How To Transfer Money From Parent Company to Subsidiary and Vice Versa

Moving money between entities may seem routine, but the way you do it shapes how your business operates behind the scenes.
This guide walks through how intercompany transfers work and how to keep them clean, legal, and aligned with your finance goals. We'll also discuss the Wise Business account. The global account that can help your company with all things cross-border.

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Understanding Intercompany Transfers

Any time money moves between two companies under the same corporate group, it’s considered an intercompany transaction. These transfers aren’t external sales or payments but internal movements of funds that still need to be documented and tracked carefully.

Businesses move money between entities for different reasons. A parent company might fund a new subsidiary, or a regional office may repay shared costs. In some cases, internal fees pass between departments based on how the group is set up.

The key difference between an intercompany payment and a regular third-party transaction is how it’s recorded. These transfers don’t increase revenue across the group, but they do affect the financial position of each entity. That’s why it’s important to have clear processes in place for how they’re documented and reviewed.

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How to Transfer Money from Parent Company to Subsidiary

There are a few common ways to move money from a parent company to a subsidiary, and the right one depends on the purpose behind the transfer.

Bank-to-Bank Transfers

These are more straightforward. Funds are sent directly between accounts, usually when speed matters or for short-term support. These are often logged as intercompany receivables or payables until settled.

Internal Clearing Accounts

Used when multiple transfers are happening regularly. They help track what’s owed between entities without triggering too many one-off transactions.

Intercompany Loans

Structured lending between related entities. These should include repayment terms, interest (if applicable), and proper documentation to satisfy compliance and transfer pricing rules.

Capital Contributions

Also known as equity injections, these increase the subsidiary’s capital base and don’t need to be repaid. However, they require formal accounting entries and may have tax implications, especially across borders.
Before moving funds, make sure to document the reason and method clearly. Formal agreements aren’t always legally required, but they help prevent disputes and ensure regulatory compliance.

How to Transfer Money From Subsidiary to Parent Company

Transferring funds back to a parent company comes with more security. These payments often carry tax implications, and the way they’re labeled needs to reflect the reality of the transaction.

Dividends

Dividends are a formal way for a subsidiary to distribute profits to its parent company. They usually require board approval and must be supported by retained earnings. Tax rules often apply, especially when crossing borders, so timing and reporting are important.

Intercompany Loan Repayments

If the parent previously loaned funds to the subsidiary, repayments can be made under the agreed terms. These should follow a documented schedule and reflect the correct interest, if applicable. Make sure the repayment doesn’t look like a disguised dividend, especially during audits.

Reimbursement for Shared Expenses

When the parent covers costs on behalf of the subsidiary, reimbursement may be appropriate. This is common with centralized services or group software subscriptions. Be clear in your records about what was paid and on whose behalf.

Management Fees

Management fees are charged when a parent company provides direct support or resources to a subsidiary. These need to be documented in advance and reflect the actual value of the service. Inconsistent or inflated charges may raise questions during an audit.

Regardless of how funds are transferred, clear records are essential. Supporting documents like agreements, invoices, or board minutes should match the movement of money to avoid compliance issues later.

Accounting for Intercompany Transfers

Getting the money moved is one thing. Recording it properly is what keeps your books accurate and your auditors happy.
Surprisingly, only 9.2% of companies say they have an adequate intercompany accounting framework in place.¹ That means most businesses are flying blind or fixing errors when it’s already too late.

Each type of transfer has its own accounting treatment:

• Loan between entities: Logged as a receivable for the sender and a liability for the receiver. You’ll also want to record interest, if applicable, and document repayment terms.
• Capital contribution: Increases equity in the receiving entity without affecting revenue. The sender doesn’t record income but should note the change in ownership structure.
• Dividend payment: Lowers retained earnings for the subsidiary. For the parent, it’s either dividend income or a capital return, depending on how the ownership is set up.

It’s not just about your own books. Every transfer needs to be reflected the same way on both sides of the transaction. If the parent records a loan but the subsidiary books it as a contribution, the mismatch will cause issues during consolidation on year-end reviews.

Run regular checks to make sure balances match across entities and use automation when possible to flag differences early, before they create a backlog of adjustments.

Compliance & Tax Implications

Just because a transfer happens inside your business doesn’t mean it escapes scrutiny. Regulators still want to see that the pricing makes sense and the transaction is properly documented.

Transfer pricing is often where things get messy. If the pricing doesn’t reflect market value, the transaction could draw unwanted attention. Kroll reports that 56% of finance leaders expect more audit pressure as rules shift and profit allocations change.²

Cross-border transactions come with extra baggage. You may need to handle withholding taxes or register the transaction under local tax rules. If the paperwork doesn’t match what actually happened, that gap can open the door to penalties.

Loop in your finance and tax teams before the money moves. Fixing it later is always harder.

Best Practices for Managing Intercompany Transfers

A few simple habits can make intercompany transfers a lot less stressful and keep your finance team out of trouble when it matters most.

Maintain Written Agreements

Always document the reason behind a transfer. Whether it’s a loan, a reimbursement, or a capital injection, make sure there’s a signed agreement or internal memo that explains it. This protects you in case of a tax review or audit.

Automate Tracking

Manual tracking gets messy fast. Use tools that let you log intercompany balances as they happen, so you’re not stuck reconciling weeks of backlogged entries. If your systems don’t talk to each other yet, it may be time to fix that.

Use Multi-Currency Tools

If your entries operate across borders, currency conversion can quietly eat into your transfers. Use accounts that support local currencies and real exchange rates to avoid hidden costs and reduce reconciliation errors.

Schedule transfers ahead of time at the desired exchange rate

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Reconcile Regularly

Don’t wait until year-end to spot a mismatch. Schedule monthly or quarterly intercompany reconciliations to keep balances aligned across your group. Even a short check-in can catch small problems before they snowball.

Involve Tax Advisors Early

When you’re structuring a new transfer or expanding into another country, check in with a tax advisor first. It’s easier to set things up the right way than to fix them after the fact.

Keeping Intercompany Transfers on Track

Intercompany accounting might not get the spotlight, but it’s often where the biggest risks hide. A Deloitte report found that poor intercompany processes can lead to financial misstatements, audit issues, and even asset misappropriation.³

It doesn’t have to be complicated. Put agreements in writing. Reconcile accounts regularly. Confirm both sides are recording the transfer in the same way.

When the basics are in place, your team can move faster without worrying about what will break.

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Sources

1. The Hidden Risk of Inter-Company Accounting | PYMNTS
2. Transfer Pricing Considerations Amid Economic Uncertainty | Kroll
3. Cleaning up the mess under the bed | Deloitte