Since late 2016, many foreign invested enterprises (“FIEs”) have encountered difficulties and restrictions when trying to remit foreign exchange (“forex”) (especially dividends) out of China. Generally it took them several months to complete the repatriation process, which used to be much quicker in the past.

We have continuously keeping an eye on the policy dynamic in the area of forex control, and would like to share in the following our latest insights.

Our Observations

  • Due to the pressure of RMB depreciation and decrease of forex reserves, the PRC authorities have tightened the control on forex outflow;
  • German FIEs have been particularly affected since many of them delayed dividends payments into 2017 due to the new Sino-Germany Double Tax Treaty (effective as of 1 January 2017, which in general grants lower withholding tax rates (from 10% to 5%) on dividends; and
  • Banks have orally confirmed that practical restrictions have been imposed on forex outflow, i.e.
    • the remittance of forex from USD 5 million to USD 50 million would need prior filing by the bank with the local AFE, and
    • remittance of forex exceeding USD 50 million (more recently we have learnt from a bank that such threshold might have been lifted to USD 100 million) would require a prior a face-to-face meeting between the applicant and the local Administration of Foreign Exchange ( “AFE”) for the relevant approval.

Our Analysis

1. What has not been changed?

There are no legal barriers prohibiting the repatriation of dividends. The State Administration of Foreign Exchange (“SAFE”) has repeatedly denied any regulatory barriers on “authentic and compliant payments” for the trade of goods and services, dividends and cross-border guarantee, etc. on 9 December 2016 and 28 February 2017 respectively.

2. What has been changed?

The supervision and control on forex outflow has been strengthened.

Since 2016, the SAFE and the PBOC have issued a series of circulars emphasizing the management of forex outflow and improve authenticity checks. This includes the Circular on Further Facilitating Trades and Investments and Improving Authenticity Check (SAFE, 26 April 2016), the Circular on Further Advancing the Reform of Foreign Exchange Administration and Improving Examination of Authenticity and Compliance (SAFE, 26 January 2017) as well as the Circular on Matters relating to the Macro-prudential Management of Full-covered Cross-border Financing (PBOC, 12 January 2017) (jointly, the “New Regulations”). In summary, the New Regulations set out the following key provisions:

  • “Easy in”. The state encourages the inflow of forex into China. For example, the New Regulations allow domestic enterprises to borrow forex loans without going through relevant approval procedures whereas in the past, it was rather difficult for a domestic enterprise to apply for forex loans which was subject to the approval of the local Development and Reform Commission. Another example: An offshore debtor may now directly or indirectly transfer funds under an “onshore security for offshore credit” (so-called “Nei Bao Wai Dai”) — this refers to guarantees or security provided by an onshore PRC entity to an offshore creditor in respect of an offshore financing made available to an offshore debtor. In the past, funds under such Nei Bao Wai Dai structure in general could not be wired back to China (Huifa [2014] No.29).
  • “Difficult out”. The state discourages capital outflow by demanding banks to strengthen the examination on documents and certificates, and to standardize the forex management.

    For better implementation of the New Regulations, the Forex Market Self-Discipline Mechanism (“外汇市场自律机制”, “Mechanism”), an organization of a number of interbank forex market members in China under supervision of SAFE and PBOC (The key members of the Mechanism include ICBC, ABC, BOC, CCB, BOCOM, China Citic Bank, CMBC, SPDB, CIB, Citibank (China), HSBC (China), SCB (China), the Bank of Tokyo-Mitsubishi UFJ (China) and BMO (China), in which BOC is leading member responsible for the operational working group.), has released in October 2016 several Forex Business Operational Principles (“银行外汇业务展业原则”). The purpose of such Mechanism is to ensure all members (banks) will take the same standards when dealing with forex remittance applications.

    According to the Mechanism banks divide clients generally into two types: trusted clients (可信客户) and clients with a higher risk (关注客户). For each type of clients, specific documents and requirements for forex payment have been set out by the Forex Buisness Operational Principles.

    For example, with regard to the repatriation of dividends, the following documents shall be submitted by “trusted clients”:

    Dividends distribution resolution made by the board of directors;

    The relevant financial information (including the audited financial report, the latest capital verification report); and

    The tax filing documents, in case the payment exceeds USD 50,000 or its equivalent.

    However, if the client is a client with a higher risk, more documents shall be submitted, and more examinations shall be conducted. For example

    The applicant shall submit (i) an Equity Information Statement (which can be printed out from the SAFE’s online system) and (ii) the business license of the shareholder receiving the dividends;

    The bank shall check (i) if the paid in capital ratio is consistent with the distribution ratio, (ii) if the actual recipient of dividends is consistent with the shareholder in terms of name and address and (iii) if the distributed dividends comply with the existing equity as registered in the SAFE’s online system; etc.

    According to our latest discussions with foreign invested enterprises, they could successfully pay dividends outside of China if all documents can be prepared in accordance with the Operational Principles. Yet, in practice, it may still take weeks or even months to collect all the requested documents, and to queue up for the forex remittance quotas being available at the respective bank.


According to a SAFE newsletter issued on 7 March 2017, the forex reserve of China in February 2017 has returned back to USD 3 trillion, and “the pressure generated from capital outflow has been relieved to some extent”. This provides room for the hope that some restrictions on the outflow of forex will be relaxed again. For example, it seems that the above described threshold on outbound payments of USD 50 million will be raised to USD 100 million. It is however not clear yet whether and when the requirement to file forex payments above USD 5 million with AFE will be lifted.

Against the above, FIEs should take the following actions:

  • To continuously monitor and check the document requirements set out the banks and the estimated timeline for making outbound payments;
  • To make sure that supporting documents in relation to the outbound payments are authentic, compliant and consistent with the outbound payment application;
  • To review or revise transaction documents where necessary, e.g. by adjusting payment terms to avoid liabilities due to late payment.