There has never been a better time to bring your company’s foreign profits home. When Congress passed the Tax Cuts and Jobs Act at the end of 2017, it ushered in a new era for American companies with operations overseas. The days of 35% corporate tax rate on profits earned abroad were officially gone.
The new legislation allows companies to repatriate the money they’ve been stockpiling overseas — at a much lower tax rate of 8% on assets and 15% on cash — and from that point forward, foreign profits can come home effectively tax free.
Now, the question is, what happens next? While it’s finally financially viable to bring your cash home, is it the best decision for you and your organization?
The early trends in repatriation since the Tax Cuts and Jobs Act too effect
In the first two quarters of 2018, American companies repatriated an estimated $465 billion. That’s just a fraction of the reported $3.1 trillion those organizations are believed to have stockpiled overseas, and experts say some companies may be reticent for a few different reasons.
They may want to keep their money overseas to continue growing foreign operations. They could also be waiting for the American government to figure out and finalize the rules governing foreign taxes. The changes to the tax law are new, after all, and there are bound to be challenges along the path to implementation.
But for those that have decided to bring money home, the vast majority of those funds — more than $55 billion and counting — have gone toward share buybacks. Buybacks have largely overtaken dividends as the preferred way to return cash to shareholders, and Warren Buffett has endorsed them as a viable use for newly repatriated money and a good way to put idle corporate cash to productive use. Expect this trend to continue.
Other trends in repatriated foreign profits
If share repurchases aren’t high on your list of corporate priorities, there are many other uses for your repatriated funds. The big ones we expect to see revolve around investing in the future of your company.
Some companies may choose to invest their repatriated cash into hiring workers and building out a more robust team. The labor market is tight, which makes hiring more of a challenge, but it’s not impossible.
To that end, another possible use of repatriated funds is to boost wages, add benefits or create new professional development opportunities. Employee attraction and retention is top of mind for businesses these days, given the state of the labor market mentioned above. One way to stand out above the competition is to create a workplace that better serves your people.
And then of course there’s infrastructure investments. Perhaps now is the time for your company to build a new factory or purchase new equipment. If there’s something your business needs to grow, now could be the time to bring that bigger vision to life.
Getting your repatriated cash working immediately is easy
Whatever your repatriation strategy, it won’t take shape without a viable financial plan — one that starts with protecting your deposits and ensuring you’re earning a competitive return as soon as they arrive back home. Our proprietary financial technology can help spread hundreds of millions in investments around to different institutions and accounts with the ultimate goal of keeping every last repatriated dollar fully protected with FDIC / NCUA insurance, while you plan for the future.
When you have peace of mind, you can make the right decisions at the right time. We can help. Planning to repatriate your foreign profits? Let us help you protect that money. Visit our Deposit Management page for more details, or talk with one of our friendly associates today.