Direct investment

A direct investment relation exists between an investor and an object resident in another country when the investor has control (over 50% of the voting power) or influence (from 10% to 50%) over the object. The direction of the investment (inward or outward) is determined in the statistics on the basis of the direction of the control/influence between parties. Direct investment refers to financial transactions between entities in a direct investment relationship.

The capital of direct investments is divided into equity and debt-based items. The counter item of gains from reinvested earnings recorded in the current account is recorded in equity. Equity includes transactions with shares in corporations, share subscriptions in rights issues and other investment of basic capital. The debt-based capital of direct investments includes individual loans, leasing credits, deposits in consolidated accounts, subordinate loans comparable to equity, trade credits, accrued charges/credits and deferred credits/charges, bonds, and money market instruments. If both the creditor and debtor have other financial intermediation than insurance activities, only so-called perpetuals are classified as debt-based capital of direct investments.

The new statistical standards (BPM6/BD4) recommend that the receivables/liabilities principle is applied to direct investments in statistics on in balance of payments and international investment position. Similarly, the revised directional principle is recommended to be applied in connection with examinations of direct investments by country or sector. The revised directional principle separates investments between fellow enterprises and the direction of the direct investment relationship between fellow enterprises is determined by the residency of their ultimate controlling parent enterprise (UCP).