Legal Definitions - blocked income

Blocked income refers to money or assets earned in one country that cannot be freely moved or converted into another currency and transferred to a different country due to government restrictions, currency controls, or other legal obstacles.

This situation often arises when a country imposes strict regulations on the movement of capital, making it impossible for individuals or businesses to repatriate their earnings or investments.

• Example 1: Multinational Corporation's Profits

  A large technology company, headquartered in the United States, operates a successful subsidiary in a country known for its stringent currency exchange regulations. The subsidiary generates significant profits in the local currency. However, the host government has strict rules limiting the amount of local currency that can be converted into U.S. dollars and transferred out of the country. As a result, a substantial portion of the subsidiary's profits remains held in the local currency within that country, unable to be sent back to the parent company in the U.S.

  This illustrates blocked income because the profits, though earned, are legally restricted from being repatriated to the company's home country due to government controls on currency conversion and capital outflow.

• Example 2: Expatriate's Savings

  An engineer from Canada works for several years in a country that later comes under international economic sanctions. During their employment, they accumulated a significant amount of savings in a local bank account. When the engineer decides to return to Canada, they find that due to the sanctions and the host country's subsequent capital controls, they are unable to convert their local currency savings into Canadian dollars or transfer the funds out of the country.

  Here, the engineer's savings represent blocked income because, despite being legitimately earned, they cannot be freely moved or converted into a usable currency in their home country due to government-imposed restrictions related to international sanctions.

• Example 3: Foreign Investor's Dividends

  An individual investor from Germany owns shares in a publicly traded company located in a developing nation. The company performs well and declares substantial dividends. However, shortly after the dividends are paid into the investor's local bank account, the developing nation experiences a severe financial crisis. In response, the government implements emergency capital controls, prohibiting the conversion of local currency into foreign currency and restricting all outbound financial transfers for foreign investors.

  This scenario demonstrates blocked income because the dividends, although earned and paid, cannot be transferred out of the developing nation to the German investor's home country due to the emergency government restrictions on capital movement.