Notice of the Shanghai Branch of the State Administration of Foreign Exchange on Printing and Distributing the "Detailed Rules of Implementation on Further Promoting Pilot Foreign Exchange Administration Reform Within the China (Shanghai) Pilot Free Trade Zone"

· Document Number：No. 145 [2015] of the Shanghai Branch of the State Administration of Foreign Exchange

· Area of Law： China (Shanghai) Pilot Free Trade Zone Foreign Exchange

· Level of Authority： Local Regulatory Documents

· Date issued：12-17-2015

· Effective Date：12-17-2015

· Status： Effective

· Issuing Authority： State Administration of Foreign Exchange, Shanghai Branch

Notice of the Shanghai Branch of the State Administration of Foreign Exchange on Printing and Distributing the "Detailed Rules of Implementation on Further Promoting Pilot Foreign Exchange Administration Reform Within the China (Shanghai) Pilot Free Trade Zone"
（No. 145 [2015] of the Shanghai Branch of the State Administration of Foreign Exchange）
To all designated foreign exchange banks in Shanghai Municipality,
With a view to enforcing the Overall Plan for the China (Shanghai) Pilot Free Trade Zone (Guo Fa [2013] No. 38), the Plan for Further Promoting the Pilot Financial Liberalization and Innovation of the China (Shanghai) Pilot Free Trade Zone and Accelerating the Development of Shanghai into an International Financial Center (Yin Fa [2015] No. 339) and other relevant documents, upon approval by the State Administration of Foreign Exchange ("SAFE"), the Shanghai Branch of the SAFE (hereinafter referred to as the "Foreign Exchange Bureau") shall adopt the following policies of foreign exchange administration on a pilot basis within the China (Shanghai) Pilot Free Trade Zone ("FTZ"):
1. Enterprises (excluding financial institutions) within the FTZ shall be allowed to conduct discretionary foreign exchange settlement of their external debts. The Foreign Exchange Bureau shall reasonably regulate the size of overseas financing and the investment directions of the funds raised by taking into comprehensive consideration matching situations including the currencies and terms of assets and liabilities, as well as the needs for external debt and monetary policy regulation, so as to optimize the structure of overseas financing and guard against overseas financing risks. Rental in foreign currencies may be collected for financial leasing transactions within the FTZ that satisfy the prescribed conditions.
2. The procedures for foreign exchange receipt and payment under current account shall be further simplified. Under the premise of authentic and legitimate transactions, enterprises within the FTZ that are listed as Category A for classified foreign exchange administration of trade in goods are not required to open accounts pending verification for their foreign exchange earnings. Banks shall process foreign exchange collection and settlement, as well as foreign exchange purchase and payment formalities under current account in accordance with the business principles of "know your clients", "know your business" and "due diligence investigation", and step up the review of the authenticity and compliance of transactions with larger foreign exchange receipt and payment risks.
3. Support shall be extended to the development of headquarters economy and settlement centers. The entry requirements imposed on multinational companies for conducting centralized operations and management of their foreign exchange funds shall be relaxed. In addition, fund pool management shall be further simplified, and banks shall be allowed to review authentic and lawful electronic documents to handle centralized foreign exchange receipt and payment, and netting and settlement services under current account.
4. Banks shall be supported to develop services for RMB and foreign exchange derivatives. Banks may provide spot foreign exchange settlement and sale services for overseas institutions pursuant to relevant provisions, while banks registered within the FTZ may provide overseas institutions with services for RMB and foreign exchange derivatives trading. Relevant positions shall be included in the integrated foreign exchange settlement and sale position of banks for management.
5. Prevention and control shall be strengthened for cross-border capital flow risks. Pilot foreign exchange business shall be based on authentic and legitimate transactions. Using false contracts and other documents or constructing fictitious transactions to handle pilot foreign exchange business is prohibited. Banks shall establish and improve their internal control systems, fine-tune transaction authenticity and legality review mechanisms, and perform the obligations to submit data and report suspicious or abnormal information strictly as required. The Foreign Exchange Bureau shall strengthen off-site monitoring and on-site verification and inspection, fine-tune early warning indicators, explore an institution-based regulatory approach, practice classified management, and punish irregularities pursuant to the law. Where necessary, the Foreign Exchange Bureau shall adjust pilot policies and take temporary control measures.
This Notice shall come into effect on the date of promulgation. In the next phase, the Foreign Exchange Bureau shall promptly summarize the effects of the implementation of pilot policies within the FTZ, and actively study policy measures that promote investment and financing exchange facilitation, so as to support the development of the real economy within the FTZ and better serve the national strategies of the FTZ.
Appendices:
1. Detailed Rules of Implementation on Further Promoting Pilot Foreign Exchange Administration Reform Within the China (Shanghai) Pilot Free Trade Zone
2. Operating Procedures for Foreign Exchange Administration of Financial Leasing
Shanghai Branch of the State Administration of Foreign Exchange
December 17, 2015
Appendix 1:
Detailed Rules of Implementation on Further Promoting Pilot Foreign Exchange Administration Reform Within the China (Shanghai) Pilot Free Trade Zone
Chapter 1: General Provisions
Article 1These Detailed Rules of Implementation are formulated with a view to supporting the construction of the China (Shanghai) Pilot Free Trade Zone ("FTZ"), and enforcing the Overall Plan for the China (Shanghai) Pilot Free Trade Zone (Guo Fa [2013] No. 38), the Plan for Further Promoting the Pilot Financial Liberalization and Innovation of the China (Shanghai) Pilot Free Trade Zone and Accelerating the Development of Shanghai into an International Financial Center (Yin Fa [2015] No. 339) and other relevant documents.
Article 2These Detailed Rules of Implementation shall apply to banks (including banks registered within the FTZ and banks outside the FTZ but within Shanghai Municipality that process business within the FTZ, hereinafter the same), domestic and overseas enterprises, non-bank financial institutions and individuals within the FTZ (hereinafter referred to as the "FTZ Parties").
Article 3The Shanghai Branch of the State Administration of Foreign Exchange (hereinafter referred to as the "Foreign Exchange Bureau") shall be responsible for the supervision and administration of the following specific matters within the FTZ: the opening of foreign currency accounts, transfer of funds, foreign exchange settlement and sale, foreign exchange registration, compilation and monitoring of RMB and foreign currency statistics, etc.
Article 4FTZ Parties shall, in accordance with the prevailing provisions on foreign exchange administration, earnestly fulfill their registration and data submission obligations with respect to balance of payments, foreign exchange settlement and sale, domestic funds transfer, accounts, etc., and ensure that the data are accurate, up-to-date and complete.
Article 5Banks within the FTZ shall, on the basis of following the principles of "know your clients", "know your business", "due diligence investigation", etc., effectively review the authenticity and compliance of the foreign exchange business within the FTZ pursuant to these Detailed Rules of Implementation, develop sound internal control and management systems, and report the same to the Foreign Exchange Bureau for record-filing.
Article 6To handle pilot business of foreign exchange administration prescribed herein, FTZ Parties shall ensure that they have authentic and lawful transaction bases, handle such business via accounts, and shall not handle business by using false contracts and other documents or by constructing fictitious transactions.
Chapter 2: Business under Current Account
Article 7Foreign exchange purchase and payment, and foreign exchange receipt and settlement procedures for current account transactions between a FTZ Party and an overseas party shall be subject to Article 5 herein. In the event that the nature of the funds involved is unclear, the relevant bank within the FTZ shall require the enterprise, non-bank financial institution or individual concerned to provide relevant further documentation.
When handling foreign exchange receipts and payments for non-local transactions, offshore switch trade transactions, resale transactions that can be confirmed, etc., a bank within the FTZ shall, transaction by transaction, review the authenticity of the originals (photocopies) of contracts, invoices (including electronic documents), bills of lading, warehouse receipts and other proofs of the ownership of goods, so as to ensure that relevant transactions have authentic and legitimate transaction background, and guard against fictitious transactions and foreign exchange receipt and payment risks.
Banks shall retain relevant documents and proofs that are sufficient to prove the authenticity and legality of their transactions for five years for future reference.
Article 8Enterprises within the FTZ that are listed as Category A for classified foreign exchange administration of trade in goods are not required to open accounts pending verification for their foreign exchange earnings.
Enterprises within the FTZ that are listed as Category B and Category C for classified foreign exchange administration of trade in goods shall handle relevant foreign exchange business pursuant to the prevailing provisions on foreign exchange administration of trade in goods.
Article 9The tax record-filing form shall be submitted as required for a single external payment under trade in services, incomes, current transfers, etc., if the payment amount reaches or exceeds the equivalent of USD 50,000.
Chapter 3: Business under Capital Account
Article 10An enterprise within the FTZ shall conduct foreign exchange settlement of its external debts in a discretionary manner, transfer the RMB funds obtained from foreign exchange settlement to the corresponding special RMB deposit account (capital account - account for foreign exchange settlement pending payment) opened, and directly make payment of such funds after the bank concerned has verified the compliance and authenticity of the transactions involved. Such RMB funds obtained from foreign exchange settlement may not be directly or indirectly used for expenditure beyond the business scope of the enterprise or expenditure prohibited by State laws and regulations. The bank shall retain relevant documents and proofs that are sufficient to prove the authenticity and legality of the transactions for five years for future reference.
An enterprise within the FTZ and its account bank shall promptly and accurately submit the data on foreign exchange settlement and payment to relevant business information systems of the Foreign Exchange Bureau. A bank shall, by reference to the Notice of the State Administration of Foreign Exchange on Promulgating the "Data Collection Standards for the Foreign Exchange Business of Financial Institutions (Version 1.0)" (Hui Fa [2014] No. 18), submit the information on the opening, closure, revenue, expenditure and balance of its special RMB deposit accounts whose account nature code is 2113 and account nature is "capital account - account for foreign exchange settlement pending payment". In addition, a bank shall, by reference to the Notice of the State Administration of Foreign Exchange on Promulgating the "Data Collection Standards for the Foreign Exchange Business of Financial Institutions (Version 1.0)" (Hui Fa [2014] No. 18), submit information on the receipts and payments between special RMB deposit accounts and other domestic RMB accounts through proofs of domestic receipts and payments.
Article 11Finance leasing companies, foreign-invested financial leasing companies and Chinese-funded financial leasing companies within the FTZ may collect rental in foreign currencies for the financial leasing services provided for domestic lessees, if 50% or more of the funds used for purchasing the items under leasing come from domestic foreign exchange loans or external debts denominated in foreign currencies.
Chapter 4: Business on the Foreign Exchange Market
Article 12Banks with the business qualifications for RMB and foreign exchange derivatives may provide services of RMB and foreign exchange derivatives for relevant business within the FTZ in accordance with the provisions on foreign exchange administration.
Spot foreign exchange settlement and sale services may be provided for overseas institutions in accordance with relevant provisions. Banks registered within the FTZ may provide RMB and foreign exchange derivatives trading services for overseas institutions.
The specific scope and management of derivatives shall be subject to the prevailing provisions on foreign exchange administration, and be included in the integrated foreign exchange settlement and sale position of banks for management. Relevant data shall be submitted to the Foreign Exchange Bureau pursuant to prevailing provisions.
Chapter 5: Supplementary Provisions
Article 13Where an enterprise within the FTZ goes through record-filing to engage in the centralized operations and management of foreign exchange funds by multinational companies on a pilot basis, the record-filing condition that its RMB and foreign currency balance of payments shall exceed USD 100 million in the preceding year may be adjusted to exceed USD 50 million, and the remaining matters in this regard shall be governed by the Notice of the State Administration of Foreign Exchange on Printing and Distributing the "Provisions on the Centralized Operations and Management of Foreign Exchange Funds by Multinational Companies" (Hui Fa [2015] No. 36).
Finance leasing companies, financial holding companies and asset management companies within the FTZ may, pursuant to relevant provisions, go through record-filing to engage in the centralized operations and management of foreign exchange funds on a pilot basis if they satisfy the aforesaid conditions.
Article 14Foreign exchange registration under direct investment by enterprises within the FTZ, and the discretionary settlement of foreign exchange capitals by foreign-invested enterprises within the FTZ shall be governed by the Notice of the State Administration of Foreign Exchange on Further Simplifying and Improving the Policies of Foreign Exchange Administration Applicable to Direct Investment (Hui Fa [2015] No. 13) and other relevant documents.
Article 15Enterprises within the FTZ shall retain relevant documents and proofs that are sufficient to prove the authenticity and legality of their transactions for five years for future reference.
Article 16The Foreign Exchange Bureau may take relevant temporary control measures in the event of serious or possible serious imbalance of the balance of payments.
The Foreign Exchange Bureau may gradually fine-tune and improve the specifics of pilot business pursuant to national macro-control policies, foreign exchange revenue and expenditure situations and the developments of pilot business.
Article 17The Foreign Exchange Bureau shall conduct supervision, inspection and investigation of FTZ Parties pursuant to the law. It shall suspend FTZ Parties in violation of the Regulations on Foreign Exchange Administration and these Detailed Rules of Implementation from handling pilot business, and mete out punishments in accordance with the Regulations on Foreign Exchange Administration and other pertinent provisions.
Article 18These Detailed Rules of Implementation shall come into effect on the date of promulgation. Matters not covered herein shall be governed by the prevailing provisions on foreign exchange administration. The Notice of the Shanghai Branch of the State Administration of Foreign Exchange on Printing and Distributing the Detailed Rules of Implementation on Providing Foreign Exchange Administration Support for the Development of the China (Shanghai) Pilot Free Trade Zone (Shang Hai Hui Fa [2014] No. 26) shall be simultaneously repealed.
Appendix 2:
Operating Procedures for Foreign Exchange Administration of Financial Leasing
1. Financial leasing companies are allowed to collect rental in foreign currencies within the Mainland.
(1) Finance leasing companies, foreign-invested financial leasing companies and Chinese-funded financial leasing companies within the China (Shanghai) Pilot Free Trade Zone ("FTZ") (hereinafter referred to as the "Financial Leasing Companies") may collect rental in foreign currencies within the Mainland for the financial leasing services provided for lessees, if 50% or more of the funds used for purchasing the items under leasing come from proprietary domestic foreign exchange loans or external debts denominated in foreign currencies.
(2) A lessee shall, by virtue of the notice for payment of rental in foreign currencies and other supporting documents issued by the relevant lessor, handle foreign exchange purchase and payment procedures for the rental payable to the lessor with the relevant bank on its own.
(3) A Financial Leasing Company within the FTZ may deposit the rental incomes collected in foreign currencies in its foreign exchange account opened with a bank in accordance with applicable provisions, and may directly go through foreign exchange settlement with the bank for the portion in excess of the amount needed for repaying its foreign currency debts.
(4) Where the leaseback structure is adopted for financial leasing, the lessor concerned may choose to pay the price of the equipment under leasing to the relevant lessee either in RMB or in a foreign currently at its discretion. The lessee is not allowed to go through foreign exchange settlement if it chooses to receive payments in a foreign currency.
2. Payment for items under financial leasing arrangements shall be facilitated.
(1) Financial leasing project companies within the FTZ are allowed to go through foreign exchange payment procedures by virtue of relevant contracts, commercial documents and other materials if they purchase aircrafts, vessels and large equipment from abroad and lease the same to lessees.
(2) Documentation review requirements. a. Where a Financial Leasing Company within the FTZ or its project company purchases aircrafts from abroad and leases the same to domestic lessees, it shall go through foreign exchange payment procedures by virtue of the aircraft purchase or leasing approval documents issued by the National Development and Reform Commission to relevant airlines, purchase contracts, commercial documents, etc. b. Where a Financial Leasing Company within the FTZ or its project company purchases vessels and large equipment from abroad and leases the same to domestic lessees, it shall go through foreign exchange payment procedures by virtue of relevant contracts, commercial documents, etc. c. Where a Financial Leasing Company within the FTZ or its project company purchases aircrafts, vessels and large equipment from abroad and leases the same to overseas lessees, it shall go through foreign exchange payment procedures by virtue of relevant contracts, commercial documents, etc., and the Shanghai Branch of the State Administration of Foreign Exchange (hereinafter referred to as the "Foreign Exchange Bureau") may conduct verification according to the method of foreign exchange payment without shipping order. d. After making prepayments for items under financial leasing arrangements, a Financial Leasing Company within the FTZ or its project company shall report relevant enterprise information via the foreign exchange business monitoring system for trade in goods (enterprise terminal) pursuant to relevant provisions. e. Where a foreign exchange payment bank handles external payment formalities according to a purchase contract signed with an overseas party, if the purchase contract is signed by the joint purchasers, the foreign exchange payment bank shall process external payment formalities for the relevant financial leasing project company according to the contract. f. Financial Leasing Companies within the FTZ or their project companies shall collect rental in accordance with relevant provisions when they purchase aircrafts, vessels and large equipment and lease the same to domestic lessees.
(3) Monitoring and management. After a financing project company has made prepayments for items under financial leasing arrangements, its foreign exchange payment bank shall perform relevant ledger account registration, track the status on the import of such items or the sublet of such items overseas, and promptly report the same to the Foreign Exchange Bureau.
3. The handling and collection of rental in foreign currencies in violation of these Operating Procedures shall be subject to punishment pursuant to the Regulations on Foreign Exchange Administration.