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Circular of the State
Administration of Foreign Exchange on Improving the
Administration of Foreign Exchange in Foreign Direct Investments
the State Administration of Foreign Exchange
HuiFa [2003] No.30 March 3, 2003
Branches and foreign exchange administration departments under the
State Administration of Foreign Exchange in provinces, autonomous
regions and municipalities directly under the Central Government,
and branch administrations of Shenzhen, Dalian, Qingdao, Xiamen,
Ningbo; and headquarters of Chinese-capital designated banks of
foreign exchange:
In order to adapt to the new international investment trend,
introduce overseas investments through multiple channels,
continuously perfect the administration on foreign exchanges in
foreign investments and further improve the environment for foreign
investments, some issues concerning the administration of foreign
exchange in foreign direct investments is hereby circularized:
I. Administration of the Accounts of and Capital Contributions by
Foreign Investors
1. A foreign investor who makes direct investment or engages in
activities relevant to direct investment in China without
establishing enterprise with foreign investment in China may apply
to the administration of foreign exchange in the locality of the
project to open a special foreign investor's foreign exchange
account in the name of the investor. A foreign investor is permitted
to open only one special foreign exchange account of multiple
currencies at a bank except for otherwise approved by administration
of foreign exchange. This kind of accounts shall be classified into
following four categories based on the uses:
(1) Investment accounts. After obtaining non-legal person business
license, foreign investors who engage in construction contracting,
joint exploration, development and exploitation of natural resources
or venture capital investment may apply to open investment accounts
to deposit foreign exchange funds relevant to payment therefor.
(2) Acquisition accounts. Foreign investors who plan to establish
enterprises with foreign investment in China may, if it is necessary
to purchase land use right and attached real properties thereon,
machinery and equipment or other assets in China at initial stage,
apply to open the acquisition accounts after the asset purchase
contracts come into force, in order for depositing funds for paying
for acquisition.
(3) Expense accounts. Foreign investors who plan to establish
enterprises with foreign investment in China may, if it is necessary
to conduct market research, planning and preparatory works for
establishment of institutions in China at initial stage, open the
expense account upon obtaining the notice for advance examination
and approval of the company name from the administrations of
industry and commerce, in order for depositing foreign exchange
funds for payments.
(4) Security accounts. Prior to making investments in China, if the
foreign investors are required to provide to domestic institutions
security funds in accordance with relevant stipulations and contract
provisions, they may apply to open security fund accounts within the
time period prescribed by the contracts in order to deposit and pay
foreign exchange security funds. In applying to open special foreign
exchange accounts, the foreign investors shall provide to the
administrations of foreign exchange documents certifying the
truthfulness and legality of the investments, and the
administrations of foreign exchange shall decide upper limits on the
amounts at the relevant accounts, the extended deposit duration and
scope of settlements, etc. and shall conduct routine supervision
(see Attachment 1). Funds to the special foreign exchange accounts
of the foreign investors shall be input in the form of exchange
instead of cash deposit. Settlements and transfers of funds in the
accounts shall be verified by the administrations of foreign
exchange on a case-by-case basis (see Attachment 2 and 3). Where a
foreign investor has established an enterprise with foreign
investment in China, any balance remained in the special foreign
exchange account in the form of acquisition, expense and security
accounts may be transferred to the capital account of the
enterprise. On strength of relevant approval documents issued by the
administration of foreign exchange, funds settled and transferred
under the above accounts shall be regarded as the capital
contribution of the foreign investor and capital verification may be
conducted accordingly. Where the foreign investor has not
established an enterprise with foreign investment in China, the
foreign investor may go through the procedures for sales/purchases
of foreign exchange in respect of the balance and remit it abroad on
strength of relevant approval documents issued by the administration
of foreign exchange.
2. Where foreign investors make capital contributions to enterprises
with foreign investment in China from funds in offshore accounts
opened with banks authorized by People''s Bank of China to conduct
offshore businesses, the transfers of foreign exchange funds from
offshore accounts to the capital accounts of the enterprises in
China shall not require approvals of administration of foreign
exchange. However, when the enterprises with foreign investment go
through the procedures for capital verification inquiry, the banks
receiving the remittances shall mark with "offshore funds" in the
response letter to the inquiry letter in respect of the funds. Where
a foreign investor makes capital contribution to an enterprise with
foreign investment from non-resident individual exchange account
opened at a bank in China, the administration of foreign exchange
shall issue relevant approval documents (see Attachment 4) on
foreign exchange businesses under capital items after verifying
relevant submitted documents inerrant. Based on the approval
documents, the bank shall carry out transfer of the fund from the
non-resident individual exchange account to the capital account of
enterprise with foreign investment in China, and the enterprise
shall go through the procedures of capital verification as well as
registration of foreign investment/exchange. Upon obtaining consent
from the State Administration of Foreign Exchange, a branch with
large business volume may grant the power of examination and
approval on transfer of the above funds to designated foreign
exchange banks that shall perform relevant duties such as
examination, statistics, supervision and report for the record etc.
Designated foreign exchange banks authorized with the above power
shall implement strict internal control system and shall have been
no record of grossly violating foreign exchange regulations in
latest three years. When the enterprise with foreign investment go
through the capital verification inquiry procedures, the bank
receiving the fund shall mark with "non-resident individual transfer
in China" in the response letter to the inquiry letter in respect of
the fund.
3. In addition to making capital contributions in a way of freely
convertible currencies, imported equipments and other material
items, intangible properties and RMB-denominated profits etc.,
foreign investors may contribute to the registered capitals of
enterprises with foreign investment in the following ways with
approval from administrations of foreign exchange:
(1) The enterprises with foreign investment increase the enterprise
capitals by transferring the development funds and reserve funds (or
capital public reserves and surplus reserves) etc. into the
registered capitals;
(2) The enterprises with foreign investment increase the enterprise
capitals by transferring their unallocated profits, dividends
payable and interests accrued therefrom etc. to registered capitals;
(3) The enterprises with foreign investment increase capitals by
transferring of the principals and current interests of registered
foreign debts of the foreign parties into registered capitals; or
(4) The foreign investors make reinvestments in the way of
properties gained through early recouped investments or assets
derived from liquidation, stock equity transfer or reduction of
registered capitals from enterprises with foreign investment in
which they have invested. Where the foreign investors make capital
contributions in any of the above ways, the administrations of
foreign exchange shall issue relevant approval documents (see
Attachment 5 and 6) on foreign exchange businesses under capital
item after verifying relevant submitted documents and their
authentications. Based on the approval documents, the banks shall
carry out relevant transfers of the funds in China, and the
enterprises shall go through the procedures for capital verification
inquiry as well as registrations of foreign investments and foreign
exchanges.
4. Where foreign investors and investment-type enterprises with
foreign investment acquire stock equities of domestic enterprises,
they shall pay considerations (i.e. the prices paid by foreign
parties to Chinese parties for buying the stock equities of the
latter which may be in form of foreign exchange funds owned by the
foreign investors and investment-type enterprises with foreign
investment, RMB-denominated profits from other enterprises with
foreign investment in which they have invested and other assets
legally obtained) for purchases of the stock equities in accordance
with the provisions of laws, regulations and stipulations of
transfer contracts reached between the two parties, and make foreign
investments and foreign exchange registrations on receipt of foreign
exchange for equity transfers with the administrations of foreign
exchange at the localities of the transferors by themselves or by
the transferors under their authorizations. Where payment of
considerations of equity purchases are made in a lump sum, the
foreign investment and foreign exchange registrations in respect of
the proceeds earned through the transfers shall be made within 5
days of receipt of the considerations and where payments thereof is
made by installments, foreign investment and foreign exchange
registrations shall be made in respect of each of the installments
within 5 days of receipt of each installment. Before foreign
investors have paid in full the considerations for share transfers,
their ownership equity in the acquired enterprises shall be fixed in
accordance with the ratio that has actually been paid and foreign
exchange businesses such as stock equity transfers, reduction of
registered capitals, liquidation and profit remittances shall be
handled accordingly. The administrations of foreign exchange shall
handle foreign investment and foreign exchange registrations on
receipt of foreign exchange for equity transfers and shall issue
relevant certificates (see Attachment 7) after verifying relevant
documents submitted by foreign investors and their authentications.
The certificates on foreign investments and foreign exchange
registrations on receipt of foreign exchange for equity transfers
are valid documents certifying that the considerations payable by
foreign parties for stock equity transfers have been received, and
they shall also serve as important bases for the acquired
enterprises to make foreign investment and foreign exchange
registrations. All Branches and Foreign Exchange Administration
Offices shall summarize and report to the State Administration on
monthly basis the data on foreign investments and foreign exchange
registrations on receipt of foreign exchange for equity transfers
(including number and amount registered) and the data on inflow of
other types of foreign investments in the form of Report on Foreign
Investment and Foreign Exchange Registration (see Attachment 8) as
newly issued. The former form o the Report on Foreign Investment and
Foreign Exchange Registration shall cease to be used from the date
of entering into force of the Circular.
5. Where non-investment type enterprises with foreign investment
establish enterprises or acquire enterprises in China in accordance
with Interim Provisions on Investments in China by Enterprises with
Foreign Investment promulgated jointly by the Ministry of Economic
and Trade Cooperation and the State Administration for Industry and
Commerce, the invested enterprises with no foreign capitals are
permitted exempt from going through the procedures for foreign
investment and foreign exchange registration and capital
verification and request for certificate for foreign exchange. The
administration of foreign exchange shall on strength of Enterprise
Legal Person Business License, which has been issued by the
administrations of industry and commerce to the invested enterprise
and which is marked with "with investment from enterprise with
foreign investment", treat the invested enterprise as an enterprise
with foreign investment in its raising of funds from abroad. The
administrations of foreign exchange shall not approve transfers of
foreign exchange funds within China between the non-investment type
enterprises with foreign investment and the enterprises they
invested, and between different enterprises invested by the
non-investment type enterprises. In case of special circumstances in
which this type of transfer within China is necessarily required,
the branches and the foreign exchange administration departments
shall report to the State Administration.
6. A domestic enterprise to which the ratio of foreign investor''s
capital contribution is below 25% shall complete foreign exchange
registration of enterprise with foreign investment and go through
the procedures for verification inquiry as well as foreign
investment and foreign exchange registration in accordance with
relevant provisions on strength of an approval certificate for
enterprise with foreign investment which is issued by foreign
economic and trade department and is mark with "ratio of foreign
investment below 25%" as well as a foreign investment business
license issued by department in charge of administration of industry
and commerce and marked with "ratio of foreign investment below
25%".
II. Capital Verification Inquiry and Foreign Investment and Foreign
Exchange Registration The capital verification inquiries of
enterprise with foreign investment and foreign investment and
foreign exchange registrations shall be handled in accordance with
the following principles:
1. In establishing enterprise with foreign investment, if the
foreign exchange capital contributed by a foreign investor exceeds
the upper limit of the capital account of the enterprise, once such
excess is no more than 1% of the upper limit and no more than
$10,000 US equivalent in absolute value, the administration of
foreign exchange shall handle the capital verification inquiry as
well as foreign investment and foreign exchange registration based
on the actual amount contributed. If the amount of foreign exchange
contributed to the enterprise for stock equity participation is in
excess of the sum reached by multiplying its ratio of equity with
the amount of registered capital of the enterprise due to
appreciation of the enterprise''s capital, the excess shall be
included into the upper limit of the capital account of the
enterprise. The principle set forth in the above paragraph shall
still apply to the entry of foreign exchange fund in excess of the
limit.
2. Where a foreign investor who contributes investment in tangible
assets the enterprise with foreign investment entrusts an accounting
firm to make inquiry with administration of foreign exchange, if
there is inconsistency between the value of such assets as appraised
by an appraisal institution under the commodities inspection
administration and the value declared in the Customs Declaration
when importing such assets, the administration of foreign exchange
shall adopt the value as appraised by the former for the purpose of
capital verification inquiry and foreign investment and foreign
exchange registration.
3. Where a foreign investor who contributes only intangible assets
to an enterprise with foreign investment entrusts an accounting firm
to make inquiry with administration of foreign exchange, it shall
list the contributed intangible assets in the Schedule attached to
the Letter of Inquiry on Foreign Party''s Capital Contribution,
based on which the administration of foreign exchange shall make
foreign investment and foreign exchange registration for the
contribution of the intangible assets and shall indicate in the
Response Letter to the Letter of Inquiry on Foreign Party''s Capital
Contribution that "the intangible assets of the foreign party has
been registered with the number of registration XXXX. This letter is
only valid for certificating that it has been registered."
4. Where a foreign investor makes investment or equity participation
at a premium, or where the value of in-kind contribution made by the
foreign investor is appraised at a value higher than the declared
value to the Customs, or where due to fluctuation of exchange rate
or other similar causes, the actual amount contributed to the
enterprise with foreign investment exceeds the amount of registered
capital of the enterprise with foreign investment, the
administration of foreign exchange shall register the registered
capital of the enterprise as well as its actual amount of
contribution due to the premium.
5. Where the enterprise that "processes raw documents on clients''
demands, assembles parts for the clients and process according to
the clients'' samples or engages in compensation trade" who intends
to transform into enterprise with foreign investment entrusts
accounting firms to make inquiry with administration of foreign
exchange, it shall submit relevant documents to the administration
of foreign exchange, and after examination and confirmation that the
equipment to be invested for the transformation is imported goods
for which payment abroad has not been made, the administration of
foreign exchange shall issue Response Letter to the Letter of
Inquiry on Foreign Party''s Capital Contribution in accordance with
the value specified in the appraisal report on value of commodities
and make foreign investment and foreign exchange registration(see
Attachment 9).
6. Where the name of the foreign investor to a enterprise with
foreign investment is inconsistent with the name of the overseas
payer who made payment for the investment, the administration of
foreign exchange shall handle capital verification inquiry and make
foreign investment and foreign exchange registration for it but
indicate that "there is inconsistency between the payer and the
investor" in the Response Letter to the Letter of Inquiry on Foreign
Party''s Capital Contribution.
7. For easy queries from different localities, the administration of
foreign exchange shall indicate the names of relevant contract
persons and their telephone numbers when issuing approval documents
for capital item foreign exchange business to enterprises with
foreign investment.
8. Where any designated foreign exchange bank is found to open
accounts for enterprises without permission, making entry of capital
in excess of limits etc in violation of provisions on account
administration, the administration of foreign exchange shall impose
sanctions on it in accordance with provisions of Provisions of
Administration of Domestic Foreign Exchange Account. Where any
enterprise is found to forge or alter documents or documents such as
approval documents for capital item foreign exchange business,
letters of response that administration of foreign exchange issues
for designated foreign exchange banks, Customs declaration for
imported goods etc., the administration of foreign exchange shall
transfer such case to judicial organs for handling. If it is found
that the accounting firm failed to make capital verification inquiry
or the inquiry is made incompliant with prescribed procedures after
it issues the capital verification report to enterprises, the
administration of foreign exchange shall order such accounting firm
to go through the capital verification inquiry procedures as
remedial measures and notify its violation to the association of
certified public accountants of its locality. No further inquiries
from such accounting firm shall be accepted before the association
of certified public accountants of its locality makes formal
punishment decision to it. The Branches and Foreign Exchange
Administration Offices shall report the names of the accounting
firms that acted in violation of regulations again after having been
punished to the State Administration who shall announce the names at
the website of the State Administration of Foreign Exchange and
other media and shall make recommendations to enterprises to be
prudent in their choice of accounting firms. In the course of going
through capital verification inquiry procedures as remedial measures
by accounting firms failed to make the inquiry or the inquiry was
made not in compliance with prescribed procedures, if it is found
that the capital verification report issued by it is a false
verification report, the administration of foreign exchange shall
transfer the case to judicial organs to handle and shall notify the
administration of industry and commerce at its locality.
III. Administration of Registered Capital Reduction of Enterprise
with Foreign Investment and Adjustment to Some Administration
Business
1. Where a foreign investor''s capital contribution to a enterprise
with foreign investment is reduced, which involves sale/purchase of
foreign exchange, the administration of foreign exchange shall issue
approval document for foreign exchange business under capital item
(see Attachment 10) after examination on relevant documents
submitted by the enterprise, based on which the foreign investor
shall go through the procedures of the purchase, payment and
remittance abroad of exchanges in respect of the reduced capital.
Where the reduction is for the purpose of reducing losses on the
accounting books of the enterprise with foreign investment, or that
the amount reduced is the unpaid capital contribution of the foreign
investor, the administration of foreign exchange shall not grant
approval to the foreign investor to re-invest such amount in China
or to pay the amount out of china by the enterprise with foreign
investment.
2. The mechanism of paid-up capital prescribed by Company Law of the
People''s Republic of China shall apply to the capital contributions
to be made by foreign parties in companies limited-by-shares with
foreign investment and fund management companies with foreign
participations. When companies falling into the two categories makes
application to administration of foreign exchange to open enterprise
with foreign investment capital account, they do not need to present
the enterprise legal person business licenses for enterprises with
foreign investment issued by the administration of industry and
commerce. By presenting respective approval certificates for
companies limited-by-shares with foreign investment issued by
foreign economic and trade department, the enterprise with foreign
investment approval certificate issued by foreign economic and trade
department and approval for commencement of business issued by CSRC,
the company limited-by-shares with foreign investment and fund
management company with foreign participation may go through
relevant procedures. Relevant provisions on documents to be provided
by companies falling into the above two categories for establishment
of capital accounts and making enterprise with foreign investment
foreign exchange registrations shall still be implemented.
3. During the course of handling foreign exchange business, if the
administration of foreign exchange needs to examine capital
verification report of the enterprise with foreign investment, the
Response Letter to the Letter of Inquiry on Foreign Party''s Capital
Contribution shall be examined simultaneously in the case that
capital verification report is issued after May 1, 2002. If auditing
report of enterprise with foreign investment needs to be examined in
the course of handling foreign exchange business, the administration
of foreign exchange shall simultaneously examine the Foreign
Exchange Balance Sheet of the enterprise with foreign investment in
the case that the auditing report is issued after the year of 2002.
4. In order to further improve the efficiency in supervision on
capital settlement and facilitate the operation of investment
capital by enterprises, the documents required to be examined by
banks in accordance with operating procedures to be followed by
authorized banks in settlement of capital in foreign exchange which
is stipulated in the Circular of State Administration of Foreign
Exchange Concerning Reform on Ways of Management of Settlement of
Capital by Foreign Investment (HuiFa [2002] No. 59) shall be
simplified into the following three ones:
(1) A written application of the enterprise, indicating the account
number of the capital account of the enterprise, situation of
capital entry, currency for settlement, amount and usage etc.);
(2) The Foreign Exchange Registration Certificate;
(3) Other supplementary documents required in light of the
circumstances. Other examination requirements shall as usual be in
accordance with relevant provisions of the Circular of State
Administration of Foreign Exchange Concerning Reform on Ways of
Management of Settlement of Capital by Foreign Investment (HuiFa
[2002] No. 59) and the operating procedures.
5. Where a Chinese-foreign cooperative enterprise pays in form of
depreciation of fixed assets or amortization of intangible assets to
the foreign party for early recouping of its investment amount
(including fixed returns), the examination on "guarantee letter"
provided in Operating Procedures for Management of Foreign Exchange
Business under Capital Item (HuiFa [2001] No. 38) is hereby amended
as follows:
(1) If the Chinese-foreign cooperative enterprise has outstanding
debts (bank loan or shareholder''s loan from foreign investor), the
foreign investor shall provide guarantee letter in corresponding
amount from a foreign-invested financial institution in China;
(2) If the outstanding debt of the Chinese-foreign cooperative
enterprise is shareholder''s loan provided by foreign investor, a
guarantee letter issued by the foreign investor stating that it
unconditionally undertakes joint and severally liability with the
contractual joint venture may be in lieu of the above letter of
guarantee issued by the financial institutions.
(3) If the Chinese-foreign cooperative enterprise has no debts, no
letter of guarantee shall be provided by the foreign investor. Other
examination requirements shall as usual be in accordance with
relevant provisions of the Operating procedures for Administration
of Foreign Exchange Business under Capital Item.
IV. Othe Matters
1. The term "administration of foreign exchange " mentioned in this
Circular refers to the State Administration of Foreign Exchange,
various branches, foreign exchange administration departments and
Sub-branches within their jurisdictions.
2. All branches and foreign exchange administration departments are
required to transmit the following parts involving bank operations
to the designated foreign exchange banks within their jurisdiction:
(1) Article 1, 2 and 3 of Part I, Administration of the Accounts of
and Capital Contributions by Foreign Investors, as well as
Attachments 1 to 6 of this Circular;
(2) Article 1 and Paragraph 1, Article 8 of Part II, Capital
Verification Inquiry and Foreign Investment and Foreign Exchange
Registration; and
(3) Article 4 of Part III, Administration of Registered Capital
Reduction of Enterprise with Foreign Investment and Adjustment to
Some Administration Business.
3. This Circular shall enter into force as of April 1, 2003. If
there is any question in the implementation, please contact the
Capital Item Administration Department of the State Administration
of Foreign Exchange through the telephone number 010-68402254.
Attachments:
1. Examination and approval on open, alteration and cancellation
of foreign investor''s special foreign exchange account(omitted);
2. Examination and approval on settlement of funds in foreign
investor''s special foreign exchange account (four categories in
all) (omitted);
3. Examination and approval on transfer of funds from foreign
investor''s special foreign exchange account (four categories in
all) to enterprise with foreign investment''s capital in China
(omitted);
4. Examination and approval on transfer of foreign exchange funds
from non-resident individual exchange account opened with banks in
China by foreign investors to capital account of enterprise with
foreign investment (omitted);
5. Examination and approval on transferring of development fund,
reserve fund (or capital public reserve and surplus reserve),
unallocated profits, dividends payable and interests accrued
therefrom, principal and accrued interest of registered foreign debt
of the foreign parties etc. into registered capital of the
enterprise (omitted);
6. Examination and approval on reinvestment to be made by foreign
investors by property gained through early recouped investment or
assets derived from liquidation, stock equity transfer or reduction
of registered capital from enterprise with foreign investment in
which they have invested (omitted);
7. Registration on foreign investment and foreign exchange in
respect of proceeds of foreign exchange paid as consideration by
foreign investors for purchase stock equity of Chinese party
(omitted);
8. Report on foreign investment and foreign exchange registration
in the region on yearly and monthly basis (form) (omitted);
9. Examination and approval on capital verification inquiry and
Examination and approval on for the enterprises that "process raw
documents on clients'' demands, assemble parts for the clients and
process according to the clients'' samples or engage in compensation
trade" who intends to transform into enterprise with foreign
investment (omitted);
10. Examination and approval on reduction of registered capital by
foreign parties in the enterprise with foreign investment (omitted).
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