The SAFE branches and foreign exchange administration departments in Tianjin, Liaoning, Jiangsu, Hubei, Guangdong, Sichuan, Beijing, Chongqing, Heilongjiang, Zhejiang, Fujian, Guangxi, and Guizhou province (autonomous regions and municipalities directly under the Central Government), and the SAFE branches in Shenzhen and Qingdao:
For the purpose of further deepening the reform of the foreign exchange management system and better satisfying and facilitating the requirements for business and capital operations of foreign-invested enterprises (FIEs), the State Administration of Foreign Exchange (SAFE) has decided to implement a pilot reform on an management approach for the settlement of foreign exchange capital funds of FIEs in certain areas (Tianjin Binhai New Area, Shenyang Economic Zone, Suzhou Industrial Park, Donghu National Self-Innovation Demonstration Zone, Guangzhou Nansha New District, Hengqin New District, Chengdu High-Tech Industrial Development Zone, Zhongguancun National Self-Innovation Demonstration Zone, Liangjiang New Area, Heilongjiang Frontier Development Zone for the Foreign Exchange Pilot Reform, Wenzhou Pilot Region for Comprehensive Financial Reform, Pingtan Comprehensive Pilot Zone, China-Malaysia Qinzhou Industrial Park, Guiyang Comprehensive Bonded Zone, Shenzhen Qianhai Shenzhen-Hong Kong Modern Services Cooperation Zone, and Qingdao Pilot Zone for Comprehensive Reform on Wealth Management and Finance). The relevant issues are hereby notified as follows:
I. Voluntary Settlement of Foreign Exchange Capital Funds of Foreign-invested Enterprises
Voluntary settlement of foreign exchange capital funds of FIEs means that foreign exchange capital funds in the FIE capital fund accounts, recognized by the local foreign exchange bureau as the rights and interests of capital contributions, can be settled in banks according to their actual business operational requirements. The provisional percentage for the voluntary settlement of foreign exchange capital funds of FIEs incorporated in the pilot areas is 100 percent. The SAFE may adjust the aforesaid percentage in due time according to the international receipts and payments situation.
During the course of implementing the voluntary settlement of foreign exchange capital funds, the FIEs can still choose the existing settlement procedures against payments for the use of foreign exchange capital funds. For each foreign exchange settlement transaction of enterprises, based on the principle of foreign exchange settlement against payments, the banks shall examine and verify the authenticity and compliance in the use of the funds for prior transactions of foreign exchange settlement (including voluntary settlement of foreign exchange and foreign exchange settlement against payments).
Domestic remittances and transfers and cross-border outward payments of foreign exchange capital funds of FIEs shall be transacted pursuant to the relevant regulations on foreign exchange administration.
II. Management of Bank Accounts for Foreign Exchange Funds Settled and to Be Paid with RMB Proceeds from the Voluntary Settlement of Foreign Exchange Capital Funds of FIEs
The FIEs shall open accounts for capital items – foreign exchange funds settled and to be paid (“settlement and payment accounts”) for the deposits of RMB proceeds from the voluntary settlement of foreign exchange on a one-to-one corresponding basis, with their account banks for the foreign exchange capital funds and for transactions of various payments through these accounts. The RMB proceeds of FIEs from foreign exchange settlement against payments shall not be used for payments through the settlement and payment accounts.
Receipts in the FIE capital fund accounts include: foreign exchange capital funds remitted from overseas or capital funds subscribed to and contributed by foreign investors (including contributions from non-resident deposit accounts, offshore accounts, and domestic foreign exchange accounts of foreign individuals); foreign exchange capital funds or capital funds subscribed to and contributed as transferred from the special accounts for security deposits of overseas remittances; funds returned after transfers, pursuant to the regulations; funds received from the capital funds account of the same name; funds returned due to revocation of the transactions; received interest income; and other receipts registered or approved by the foreign exchange bureau.
The scope of the payments from the capital fund accounts includes: foreign exchange settlement within the business scope; transfers through the foreign exchange settlement into the settlement and payment accounts; domestic transfers in the same currency to the special accounts for security deposits of domestic transfers, capital fund accounts of the same name, accounts for entrusted loans, special accounts for concentrated funds management, special accounts for overseas lending, special accounts for domestic reinvestments, and special accounts for foreign debts; outward remittances owing to capital reductions or withdrawals by foreign investors; outward payments for current items; and other capital item expenditures registered or approved by the foreign exchange bureau.
The scope of the receipts in the settlement and payment accounts includes: funds from foreign exchange settlement as transferred from the corresponding capital funds accounts, domestic accounts for the realization of assets, or accounts for domestic reinvestments; funds returned after transfer from these accounts, pursuant to the regulations; funds returned due to revocation of the transactions; received interest income; and other receipts registered or approved by the foreign exchange bureau.
The scope of the payments from the settlement and payment accounts includes: expenditures within the business scope; payments of the RMB security deposit; transfers to the special account for centralized funds management; repayment of RMB loans after completed utilization; foreign exchange purchases and payments or direct outward repayments of foreign debts; foreign exchange purchases and payments or direct outward payments owing to capital reductions or withdrawals by foreign investors; foreign exchange purchases and payments or direct outward payments for current item expenditures; and other capital item expenditures registered or approved by the foreign exchange bureau.
RMB funds in the settlement and payment accounts shall not be transferred back to the capital fund accounts through foreign exchange purchases without approval by the foreign exchange bureau. The funds shall not be transferred between the FIEs’ settlement and payment accounts of the same name. RMB funds transferred from the settlement and payment accounts for the purpose of guarantees or payments of other security deposits, unless in the case of execution of guarantee agreements or deductions owing to default, shall be returned to the settlement and payment accounts through the original route.
III. Utilization of FIEs’ Capital Funds according to the Principles of Authenticity and Self-use within the Business Scope
FIE capital funds and RMB funds from their settlement shall not be used for the following purposes:
(I) directly or indirectly used for expenditures beyond the business scope or prohibited under the laws and regulations of the State;
(II) directly or indirectly used for securities investments, unless otherwise stipulated under the laws and regulations;
(III) directly or indirectly used for the supply of RMB entrusted loans (unless permitted by the business scope), repayments of inter-enterprise borrowings (including third-party advances), and repayments of RMB bank loans already refinanced to any third party;
(IV) payment of expenses relevant to the purchase of real estate not for one’s own use, unless as a foreign-invested real estate enterprise.
IV. Facilitation of Domestic Equity Investments by FIEs with Funds from Foreign Exchange Settlement
Except for transfers in the original currency owing to equity investments, it is acceptable for FIEs with investment as their main business (including foreign-funded investment companies, foreign-funded venture capital enterprises, and foreign-funded equity investment enterprises) to transfer the foreign exchange capital funds after direct settlement into the accounts of the invested enterprises according to the actual scale of investment, provided that the domestic investment project is authentic and compliant with the regulations. Capital funds other than the aforesaid enterprise equity investment funds shall be handled according to the principles of settlement against payment.
When ordinary FIEs other than the abovementioned enterprises invest in domestic equities with capital funds in the original currency, the existing regulations on domestic reinvestments shall prevail. When funds from foreign exchange settlement are used for domestic equity investments, the invested enterprise shall first register for a domestic reinvestment with the local foreign exchange bureau and open a corresponding settlement and payment account, prior to the transfer of the RNB funds from the foreign exchange settlement by the investing enterprise, according to the actual scale of investment, to the account opened by the invested enterprise. When the invested enterprise continues to invest in domestic equities, the aforesaid principles shall apply.
V. Further Requirements regarding the Management of Payments with Funds from Foreign Exchange Settlement
(I) Foreign investors, FIEs, and other applicant entities shall provide, on an accurate and authentic basis and according to the regulations, the relevant certifying documents regarding the authenticity to the foreign exchange bureau and the banks, and complete the Order of Payments with Funds in Accounts Related to Direct Investments (see the Appendix) when applying for payments with RMB funds from the settlement of capital funds (including direct payments with foreign exchange capital funds).
(II) The banks shall, according to the principles of “understanding their customers,” “understanding their businesses,” and “due diligence reviews,” be responsible for verification of the authenticity of outward payments with capital funds and payments with RMB funds from the foreign exchange settlement by the FIEs. When handling each payment transaction with such funds, the authenticity and compliance of the certifying documents with respect to the prior payment transactions shall be examined and verified. The banks shall keep the certifying documents relevant to the settlement and use of the foreign exchange capital funds of the FIEs for five years for future reference.
The banks shall report the data, including the accounts related to the capital fund accounts and the settlement and payment accounts (account nature code: 2113), cross-border receipts and payments, domestic transfers, foreign exchange settlement and sales within the accounts, on a timely basis and according to the Circular of the State Administration of Foreign Exchange on the Issuance of Foreign Exchange Transaction Data Collection Rules for Financial Institutions (Version 1.0) (Huifa No. 18, [2014]). In the case of transfers of funds between the settlement and payment accounts and other RMB accounts, the information on the domestic transfers shall be reported by filling in the documents for domestic payments and receipts and indicating the fund purpose code under the “invoice number” column (according to “7.10: Code of Purpose for Foreign Exchange Settlement” in the Circular of Huifa No. 18 [2014]) ; the transaction code for other transfers shall be indicated as “929070,” except for payments under verification of goods trade.
(III) When enterprises fail to provide certifying documents for current special reasons, the banks may make the relevant payments for the enterprises, provided that the obligation of due diligence review has been performed and the authentic background of the transactions has been verified, and may file with the foreign exchange bureau through its relevant business system with respect to the special items on the date of payment. The banks shall collect and examine the full set of relevant certifying documents resubmitted by the enterprises within 20 working days upon completion of the payment and report to the foreign exchange bureau with respect to the resubmission of the certifying documents on the authenticity of the filing of special items.
When FIEs use capital funds for the purpose of reserve funds, the banks need not require submission of the aforesaid certifying documents regarding authenticity. The cumulative amount of payments for reserve funds by a single enterprise in one month shall not exceed the value equivalent to RMB 600,000.
When FIEs apply for settlement against payments with all the foreign exchange capital funds on a one-off basis, or payments with all the RMB funds for the settlement and payment account, but fail to provide the relevant certifying documents on the authenticity, the banks shall not handle for them the foreign exchange settlement and payments .
VI. Management of the Settlement and Utilization of Funds in the Foreign Exchange Accounts under Other Direct Investment Items
Settlement of foreign exchange funds in domestic accounts for the realization of assets and domestic reinvestments of domestic institutions shall be made with reference to the administrative regulations regarding the FIE capital fund accounts.
Settlement of foreign exchange funds in the domestic accounts for the realization of assets and domestic reinvestments by domestic individuals and overseas accounts for the realization of assets of domestic institutions and individuals shall be made directly through the banks, against the relevant transaction documents registered with the foreign exchange bureau.
Settlement of foreign exchange funds in the foreign investors’ accounts for preliminary expenses shall be made according to the principles of settlement against payments.
Foreign exchange funds in the special accounts for overseas and domestic security deposits shall not be used through the foreign exchange settlement. In cases of execution of guarantee agreements or deductions owing to default, the relevant security deposits shall be transferred into the other foreign exchange accounts for capital items of the recipients of the deposits that have been approved or registered by the foreign exchange bureau, and shall be used according to the relevant regulations.
The interest income and investment income under direct investments in the above accounts can be settled and paid directly through the banks according to the relevant regulations on foreign exchange administration of current items.
VII. Further Strengthening Post-mortem Supervision and Investigations of Irregularities by the Foreign Exchange Bureau
(I) The foreign exchange bureau shall strengthen guidance and examination of the compliance of bank transactions, including foreign exchange settlement and utilization of FIE capital funds in accordance with the Regulations on the Control of Foreign Exchange of the People's Republic of China and the Regulations on Foreign Exchange Administration of Domestic Direct Investments by Foreign Investors. The manner of examination includes submission of written explanatory and transaction documents by the relevant entities as requested, an interview with the persons in charge, field inspections or duplication of the relevant documents of the entities, and notification of any irregularities. With respect to banks with serious or malicious irregularities, their foreign exchange transactions under capital items shall be suspended according to the relevant procedures. With respect to FIEs with serious or malicious irregularities, their qualifications for voluntary settlement of foreign exchange shall be revoked. Prior to the submission of the written explanatory documents and proper rectification, any other foreign exchange transactions under the capital items shall be prohibited.
(II) For FIEs and banks with violations against this Circular with respect to foreign exchange settlement and utilization of FIE capital funds, the foreign exchange bureau shall investigate and treat them according to the relevant provisions of the Regulations on the Control of Foreign Exchange of the People's Republic of China.
VIII. Other Relevant Issues
This Circular shall take effect as of August 4, 2014. In cases of any discrepancies with prior regulations, this Circular shall prevail. The relevant requirements in the Circular of the State Administration of Foreign Exchange on Operational Issues Concerning Foreign Exchange Payment and Settlement of FIE Capital Funds (Huizongfa No. 142 [2008]) and the Supplementary Circular of the General Affairs Department of the State Administration of Foreign Exchange on Operational Issues Concerning Improvements in the Management of Foreign Exchange Payments and Settlement of FIE Capital Funds (Huizongfa No. 88 [2011]) are provisionally not applicable to the foreign exchange settlement of the capital funds of the FIEs in the pilot districts.
The sub-bureaus in the pilot districts and the foreign exchange administrative departments are requested to distribute this Circular to the central sub-bureaus, branch bureaus, and banks within the pilot districts as soon as possible. In cases of any problems arising during the course of implementation, feedback shall be provided to the Capital Account Management Department of the SAFE on a timely basis.
Appendix: Order of Payments with Funds in Accounts Related to Direct Investments
State Administration of Foreign Exchange
July 4, 2014
FILE: Order of Payments with Funds in Accounts Related to Direct Investments
