers 45% on their repatriated funds. Because the extra money you’re transferring is treated as part of your income, bear in mind that it could push you into a higher tax bracket.
In the UK, money from overseas sources is taxed at the same rate as income if you’re a tax resident.
If you’d like to learn more about international money transfer and the best way to send money overseas, have a browse through the rest of our guides. Or if you have any other specific questions you’d like answers to, feel free to give us a ring or send us an email.
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