China - Foreign Exchange Administrative Regulation

8/14/2019 China - Foreign Exchange Administrative Regulation

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Foreign Exchange

Administrative

Regulation and

Relevant Circulars

Since 2008, China government promulgates and revised a series of

regulations on the administration of foreign exchange, including:

Foreign Exchange Administrative Regulations of the People'sRepublic of China (2008 Revision) issued on 5th August 2008

Circular of the State Administration of Foreign Exchange and the

State Administration of Taxation on the Relevant Issues of the Trial

Tax Filing System of Overseas Payment for Service Trade (Hui Fa

[2008] 8) issued on 26th February 2008

Circular of the General Department of Foreign Exchange

Administrative Authority on improving the management of the

settlement operations for registration capital of foreign-investedenterprises (Hui Zong Fa [2008] 142) 29th August 2008

Foreign Exchange

Administrative

Regulations of the

People's Republic of

China (FEAR)

The macro-economic growth of China has given rise to the strong

appreciation of RMB. It has also been attracting the speculative capital

and huge hot money flowing into China. In order to balance the

international payments and avoid the surge of speculative foreign

exchange, China government revised the foreign exchange

administrative regulations. The government changed the policy of loose

management on inflow and strict management of outflow.

General Provisions

The State will not impose any restrictions on international payments

or transfers on current account.

When any material imbalance in international receipts and payments

occur, or any serious economic crisis occur in China, the State may

implement the necessary safeguards, controls and other measures.

Foreign Exchange AdministrativeRegulations and Relevant Circulars


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Administration of Foreign Exchange on Current Account

Current account foreign exchange income may, in accordance with

relevant provisions of the state, be retained or converted into RMB.

Foreign exchange payments from current account shall, in

accordance with relevant provisions, be made on the strength of

valid documents.

Administration of Foreign Exchange on Capital Account

Any foreign organization or individual that seeks to make a directinvestment in China shall, after obtaining approval from the relevant

competent department, make the registrations with the relevant

foreign exchange administrative authority.

Any domestic organization or individual that seeks to make a direct

investment overseas shall make the registrations in accordance with

the relevant provisions. Any such organization or individual that is

required to obtain approval from or make a filing with the relevant

competent authority in accordance with State provisions shall go

through the approval or filing formalities before making said

registrations.

Where any foreign exchange income on capital account is to be

retained or converted into RMB, an approval shall be obtained from

the relevant foreign exchange administrative authority, other than

where no approval is required under State provisions.

Any foreign exchange payment from capital account shall, in

accordance with State Council foreign exchange administrative

department provisions, be made on the strength of valid documents.

Where an approval from the relevant foreign exchange

administrative authority is required in accordance with State

provisions, the relevant approval formalities shall be handled before

the foreign exchange payment is made.

Foreign exchange on capital account and funds converted from

foreign exchange shall be utilized in accordance with the purposes

approved by the relevant competent authority and the relevant

foreign exchange administrative authority.


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Administration of the Foreign Exchange Business of Financial

Institutions, RMB Exchange Rates and the Foreign Exchange Market

Any financial institution that seeks to engage in or cease engaging in

foreign exchange settlement and sales business shall obtain an

approval from the relevant foreign exchange administrative authority.

The foreign exchange administrative authorities shall administer the

foreign exchange business of financial institutions on an overall

position basis.

A well-managed floating exchange rate system based on marketsupply and demand shall be implemented for RMB exchange rates.

The State Council foreign exchange administrative department may,

in light of changes in the foreign exchange market and monetary

policy requirements, make adjustments to the foreign exchange

policies in accordance with the law.

Supervision and Administration and Legal Liability

Foreign exchange administrative authorities shall discharge their

duties in accordance with the law and shall have the power to take

actions such as conduct onsite inspections, carry out an appropriate

investigation and gather relevant evidence, consult, copy and seize

the relevant transactional documents, freeze up or seize relevant

property.

Any domestic organization engaged in foreign exchange business

activities shall, in accordance with relevant provisions, submit its

financial reports, statistical statements and other information.

Rank the behavior of receiving or making payments in foreign

exchange which should have been made in RMB as illegal arbitrage.

Penalize on foreign exchange control evasion, illegal arbitrage,

illegal conversion into RMB, unauthorized changing the usage of the

foreign exchange or funds converted from foreign exchange and the

breach the relevant provisions by financial institutions and other

institutions.


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Circular of the State

Administration of

Foreign Exchange and

the State

Administration of

Taxation on the

Relevant Issues of the

Trial Tax Filing System

of Paying Abroad forService Trade (Hui Fa

[2008]8 )

From 1st April 2008, the administration measures of advance tax filing of

overseas payments for service trade was implemented in six pilot areas

including Tianjin, Shanghai, Jiangsu, Sichuan, Fujian and Hunan. This

changes the original procedure of submission of tax certificates to one of

advance tax reporting for record.

Applicability

When domestic organizations go through the procedures of

overseas payment for service trade with the amount of more than (or

equivalent to) US$50,000 in the designated foreign exchange banks,

they shall go through the tax filing procedures.

This Circular, shall not apply to the circumstance of overseas

payment by individuals.

The overseas payment such as dividend, interests shall still follow

the original procedure to get the tax certificates for processing the

overseas payment.

Applicable items

The overseas payment arising out of transportation (excluding

international ocean shipping), tourism, communication, building

erection, labor contracting, insurance, financial services (including

guarantee fee, excluding interests), computer and information

service, usage of proprietary rights and franchise, sports, culture and

entertainment services and other commercial services and

government services, etc.

Processing Procedures

Domestic Organizations shall go through the tax reporting for record

procedures with the State Taxation Bureau in advance before going

through the procedures of overseas payment for service trade with

the amount of more than (or equivalent to) US$50,000.

With the Filing Form stamped by the seal of the tax authority and

other documents required by foreign exchange administrative

authority to process the overseas payment in the designated foreign

exchange banks.


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The withheld and collected tax shall be declared and paid within

stated time.

When one contract requires more than one payment, the domestic

organizations shall go through the tax reporting for record procedures

prior to each payment.

Circular of the General

Department of Foreign

Exchange

Administrative

Authority on

improving the

management of the

settlement operations

for registered capital

foreign exchange of

foreign-invested

enterprises (Hui Zong

Fa [2008]142)

In the new revised Foreign Exchange Administrative Regulation

promulgated on 5th August 2008, the China government strengthened the

management of foreign exchange on capital account, the Hui Zong Fa[2008]142 is enacted to improve the administration of foreign exchange

capital of foreign-investment enterprises, standardize the relevant

business operation in bank.

Convert the foreign exchange capital into RMB

Where a foreign-investment enterprise applies to a bank for

conversion of foreign exchange capital into RMB, it shall, submit the

capital for verification by an accounting firm and provide the order of

RMB payment. No bank shall process any foreign exchange capital

conversion for which the capital verification formalities have not been

completed.

The RMB fund from the conversion of foreign exchange capital

The RMB fund from the conversion of foreign exchange capital of a

foreign-investment enterprise (fund) shall be used within the

business scope as approved by the examination and approval of the

government. Fund shall not be used for other domestic equity investment except

for the investing foreign-investment enterprise.

Except for a foreign-investment real estate enterprise, no

foreign-investment enterprise shall use the funds to purchase

domestic real estate for any purpose other than its own use.

The RMB fund for the petty cash and the cash for payroll converted

from foreign exchange capital can be kept in RMB account.

The time limits for operation


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Where the capital account and RMB account of foreign-investment

enterprise are in the same bank, the foreign exchange settlement

bank shall, on the same day, complete the formalities for foreign

exchange conversion, transfer to RMB account and make the

payment transfer from RMB account.

Where the two accounts are not in the same bank, the foreign exchange

settlement bank shall mark: conversion from foreign exchange capital

on the transferred voucher when it transfers RMB converted from foreign

exchange capital. The RMB receiving bank shall make the payment

according to the order of RMB payment account in two working days

(including the current day of receipt).

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article without first obtaining advice from a qualified professional person. This article is issued on the terms and understanding that (1) the author isnot responsible for the results of any actions taken on the basis of information in this article, nor for any error in or omission from this article; and (2)

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China - Foreign Exchange Administrative Regulation