Reinvested earnings on direct foreign investment (D.43)

4.64 Definition:

Reinvested earnings on direct foreign investment (D.43) are equal to:

the operating surplus of the direct foreign investment enterprise

plus any property incomes or current transfers receivable

minus any property incomes or current transfers payable, including actual remittances to foreign direct investors and any current taxes payable on the income, wealth, etc., of the direct foreign investment enterprise.

4.65 A direct foreign investment enterprise is an incorporated or unincorporated enterprise in which an investor resident in another economy owns 10 per cent or more of the ordinary shares or voting power (for an incorporated enterprise) or the equivalent (for an unincorporated enterprise). Direct foreign investment enterprises comprise those entities that are identified as subsidiaries (investor owns more than 50 per cent), associates (investor owns 50 per cent or less) and branches (wholly or jointly owned unincorporated enterprises), either directly or indirectly owned by the investor. Consequently, 'direct foreign investment enterprises' is a broader concept than 'foreign controlled corporations'.

4.66 Actual distributions may be made out of the entrepreneurial income of direct foreign investment enterprises in the form of dividends or withdrawals of income from quasi-corporations.

In addition, retained earnings are treated as if they were distributed and remitted to foreign direct investors in proportion to their ownership of the equity of the enterprise and then reinvested by them.

Reinvested earnings on direct foreign investment can be either positive or negative.

4.67 Time of recording: Reinvested earnings on direct foreign investment are recorded when they are earned.

In the system of accounts, reinvested earnings on direct foreign investment appear:

  1. among uses and resources in the allocation of primary income account of the sectors;
  2. among uses and resources in the external account of primary incomes and current transfers.