28 Sept 2018
Foreign Exchange Administration in Relation to FIEs
FIE Information Registration and Administration
(a) Documentation Required
FIEs issued with a business licence should complete the registration of their basic information at a bank operating at their place of registration and obtain the documentary proofs of their registration. New FIEs set up by foreign investment companies with foreign exchange funds reinvested in the Chinese maninalnd should complete the basic information registration procedures for cases involving receipt of domestic reinvestment. FIEs jointly funded by foreign investment companies and foreign investors are required to complete the basic information registration procedures for cases involving receipt of domestic reinvestment as well as those for new FIEs. In completing the registration procedures for new FIEs, the basic information of foreign investment companies should be entered under the section for shareholders of the Chinese party.
In applying for registration, the following documents should be presented: Domestic Direct Investment Basic Information Registration Form, approval documents and approval certificate of establishment of FIE (photocopies) issued by the examination and approval organs; Enterprise Legal Person Business Licence issued by the State Administration for Industry and Commerce and duplicate copy.
(b) Alteration and Cancellation of FIE Basic Information
Should there be any change in the name, address, business scope, or any assignment, capital increase or merger of an FIE subsequent to the registration of its basic information, the FIE should, upon approval by or record filing with the authorities concerned, complete the alteration procedures for basic information registration at a bank operating at its place of registration.
Upon expiry of its operation period or termination of business, an FIE should complete the cancellation procedures for basic information registration at a bank operating at its place of registration.
(c) Special Types of FIEs
Foreign investors acquiring equity interests from a domestic enterprise should, prior to making payment for the acquisition, go to a bank operating at the place of registration of the domestic enterprise and complete the registration procedures for foreign exchange capital contribution by foreign investors in acquiring the equity interests of the Chinese party.
When a mainland resident makes round-tripping investment through an offshore special purpose vehicle, the domestic enterprise can only go through FIE information registration formalities after the mainland resident has completed the required formalities for foreign exchange registration or alteration for overseas investment.
Administration of Foreign Exchange under the Current Account of FIEs
(a) Foreign Exchange Receipts under the Current Account
For foreign exchange receipts under the current account, FIEs may open a foreign exchange settlement account directly with a designated bank by presenting the required supporting documents. They may retain or sell the foreign exchange to a financial institution engaged in the settlement and sale of foreign exchange according to relevant state regulations. They are no longer required to repatriate their foreign exchange receipts, but are allowed to either deposit these receipts offshore or repatriate them directly to the Chinese mainland within the prescribed time period in accordance with the prescribed conditions.
(b) Foreign Exchange Payments under the Current Account
When an FIE has to make external payments within its prescribed business scope, it may withdraw the required amount from its foreign exchange settlement account and any shortage can be made up for by purchasing foreign exchange at a financial institution engaged in the operation of foreign exchange settlement and sale. Details are as follows: (1) remittance of after-tax profits and bonuses to the foreign party of an FIE can be made from the foreign exchange account or at designated banks by presenting the board of directors’ profit distribution resolution and audited financial statement, or in addition, the original tax filing form for remittance of profits exceeding the equivalent of US$50,000. Yet prior to the remittance of such profits, the FIE should make up the operating loss of the previous years, complete all tax payment and withdraw statutory provident funds as required by law; (2) the after-tax wages and other legitimate incomes in RMB of an FIE’s foreign, overseas Chinese, Hong Kong, Macau and Taiwanese employees may be converted into foreign currency and remitted at designated banks upon presentation of relevant supporting documents; (3) after-tax dividends payable in foreign currency may be remitted from the foreign exchange account or at designated banks upon presentation of the board of directors’ profit distribution resolution.
FIEs making advance payment for imports to their head office (or parent company) located outside the mainland, or to the subsidiaries or companies invested by or controlled by their offshore head office (or parent company) in a foreign country or region (including Hong Kong, Macau and Taiwan) may directly complete the foreign exchange purchase and payment procedures at a designated bank by presenting the relevant proofs such as import contract and proforma invoice.
Before settling the first foreign exchange receipt or payment for trade in goods, the FIE should go to the foreign exchange authorities to complete procedures for registration in the Directory of Enterprises with Foreign Exchange Receipts and Payments for Trade in Goods by presenting the necessary documents.
Administration of Foreign Exchange under the Capital Account of FIEs
(a) Administration of Foreign Exchange Receipts under the Capital Account
Foreign exchange receipts under the capital account
- Capital fund in foreign exchange contributed by foreign investor;
- External debts, external debts-turned-loans, and foreign exchange loans extended by Chinese-funded financial institutions on the mainland;
- Foreign exchange proceeds from share issuance and other foreign exchange receipts under the capital account.
Administration of capital fund
- The foreign investor may remit equity capital to an FIE from his spot exchange bank account opened in the mainland as a non-resident individual, or from his offshore account with a designated foreign exchange bank authorised by PBC to conduct offshore business.
- Foreign exchange authorities have abolished the registration requirement for foreign investors to confirm their direct onshore investment in the form of non-monetary capital contribution or their capital contribution through the acquisition of equity interests from a Chinese shareholder. The previous registration requirement to confirm the monetary capital contribution of foreign investors is also replaced by the registration of a credit entry of direct onshore investment through monetary capital contribution. Where the capital contribution of a foreign investor is made in monetary terms (including cross-border spot exchange and RMB), the opening bank should, upon receipt of the related capital funds, directly register a credit entry of direct onshore investment in the form of monetary capital contribution through the special capital account information system of the foreign exchange authorities. It is only upon completion of this credit registration can the capital fund be utilised.
- Apart from freely convertible currencies, imported equipment and materials, intangible assets and profits in RMB, other forms of capital contribution to an FIE are also acceptable. These include the development fund and reserve fund (or capital provident fund and surplus provident fund) of the FIE as increased capital of the enterprise; the profit prior to distribution, payable dividend and payable interest thereof as increased capital of the enterprise; the principal of a registered external debt and current interest thereof of the foreign party as increased capital of the enterprise; and the capital contributed to the FIE by a foreign investor through onshore reinvestment with the recovered investment, proceeds from liquidation, share transfer and reduced investment of an existing FIE.
- In cases where the aggregate remittance amount of upfront expenses for outward direct investment does not exceed US$3 million and does not exceed 15% of the total investment of the Chinese party, the domestic entity may complete the upfront expenses registration procedures at a bank operating at its place of registration by presenting its business licence. Upon the bank’s completion of the upfront expenses registration through the capital account information system of the foreign exchange authorities, the domestic entity may complete the foreign exchange purchase and payment procedures for subsequent funding at the bank directly by presenting its business registration proofs.
- In cases where for genuine objective reasons, the aggregate remittance amount of upfront expenses exceeds US$3 million or exceeds 15% of the total investment of the Chinese party, the investor in the mainland should file an application with the foreign exchange authorities at its place of registration by furnishing a written explanation.
- The foreign exchange settlement of the capital fund of a foreign investment project is directly examined and handled by designated foreign exchange banks authorised by foreign exchange authorities. In other words, foreign exchange authorities delegate the approval power over the foreign exchange settlement of the capital fund of foreign investment projects to qualified banks based on certain criteria. Such banks are charged with the responsibilities of examining, monitoring and recording the settlement activities within the scope of delegation. Foreign exchange authorities indirectly monitor the foreign exchange settlement of capital fund of foreign investment projects through these banks.
- The foreign exchange in the capital fund account may be drawn to make foreign exchange payments under the current account of the FIEs. It can also be used for foreign exchange payments under other capital accounts registered with the foreign exchange authorities (bank) or approved by the foreign exchange authorities.
Administration of financial credit
- For FIEs seeking international commercial loans, prior approval is not required.
- After signing an external debt agreement, the FIE should promptly register with foreign exchange authorities the external debt on a periodic or per case basis. The debtor can repay external debts with its own foreign exchange or purchase foreign exchange with RMB to make repayment. The external debts in foreign exchange borrowed by FIEs can be settled for use. The funds obtained from external debts can be settled at the discretion of the FIE through the completion of foreign exchange settlement procedures. In the discretionay settlement of foreign exchange receipts under the capital account, domestic entities can still choose to use their foreign exchange receipts through the system of foreign exchange settlement for payment purpose. In handling each case of foreign exchange settlement for domestic entities in accordance with the principles allowing settlement for payment purpose, the bank should examine the authenticity and compliance of fund utilisation of the domestic entity in respect of the preceding transaction of foreign exchange settlement (including discretionary settlement and settlement for payment purpose). In principle, short-term external debts can only be used as working capital and may not be put to medium to long-term use such as fixed asset investment.
- Enterprises borrowing external debts and external-debts-turned-loans can open an external debt account or an external-debt-turned-loan account. The foreign exchange funds deposited into the external debt account come from the external debt registered. The requirement for registration of external-debts-turned-loans (hereinafter referred to as debt-turned-loan) case-by-case with and examination and approval of exchange conversion by the foreign exchange authorities has been lifted and replaced by central registration of debt-turned-loan creditors. Approval for the opening of debt-turned-loan accounts has also been revoked. Debt-turned-loan debtors can open an account with the bank directly by submitting an account opening application and presenting their debt-turned-loan agreement. Debt-turned-loan creditors or debt-turned-loan debtors are allowed to go directly to their opening banks to complete domestic fund transfer formalities by presenting such documents as their debt-turned-loan agreement. Approval for foreign exchange settlement of policy-based debts-turned-loans has been revoked. Debt-turned-loan debtors obtaining foreign exchange funds from policy-based external-debts-turned-loans can go directly to their opening banks to complete foreign exchange settlement procedures by presenting their debt-turned-loan agreement and foreign exchange settlement application. However, foreign exchange funds obtained by debt-turned-loan debtors from commercial debts-turned-loans are not allowed to be settled. Approval for principal and interest repayment and foreign exchange purchase under the debt-turned-loan account is no longer required. Debt-turned-loan debtors can go directly to the bank to complete repayment procedures by presenting their debt-turned-loan agreement and repayment notice. Provided that agreement is reached voluntarily, the creditor or debtor of debts-turned-loans (ultimate debtors excluded) may go directly to the bank on behalf of subordinate debtor to complete the procedures for the settlement and purchase of foreign exchange by presenting the relevant supporting documents.
- Management of offshore guarantee under the onshore loan account is subject to regulation. Offshore guarantee under the onshore loan account will now come under external debt administration and the guarantee amount will be set according to the execution amount instead of the contract amount. In cases where an onshore debtor incurs an external debt due to an offshore guarantee of contract performance under the onshore loan account, the principal balance may not exceed its unaudited net asset value of the preceding year.
- Funds transferred to multinational companies registered in the mainland from their offshore associated companies for centralised onshore use are subject to external debt administration.
Administration of trade credit
- Advance receipts (or advance payments) for trade in goods. Starting from 1 August 2012, FIEs that collect advance offshore receipts (or make advance offshore payments) for trade in goods with a term of over 30 days (the date of foreign exchange receipt is more than 30 days before the export date, or the date of foreign exchange payment is more than 30 days before the import date) must, in accordance with the relevant regulations, file a report on such advance receipt (or advance payment) through the Foreign Exchange Monitoring System for Trade in Goods on SAFE’s online service platform.
- Deferred payments (or deferred receipts). Starting from 1 August 2012, FIEs that make deferred payment for imports (or have deferred receipt for exports) for trade in goods with a term of over 90 days (import date is more than 90 days before the date of foreign exchange payment or export date is more than 90 days before the date of foreign exchange receipt) must, in accordance with the relevant regulations, file a report on such deferred payment (or deferred receipt) through the Foreign Exchange Monitoring System for Trade in Goods on SAFE’s online service platform.
- In the case of Category B and C enterprises, all advance receipts (or advance payments) for trade in goods and those deferred payments (or deferred receipts) with a term of over 30 days must, in accordance with the relevant regulations, be reported through the Foreign Exchange Monitoring System for Trade in Goods on SAFE’s online service platform.
Foreign exchange proceeds from share issuance
- Domestic companies should complete the registration procedures for offshore listing with the foreign exchange authorities at their place of registration within 15 working days upon conclusion of their share issuance for offshore listing by submitting a written application together with a completed Registration Form for Offshore Listing, proofs of offshore listing permission granted by China Securities Regulatory Commission to a domestic company, and the public notice announcing the conclusion of the offshore share issuance.
- Funds raised by domestic companies from offshore listing may be repatriated and deposited into their special account in the mainland or into their special account offshore. Such funds must be used for purposes as specified in publicly disclosed documents such as the share prospectus or corporate bonds issue prospectus, circulars to shareholders, and resolutions of board of directors or shareholders’ general meetings. Funds raised by way of issuing convertible bonds offshore and repatriated for use in the mainland should be deposited into their special external debt account and used in compliance with regulations on external debt management. Funds raised by way of issuing other types of securities offshore and repatriated should be deposited into their special offshore listing account (in foreign exchange) or payment account (in RMB) in the mainland.
- In cases of the following changes, the mainland shareholders should, within 15 working days, go to the local foreign exchange authorities to complete procedures for registration of offshore listing changes by presenting their written application, original offshore shareholding registration certificate, newly completed Registration Form for Offshore Listing, and documentary proof of authenticity of the relevant transactions.
- Changes in the name, registered address, and information of major shareholders of the company listed offshore;
- Changes in capital such as issuance of additional shares (including over-allotment) or capital provident fund, surplus provident fund, or increased capital through transfer of profit prior to distribution;
- Re-purchase of offshore shares;
- Conversion of convertible bonds to shares (proofs of changes or cancellation in external debt registration must be provided);
- Conclusion of the exercise for mainland shareholders to increase, reduce, transfer or take over offshore shares leading to changes in the shareholding structure of the company listed offshore;
- Changes in the planned use and purpose of the fund raised offshore specified in the original registration; and
- Other changes in the information included in the original registration.
- Proceeds obtained by mainland shareholders under the capital account through share reduction, transfer of offshore shares of the domestic company or exit from overseas securities market may be retained offshore or repatriated to the special offshore shareholding account for mainland shareholders set up in the mainland. For funds repatriated, mainland shareholders may complete the related domestic transfer or foreign exchange settlement procedures at the bank by producing the registration proofs of the offshore shareholding business.
- Domestic companies exiting from the offshore securities market should, within 15 working days after the exit, go to the local foreign exchange authorities to complete procedures for cancellation of registration of offshore listing by presenting documentary proof of authenticity such as photocopies of the relevant comments made by the supervisory department and market exit notice, as well as proof of registration of the business listed offshore, and the statements about the disposal of the relevant accounts and funds.
(b) Administration of Foreign Exchange Payments under the Capital Account
In accordance with the Regulations on Foreign Exchange Administration of the People’s Republic of China, foreign exchange payments under the capital account that do not require prior approval by foreign exchange authorities may, in principle, be processed directly at financial institutions upon presentation of the valid documents required. If approval by foreign exchange authorities is required, the necessary approval procedures must be completed before payments can be made.
- Foreign exchange payments under the capital account
- Repayment of loan principal and interest, and provision of offshore guarantee in relation to contract compliance;
- Remittance of funds derived from the transfer of shares by the foreign shareholders of an FIE;
- Remittance of funds derived from capital reduction by the foreign shareholders of an FIE;
- Remittance of funds derived from liquidation of an FIE in accordance with relevant regulations;
- Increased investment or reinvestment within the mainland by the foreign party to an FIE with profits received;
- Increased investment within the mainland by investment companies with foreign exchange capital;
- Remittance of offshore lending capital.
- Repayment of loans: Repayment of external debt principal and interest may be made directly at the bank. For repayment of foreign exchange loan principal, interest and related fees to domestic Chinese-funded financial institutions, the FIE may proceed to the financial institution with which it has an account to complete the necessary procedures by presenting the required documents such as the notice by creditor on repayment of principal and interest, and loan agreement.
- Offshore investment: For investment abroad, the source of funds does not have to be examined by foreign exchange authorities before an application is filed with the competent approval authority. After registering its offshore direct investment in foreign exchange with a bank operating at its place of registration, an FIE may go to a designated foreign exchange bank to go through remittance formalities in accordance with relevant regulations. Approval by foreign exchange authorities is not required for remittance of upfront expenses.
- Restrictions on lending offshore by domestic enterprises have been relaxed. Domestic enterprises are permitted to extend loans to offshore enterprises which have equity association relationship with them. The domestic enterprise should go to the local foreign exchange authorities to complete formalities of offshore lending amount registration by presenting its offshore loan agreement and latest financial audit report. The aggregate offshore lending amount of a domestic enterprise may not exceed 30% of the equities of its owners. A domestic enterprise may apply to foreign exchange authorities with relevant documents for financing in the form of direct lending to its wholly-owned subsidiary or an enterprise in which it holds shares legally established offshore within the approved limit and according to the amount, interest rate and loan period agreed upon in the contract. However, it must open a special offshore lending account at the designated foreign exchange bank and make relevant transfers through this account. Offshore loan period should range between six months and five years. Loans exceeding this time range must be filed with the local foreign exchange authorities for record purpose.
- When an FIE is liquidated in accordance with the relevant regulations upon termination of operation, the after-tax liquidation proceeds due to the foreign party may be remitted through the purchase of foreign exchange at a designated bank. However, foreign exchange proceeds due to the Chinese party should be sold to a designated bank in full.
- The foreign party to an FIE wishing to remit its legitimate share of RMB profits out of China may complete the remittance procedure at the bank (by drawing from its own foreign exchange account or by purchasing the required foreign exchange) upon presentation of the necessary documents. Alternatively, it may reinvest its RMB profits in China and enjoy the same treatment as that for investment in foreign currencies.
(c) Fund Transfer
- Transfer of foreign exchange is prohibited between a non-investment FIE and the companies it invests in, as well as among the different companies invested by a non-investment FIE. Should special circumstances warrant such transfer, approval must be sought from the foreign exchange authorities.
- Apart from investment FIEs, other FIEs may also make equity investment in China provided it is within the business scope specified in their business licences.
Administration of Foreign Exchange Accounts of FIEs
FIEs may open foreign exchange accounts for foreign exchange receipts under the current account, and open special accounts such as capital fund account, loan account and loan repayment account, for foreign exchange receipts under the capital account.
(a) Foreign exchange current (settlement) account
- Domestic entities do not need to seek prior approval from foreign exchange authorities to open, change or close foreign exchange current accounts. If a domestic entity that has already opened a foreign exchange current account needs to open a new foreign exchange current account, it may complete the account opening formalities directly at a designated foreign exchange bank by submitting an application form for account opening and its business licence (or registration certificate for social organisations). Any domestic entity which has not opened a foreign exchange current account should register its basic information directly with the bank by presenting its business licence (or registration certificate for social organisations).
- FIEs may retain their foreign exchange receipts under the current account for their own operational needs.
- External payments under the current account can be made from the balance of the foreign exchange settlement account by presenting the necessary documents to the bank. External payments under the capital account must be registered with foreign exchange authorities (bank) or approved by foreign exchange authorities prior to payment.
(b) Foreign exchange capital account
The Regulations on the Administration of Foreign Exchange Accounts in China set out clear provisions governing the opening and use of special accounts under the capital account.
- Capital account transactions permitted under an enterprise’s foreign exchange account
- A capital fund account may be opened for capital contributions in the form of foreign exchange by domestic and foreign parties;
- A loan account may be opened for external debts, external debts-turned-loans, and foreign exchange loans from domestic Chinese-funded financial institutions;
- A loan repayment account may be opened for repaying the principal of domestic and offshore foreign exchange debts;
- A securities account and other special accounts may be opened for foreign exchange receipts deriving from an enterprise’s share issuance and other capital account transactions.
- Scope of use of foreign exchange capital accounts
- Capital fund account: Receipts are capital contributions in the form of foreign exchange by domestic and foreign investors; payments are foreign exchange payments under the current account and foreign exchange payments under the capital account registered with foreign exchange authorities (bank) or approved by foreign exchange authorities.
- Loan account: Receipts are funds from registered external debts, while payments are current account payments stipulated in the loan contracts and capital account payments registered with foreign exchange authorities (bank) or approved by foreign exchange authorities.
- Loan repayment account: Receipts are foreign exchange purchased with RMB, funds transferred from loan accounts and foreign exchange receipts; payments are for repayment of principal and interest of debts and other related expenses. The balance in the loan repayment account must not exceed the total amount of the last two instalments of principal and interest.
- Offshore securities account: Receipts are funds raised through offshore share issuance and listing and proceeds from funds deposited offshore, while payments are for repatriation of funds, offshore listing expenses and other uses specified in the prospectus.
- Domestic securities account: Receipts cover foreign exchange funds raised offshore, while payments cover foreign exchange payments under the current account stipulated in the prospectus, foreign exchange settlements, foreign exchange payments under the capital account, and other offshore uses as stipulated in the prospectus.