Notice of the State Administration of Foreign Exchange on Relevant Issues of Registration of Overseas Investments Contributed by Domestic Individual Residents and Foreign Exchange Registration of Merger or Acquisition with Foreign Investments

Hui Fa [2005] No. 29 April 21, 2005

The branches and foreign exchange administration departments of the State Administration of Foreign Exchange in all provinces, autonomous regions and municipalities directly under the Central Government, and the branches of the State Administration of Foreign Exchange in Shenzhen, Dalian, Qingdao, Xiamen and Ningbo: With a view to maintaining the balance of international income and payment, guaranteeing the regularized and orderly flow of trans-territorial capitals, we hereby give our notice as follows regarding the registration of overseas investments contributed by domestic individual residents and the foreign exchange registration of merger or acquisition with foreign investments:

I. Where a domestic individual resident contributes his domestic assets or stock rights into an overseas enterprise, and thus directly or indirectly holds shares or stocks of the overseas enterprise, if the merged or acquired domestic enterprise (or the enterprise established for the sake of merger or acquisition) has obtained the foreign-funded enterprise approval certificate before January 24, 2005 for the latest connected transaction of merger or acquisition with foreign investments occurring prior to this date, the domestic individual resident shall go to the foreign exchange administration office at the locality of the merged or acquired enterprise to supplement foreign exchange registration of overseas investments according to the format of the Attachment. No domestic individual resident may undertake any foreign exchange business for overseas investments or other capital programs without making registration in the foreign exchange administration office.

II. Where an overseas enterprise with its stock rights directly or indirectly held by a domestic individual resident, after supplementing the foreign exchange registration of overseas investments, meets with the increase or decrease of investments, transfer of stock rights, merger, division, contribution of stock right investments to a foreign party, guaranty involving domestic assets to a foreign party, or any other similar major matter, the domestic individual resident who directly or indirectly owns the maximum stock rights of the overseas enterprise shall, within 30 days as of occurrence of the major matter, go to the foreign exchange administration office at the locality of registration of the overseas investments to go through relevant procedures for modification or archival filing of foreign exchange registration.

III. Where an overseas enterprise with its shares partially or totally held by domestic individual residents has made the foreign exchange registration of overseas investments, the involved branches or foreign exchange administration departments may make foreign exchange registration of foreign investments for the overseas enterprise's transactions of merge or acquisition of domestic enterprises that have occurred before January 24, 2005.

IV. The "foreign exchange registration of a foreign-funded enterprise established by means of merger or acquisition with foreign investments" as referred to in Article 3 of the "Notice of the State Administration of Foreign Exchange on Relevant Issues concerning Improving the Foreign Exchange Administration of Merger and Acquisition with Foreign Investments" (Hui Fa No. 11 [2005]) and the "foreign exchange registration of merger or acquisition with foreign investments" as referred to in Articles 1 and 3 of this Notice shall include the following circumstances:

(1) If a foreign investor purchases by agreement the stock rights of a Chinese party in a Chinese-funded enterprise within the territory, and changes the domestic-funded enterprise into a foreign-funded enterprise, such foreign-funded enterprise shall make foreign exchange registration, and the foreign investor shall make foreign exchange registration of foreign investments in the form of foreign exchange upon the transfer of stock rights;

(2) If a foreign investor purchases by agreement the stock rights of a Chinese party in a foreign-funded enterprise within the territory, the former foreign-funded enterprise shall make alterations of the foreign exchange registration, and the foreign investor shall make foreign exchange registration of foreign investments in the form of foreign exchange upon the transfer of stock rights;

(3) If a foreign investor increases investments to a domestic enterprise, the domestic enterprise shall make or modify the foreign exchange registration for the foreign-funded enterprise;

 (4) If a foreign investor establishes a foreign-funded enterprise within the territory, and purchases assets of domestic enterprises by agreement via the foreign-funded enterprise and operates such assets, or a foreign investor purchases assets of domestic enterprises by agreement and invests the assets to establish a foreign-funded enterprise to operate such assets, the newly established foreign-funded enterprise shall make foreign exchange registration;

(5) If a foreign investor establishes a new foreign-funded enterprise within the territory, and controls another enterprise or the right of proceeds or the franchise rights of a certain asset within the territory by agreement via the foreign-funded enterprise, the newly established foreign-funded enterprise shall make foreign exchange registration.

V. When making foreign exchange registration, the newly established foreign-funded enterprise shall submit to the local foreign exchange administration office the application letter for registration in which the enterprise shall state the foreign investor's final controller and main operation performance in details. If the foreign investor's final controller or main operation performance is not clear, the enterprise shall give clear indication in the application letter: "None of the shares of the foreign investor of this Company is directly or indirectly held by any domestic individual resident or any domestic institution. If there is any act of making foreign exchange registration with false or misleading statements, this Company and its legal representative will bear the legal consequences caused thereout."

VI. Where a foreign-funded enterprise with its shares directly or indirectly held by a domestic individual resident or directly held by a domestic institution, does not make foreign exchange registration of overseas investments according to provisions, the involved branches or foreign exchange administration departments shall not make foreign exchange registration of foreign investments for domestic enterprises merged or acquired by this overseas enterprise. Any foreign-funded enterprise that has made foreign exchange registration of foreign investments by means of false or misleading statements shall, once found, be subject to the liabilities for evasion of foreign exchange for the profits remitted outside as of the date of registration and other sums of money of capital programs.

VII. The domestic enterprises are prohibited from paying profits, or funds for liquidation, share-transfer or investment decrease and etc. to any overseas enterprise whose shares are directly or indirectly held by domestic institutions or individual residents, and who has not made foreign exchange registration of overseas investments, modification of the registration or archival filing. The violator shall be deemed to have committed evasion of foreign exchange and shall be punished accordingly.

VIII. Except for enterprises listed outside the territory, any company for particular purposes shall not retain any foreign exchange income. And the foreign exchange income obtained by a domestic individual resident either directly or indirectly via the company for particular purposes shall be totally transferred into the territory for settlement within 30 days as of the day when it is obtained. The violator shall be deemed to have committed evasion of foreign exchange and shall be punished accordingly. The company for particular purposes shall refer to an overseas enterprise directly or indirectly controlled by a domestic individual resident for the purpose of raising funds outside the territory for the interests of his actually controlled domestic enterprise.

IX. This Notice shall go into effect as of the date of its promulgation.

Attachment:

Form of Foreign Exchange Registration of the Domestic Individual Resident's Overseas Investments

　　Principal: (Signature)_______ Handler: _______ Verifier: _______

　　State Administration of Foreign Exchange, _______ Branch (Sub-branch) (Foreign Exchange Administration Department)

　　Notes for filling the form:

　　1. This form shall be submitted by the domestic individual resident who directly or indirectly holds the stock rights of an overseas enterprise but has not made foreign exchange registration of overseas investments to the foreign exchange administration office at the locality of the domestic enterprise merged or acquired with foreign investments or established for the purpose of merger or acquisition.

　　2. "Permanent Residence" shall refer to the principal's habitual working or living residence within the territory; a principal of Chinese nationality shall fill out his identity card number, and a principal of foreign nationality shall fill out his passport number; "Overseas Enterprises" shall include any enterprise registered outside the territory (including in Taiwan, Hong Kong or Macao), whose shares are directly held by the principal, or indirectly held by ways of overseas re-investment, entrusting, exchange of shares and etc.; if the overseas enterprise is not listed, the "Place of Listing" and the "Date of Listing" do not need to be filled out.

　　3. The "Net Assets" and "Total Assets" shall be filled out with the book value. For example, if the registered capital of an overseas company is 5000 USD, while an investment company participates 20% of the shares, contributes 30 million USD, and has no debts, then either the net assets or the total assets of this company are 150million USD; if the investment company purchases 30 million USD of convertible bonds issued by the overseas company, then the net assets of the company are 5000USD, and the total assets are 30,005,000 USD. The amount of consolidated statement shall be calculated in light of the internationally applied accounting principles and accounting treatment methods.

　　4. "Proportion of Shares Held" shall be the total proportion of the enterprise's shares held directly and indirectly by the domestic individual resident. The indirect "Proportion of Shares Held" shall be calculated by multiplying the proportion of directly held shares (or trust assets) by the proportion of another enterprise's shares held by the enterprise whose shares are directly held, while the "Total Market Value" shall be calculated according to the market value of the assets of all stock rights up to the end of last month.

　　5. Where all domestic individual residents who hold less than 5% of an overseas enterprise's shares, and the names of the overseas share-holding enterprises are completely consistent with each other, the overseas enterprise shall sign a power of attorney to one of the domestic individual residents, who shall be entrusted to handle relevant matters concerning overseas investment registration on behalf of all the residents. The individual resident shall, when making registration, submit the power of attorney to the local foreign exchange administration office, and attach another form to this form to state the name and permanent residence of each domestic individual resident it represents, and the respective proportions of shares of the overseas enterprise  held by each domestic individual resident.

　　6. Where the proportion of shares of any overseas enterprise held by a domestic individual resident reaches or exceeds 5%, or there is only one domestic individual resident who holds less than 5% of the overseas enterprise's shares, the said individual resident shall independently fill out this form and signed on it in person.

　　7. The columns of "Handler" and "Verifier" shall be filled out by the functionary of the foreign exchange administration office. Where the functionary of the foreign exchange administration office confirms through verification that for the latest connected transaction of merger or acquisition with foreign investments of the domestic merged or acquired enterprise (or the enterprise established for the purpose of merger or acquisition) occurring before January 24, 2005, the approval certificate for the foreign-funded enterprise has been completed prior to this date, and the registration date of any overseas enterprise in the form is earlier than January 24, 2005, the functionary shall sign his/their name (s) in these columns.

　　8. The columns in this form on amount shall be filled out in the currency of USD, with precision up to two digits after the radix point.

　　9. This form shall be in two copies. One copy shall be preserved by the registration applicant and another by the foreign exchange administration office.