Control over Foreign Exchange

An Expert's View about Business Administration in China

Last updated: 22 Feb 2011

5.1 Control over Foreign Exchange of Foreign-Invested Enterprises

5.1.1 Registration of Foreign-Invested Enterprises
(a) Documentation Required for Registration

Within 30 days after being issued a Corporate Legal Person Business Licence, a foreign-invested enterprise (FIE) must apply for registration of foreign exchange with SAFE at the place of its business registration by presenting its FIE Background Information Registration Form; official approval documents and approval certificate of establishment of FIE (copies); Corporate Legal Person Business Licence issued by the State Administration for Industry and Commerce and copy; approved valid contracts and articles of association (copies); and other documents as required by SAFE.

(b) Use of Foreign Exchange Registration Certificate

When applying to SAFE for permission to open a foreign exchange account and opening the account with a financial institution, the FIE has to present its Foreign Exchange Registration Certificate and other documents. Upon opening the account, the designated foreign exchange bank would put down the name of the bank, currency type, account number, type of account, and date of opening of account on the foreign exchange registration certificate, complete with its official seal.

(c) Annual Inspection of Foreign Exchange Registration Certificate

SAFE inspects the Foreign Exchange Registration Certificate annually. FIEs passing the inspection will have their Foreign Exchange Registration Certificate validated for another year. FIEs failing to undergo the annual inspection for two consecutive years will have their Foreign Exchange Registration Certificate invalidated. FIES whose Foreign Exchange Registration Certificate is revoked are not allowed to carry out foreign exchange receipt and payment transactions at designated banks without SAFE approval.

Should there be any change in the name, address, business scope of the FIE, or any transfer, capital increase or merger subsequent to the issuance of the Foreign Exchange Registration Certificate, the relevant documents have to be submitted promptly to SAFE for filing, to be followed by application for change in particulars or a new certificate.

Upon expiry of the operation term or cessation of business and with approval from the original approving authority, the FIE should within 30 days of cessation apply for cancellation of its foreign exchange registration, surrender the foreign exchange registration certificate, and cancel its foreign exchange account.

For FIEs which have completed foreign exchange registration at the place of business registration, their branch operations elsewhere in the mainland or outside China are not required to go through foreign exchange registration separately.

(d) Registration of Special Types of FIEs

Foreign investors or foreign-funded investment enterprises acquiring the shares of mainland enterprises should, at the time of making payment for the shares, complete the registration procedure for foreign capital payment by foreign investor in share transfer.

FIEs with less than 25% foreign shareholding will be issued an FIE establishment approval certificate and business licence stating "foreign equity ratio less than 25%". This type of FIEs will be subject to SAFE's existing foreign exchange administration system for FIEs and they should duly complete FIE foreign exchange registration.

5.1.2 Control Over the Current Account of Foreign-Invested Enterprises

(a) Foreign Exchange Receipts under the Current Account

An FIE can open a foreign exchange settlement account directly with a designated bank by presenting its Foreign Exchange Registration Certificate and other supporting documents. For foreign exchange received under the current account, the FIE may retain a certain amount of it within the limit prescribed by SAFE. Any excess portion has to be sold to designated banks.

(b) Foreign Exchange Payments under the Current Account

When an FIE has to make external payments within its 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 with renminbi at designated banks. 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; (2) the after-tax wages and other legitimate incomes in renminbi 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 exchange may be remitted from the foreign exchange account or at designated banks.

Enterprises 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) are not required to submit a letter of guarantee for the advance payment. The FIE can directly complete the foreign exchange purchase and payment procedures at a designated bank by presenting the relevant proofs such as import contract, import foreign exchange payment verification and cancellation form, proforma invoice, FIE Foreign Exchange Registration Certificate and proof of the companies concerned.

(c) Foreign Exchange Receipt Verification and Cancellation System on Exports

The requirement for submitting the verification and cancellation form to SAFE prior to receiving remittances has been cancelled. FIEs are now allowed to complete the procedures for verification and cancellation of foreign exchange receipts on exports in one go on a monthly basis, and can submit the documents online via the e-port system after export declaration instead of going to SAFE in person to submit the hard copies. Upon receipt of foreign exchange, the FIE can go to SAFE and complete the verification and cancellation procedures in one go by presenting the supporting documents including foreign exchange receipts on exports verification and cancellation forms, export declarations, invoices, and counterfoils of the foreign exchange receipts on exports verification and cancellation forms.

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Posted: 19 February 2011, last updated 22 February 2011

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