Circular of the State Administration of Foreign Exchange on Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises

Hui Fa [2015] No.19

March 30, 2015

All branches and administrative departments for foreign exchange of the State Administration of Foreign Exchange in all provinces, autonomous regions and municipalities directly under the Central Government, and branches in Shenzhen City, Dalian City, Qingdao City, Xiamen City and Ningbo City,

In order to further deepen the reform of the foreign exchange administration system, better satisfy and facilitate the needs of foreign-invested enterprises for business and capital operation, the State Administration of Foreign Exchange (hereinafter referred to as the "SAFE") has decided to reform the management approach regarding the settlement of the foreign exchange capital of foreign-invested enterprises nationwide on the basis of summarizing the pilot experience of certain regions in the early days. With a view to ensuring the smooth implementation of such reform, the relevant issues are hereby notified as follows:

I. The foreign exchange capital of foreign-invested enterprises shall be subject to the discretional foreign exchange settlement
The discretional settlement of the foreign exchange capital of foreign-invested enterprises refers to that the foreign exchange capital in the capital account of foreign-invested enterprises for which the confirmation of rights and interests of monetary contribution by the local foreign exchange bureau (or the book-entry registration of monetary contribution by the banks) has been handled can be settled at the banks based on the actual operation needs of the enterprises. The proportion of discretionary settlement of foreign exchange capital of foreign-invested enterprises is temporarily determined as 100%. The SAFE can adjust the aforementioned proportion in due time based on the situation of international balance of payments.
In the meantime of implementing the discretionary settlement of foreign exchange capital, foreign-invested enterprises may still choose to use their foreign exchange capital in accordance with the payment-based exchange settlement system. Banks shall verify the authenticity and compliance of the use of the previous foreign exchange capital settled (including discretionary settlement and payment-based foreign exchange settlement) of the enterprises in handling each foreign exchange settlement for the enterprises in accordance with the principle of payment-based foreign exchange settlement.
The domestic transfer in the original currency and cross-border external payment of foreign exchange capital of foreign-invested enterprises shall be handled in accordance with the prevailing provisions on foreign exchange administration.

II. The capital in Renminbi obtained by foreign-invested enterprises from the discretionary settlement of foreign exchange capital shall be managed under the account pending for foreign exchange settlement payment
In principle, foreign-invested enterprises shall open the corresponding capital account – account pending for foreign exchange settlement payment (hereinafter referred to as the "Account Pending for Foreign Exchange Settlement Payment") for depositing the capital in Renminbi obtained from the discretionary foreign exchange settlement, and handle all the payment procedures through such account. The capital account, domestic assets realization account and domestic reinvestment account of the same name opened by foreign-invested enterprises in the same bank outlet can share an Account Pending for Foreign Exchange Settlement Payment. The capital in Renminbi obtained by foreign-invested enterprises from the foreign exchange settlement in accordance with the principle of payment-based foreign exchange settlement shall not be paid through the Account Pending for Foreign Exchange Settlement Payment.
The income scope of the capital account of foreign-invested enterprises includes: the foreign exchange capital or subscribed contribution remitted from overseas by foreign investors (including the contribution from non-resident deposit accounts, offshore accounts and domestic foreign exchange accounts of overseas individuals), the foreign change capital or subscribed contribution transferred in from the special account of deposits remitted from overseas; the capital transferred back to the account after the transfer out for compliance, the capital transferred in from the capital account of the same name, the capital returned due to the cancellation of transaction, the interest income and other income registered by the foreign exchange bureaus (banks) or approved by the foreign exchange bureau.
The expenditure scope of the capital account includes: foreign exchange settlement within the scope of business, foreign exchange settlement transferred into the Account Pending for Foreign Exchange Settlement Payment, domestic capital in the original currency transferred to the special account of deposits transferred from domestic, capital in the capital account of the same name, the account of entrust loans, the special account for centralized administration of capital, the overseas special account for granting loans, and the domestic special account for reinvestment, the capital remitted out due to the capital reduction or disinvestment by foreign investors, the external payment under current account, and other expenditures under capital account registered by the foreign exchange bureaus (banks) or approved by the foreign exchange bureaus.
The income scope of the Account Pending for Foreign Exchange Settlement Payment includes: the capital transferred in for foreign exchange settlement from the capital account of the same name or enterprises carrying out domestic equity investment, the domestic assets realization account, and the domestic reinvestment account, the capital transferred in from the Account Pending for Foreign Exchange Settlement Payment of the same name or enterprises carrying out domestic equity investment, the capital transferred back to the account after the transfer out for compliance, the capital returned due to the cancellation of transaction, the interest income in Renminbi and other income registered by the foreign exchange bureaus (banks) or approved by the foreign exchange bureaus.
The expenditure scope of the Account Pending for Foreign Exchange Settlement Payment includes: the expenditure within the scope of business, the payment of the capital of domestic equity investment and deposits in Renminbi, the capital transferred to the special account for centralized administration of capital and the Account Pending for Foreign Exchange Settlement Payment of the same name, the repayment of the used loans in Renminbi, the purchase payment of foreign exchange or direct external repayment of foreign debts, the capital purchase payment of foreign exchange or direct external payment due to the capital reduction and disinvestment by foreign investors, purchase payment of foreign exchange or direct external payment of the expenditure under current account and other expenditure under capital account registered by the foreign exchange bureaus (banks) or approved by the foreign exchange bureaus.
The capital in Renminbi in the Account Pending for Foreign Exchange Settlement Payment shall not be used for purchasing foreign exchange and transferred back to the capital account. The capital in Renminbi transferred out from the Account Pending for Foreign Exchange Settlement Payment for the use of guarantee or paying other deposits shall be transferred back to the said account according to the same route unless in the event of the performance of guarantee obligations or deduction for breach of contract.

III. The use of capital by foreign-invested enterprises shall follow the principles of authenticity and self-use within the business scope of enterprises
The capital of foreign-invested enterprises and capital in Renminbi obtained by them from foreign exchange settlement shall not be used for the following purposes:
1. it shall not be directly or indirectly used for the payment beyond the business scope of the enterprises or the payment prohibited by national laws and regulations;
2. it shall not be directly or indirectly used for investment in securities unless otherwise provided by laws and regulations;
3. it shall not be directly or indirectly used for granting the entrust loans in Renminbi (unless permitted by the scope of business), repaying the inter-enterprise borrowings (including advances by the third party) or repaying the bank loans in Renminbi that have been sub-lent to the third party; and
4. it shall not be used for paying the expenses related to the purchase of real estate not for self-use, except for the foreign-invested real estate enterprises.

IV. Facilitating foreign-invested enterprises in carrying out domestic equity investment with the capital obtained from foreign exchange settlement
Except for transfer of equity investment in the original currency, foreign-invested enterprises with investment as the primary business (including foreign-invested investment companies, foreign-invested venture capital enterprises and foreign-invested equity investment enterprises) are permitted to directly settle the foreign exchange capital or transfer the capital in Renminbi in the Account Pending for Foreign Exchange Settlement Payment to the account of invested enterprises based on the actual investment scale on the premise that the domestic investment project is authentic and compliant.
General foreign-invested enterprises other than the aforementioned enterprises shall be governed by the prevailing provisions on domestic reinvestment if they make domestic equity investment with the capital transfer in the original currency. For domestic equity investment made with the capital obtained from foreign exchange settlement, the invested enterprises first shall handle the registration of domestic reinvestment at the foreign exchange bureaus (banks) at the places of registration and open the corresponding Account Pending for Foreign Exchange Settlement Payment, and then the enterprises making the investment shall transfer the capital in Renminbi obtained from foreign exchange settlement based on the actual investment scale to the Account Pending for Foreign Exchange Settlement Payment opened by the invested enterprises. The invested enterprise shall handle in accordance with the aforementioned principles if it continues to make domestic equity investment.

V. Further standardizing the administration of payment by the capital obtained by foreign exchange settlement
1. Foreign investors, foreign-invested enterprises and other relevant application subjects shall truthfully provide the banks with the related evidentiary materials for authenticity in accordance with the provisions and fill out the Payment Instruction of Funds under the Relevant Accounts for Direct Investment (see Appendix) in handling the payment and use of capital in Renminbi obtained from the settlement of foreign exchange capital (including direct payment and use of foreign exchange capital).
2. Banks shall fulfill the operation principles such as "understanding clients", "understanding the business", "due diligence" and so on, and shall assume the responsibility for verification of authenticity when the foreign-invested enterprises handle the external payment of capital and payment of capital in Renminbi obtained from foreign exchange settlement. Banks shall verify the authenticity and compliance of evidentiary materials for the previous payment in handling each payment of capital. Banks shall keep the evidentiary materials related to the settlement and use of foreign exchange capital of foreign-invested enterprises for five years for future reference.
Banks shall submit the accounts, cross-border revenues and expenditures, domestic transfer, settlement and sale of foreign exchange in the accounts as well as other information related to the capital account and the Account Pending for Foreign Exchange Settlement Payment (account nature code 2113) in a timely manner in accordance with the requirements of the Circular 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). For the capital transfer between the Account Pending for Foreign Exchange Settlement Payment and other accounts in Renminbi, domestic transfer information shall be submitted by filling out the certificates of domestic receipt and payment, and the code of capital purpose shall be filled out in the column of "Invoice No." (in accordance with the "7.10 code of foreign exchange settlement purpose" in the Document Hui Fa [2014] No.18); the transaction code of other transfer shall be filled as "929070" except for the payment under the verification of trade in goods.
3. If the enterprises are genuinely unable to provide the evidentiary materials for authenticity temporarily due to special reasons, banks may handle the related payment for the enterprises on the premise of fulfilling the obligation of due diligence and determining that the transaction has a real trading background, and submit the filing of special matters to the foreign exchange bureaus through the relevant business system of the foreign exchange bureaus on the same date when the business is handled. Banks shall collect and review the related complete evidentiary materials supplemented by the enterprises within 20 working days after the completion of payment, and report the information on the supplement of evidentiary materials for authenticity of the filing business of special matters to the foreign exchange bureaus through the relevant business system.
Banks may not request the foreign-invested enterprises to provide the aforementioned evidentiary materials for authenticity if such enterprises use the capital in the name of imprest. The accumulated amount of monthly imprest payment of a single enterprise (including discretionary settlement and payment-based foreign exchange settlement) shall not exceed the value equivalent to USD100,000.
Banks shall not handle the foreign exchange settlement and payment for the foreign-invested enterprises that apply for paying the foreign exchange settlement with all the foreign exchange capital or making the payment with all the capital in Renminbi in the Account Pending for Foreign Exchange Settlement Payment in a single time if such enterprises fail to provide the related evidentiary materials for authenticity.

VI. Administration of the settlement and use of the capital in other foreign exchange accounts under direct investment
The provisions applicable to the capital accounts of foreign-invested enterprises apply mutatis mutandis to the foreign exchange settlement of the funds under the domestic assets realization account and the domestic reinvestment account opened by a domestic institution.
The foreign exchange settlement of domestic assets realization account and domestic reinvestment account opened by domestic individuals as well as overseas assets realization account opened by domestic institutions and individuals may be directly handled at the banks by the relevant certificates of business registration.
The foreign exchange settlement of capital in the account of upfront fees of foreign investors shall be handled in accordance with the principle of payment-based foreign exchange settlement.
The foreign exchange capital in the special account of deposits remitted from overseas and in the special account of deposits remitted from the domestic shall not be used for foreign exchange settlement. Relevant deposits shall be transferred to the account of foreign exchange under other capital account opened by the receiving party of deposit after the registration at the foreign exchange bureaus (banks) or approval by the foreign exchange bureaus and used in accordance with the relevant provisions if the performance of guarantee obligations or deduction for breach of contract occurs.
The interest income and investment income in the account under the aforementioned direct investment account may be kept in the account, and can be transferred to the settlement account under the current account by the interest and income lists for reserve or the foreign exchange settlement and payment can be directly handled at the banks.

VII. Further strengthening the ex-post regulation as well as investigation on and punishment against violations by the foreign exchange bureaus
1. The foreign exchange bureaus shall strengthen the guidance for and inspection on the compliance of the business such as the settlement and use of the foreign exchange capital of foreign-invested enterprises handled by the banks in accordance with the Administrative Regulations of the People's Republic of China on Foreign Exchange, the Administrative Provisions on Foreign Exchange in Domestic Direct Investment by Foreign Investors and other relevant provisions. Verification methods include requesting the related business subjects to provide the written explanation and business materials, interviewing the principals, consulting or copying the relevant materials of the business subjects on the site, and notifying the violations. For the foreign-invested enterprises commit serious and malicious violations, banks may suspend the handling of foreign exchange business under their capital account in accordance with the relevant procedures, the qualification for discretionary foreign exchange settlement of foreign-invested enterprises that have serious and malicious violations can be cancelled, and the foreign exchange business under other capital account of such enterprises shall not be handled before the enterprises submit the letter of written explanation and conduct the corresponding rectification.
2. The foreign exchange bureaus shall investigate and publish the foreign-invested enterprises and banks that handle the settlement and use of foreign exchange capital of the foreign-invested enterprises in violation of the provisions herein in accordance with the Administrative Regulations of the People's Republic of China on Foreign Exchange and the relevant provisions.

VIII. Other matters
The Circular of the State Administration of Foreign Exchange on Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises (hereinafter referred to as the "Circular") will take effect as of June 1, 2015. If there is any inconsistency between the previous provisions and the provisions of the Circular, the Circular shall prevail. The Circular of the General Affairs Department of the State Administration of Foreign Exchange on Relevant Operating Issues concerning Improvement of the Administration of Payment and Settlement of Foreign Exchange Capital of Foreign-invested Enterprises (Hui Zong Fa [2008] No.142), the Supplementary Circular of the General Affairs Department of the State Administration of Foreign Exchange on Relevant Operating Issues concerning Improvement of the Administration of Payment and Settlement of Foreign Exchange Capital of Foreign-invested Enterprises (Hui Zong Fa [2011] No.88) and the Circular of the State Administration of Foreign Exchange on Issues concerning the Pilot Reform of the Administration Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises in Certain Areas (Hui Fa [2014] No.36) will be repealed simultaneously.
All branches and administrative departments for foreign exchange of the SAFE shall promptly forward the Circular to the central branches, branches and banks within the jurisdiction after the receipt of the Circular. Please reflect to the Capital Account Management Department of the SAFE in a timely manner in case of any problem encountered in the implementation.