Key Points:

  • Enterprises in four provinces may apply to open an overseas bank account for the deposit of export income
  • A qualified applicant has to satisfy certain conditions
  • An applicant must select an overseas bank to open its account for the deposit of export income, as well as a domestic bank to serve as a reporting agency
  • The scope of payments made from or to the overseas bank account is limited
  • Both the enterprises and overseas hosting banks are required to report the status of the overseas account to foreign exchange authorities in China

With the promulgation of the Notice on Pilot Operation of Policy for Overseas Deposit of Export Income in Some Areas (Pilot Notice) by the State Administration of Foreign Exchange (SAFE) in August 2010, enterprises in four provinces in China – Beijing, Guangdong (including Shenzhen), Shandong (including Qingdao) and Jiangsu – may apply to open an overseas bank account for the deposit of export income as of October 1, 2010. The pilot program will last for one year, during which time each local branch of SAFE in the four provinces may approve the opening of such accounts for no more than 10 enterprises in its jurisdiction.

Pursuant to the Pilot Notice, to deposit export income overseas, an applicant must:

  • Have a substantial scale of import and export business, with an actual need for the overseas deposit of export income;
  • Be in good standing financially;
  • Have no violations of foreign exchange administration regulations within the past two years;
  • Have good credibility;
  • In the case of a group of enterprises, have experiences and facilities with respect to fund payment or collection, or centralized management in China; and
  • Meet other conditions required by SAFE and its local branches.

From an implementation perspective, an applicant must select an overseas bank to open its account for the deposit of export income, as well as a domestic bank to serve as a reporting agency with the obligation to convey to the local SAFE branch information about the flow of funds it receives from the overseas bank. It is reported that only a China-invested overseas bank or a foreign bank with approved branches in China will be qualified to host China-based companies’ overseas accounts for the deposit of export income, though such restriction is not explicit in the Pilot Notice.

China-based enterprises that are approved to take advantage of the pilot program may use the overseas bank account to collect the export income and accrued interests and other payments approved by foreign exchange authorities. In addition to being wired back to China, the funds deposited or received in the overseas account could be used to pay the cost of product trades; ancillary expenses such as commission, insurance premiums and transportation costs; expenses under overseas-contracted projects; account maintenance expenses; approved or registered capital account expenditures; and other expenses permitted by foreign exchange authorities. The Pilot Notice indicates that the funds in the account can also be used for payment under trade in services, provided that enterprises keep the tax payment receipts issued by tax authorities.

The Pilot Notice requires enterprises to submit to the local SAFE branch, at least on a monthly basis, reports stating the status of the overseas account including detailed information such as date, amount, identity of the payer/payee and customs declaration bill number (if applicable) in connection with the payments made from or to the account. In the case of any substantial loss of funds deposited overseas, enterprises must promptly inform the local SAFE branch.

On the other hand, the overseas hosting bank is obliged to report relevant account information periodically to the foreign exchange authorities in China via the domestic bank that serves as the reporting agency. These reports must be specified in the service agreement among the foreign hosting bank, the domestic reporting bank and the enterprise. If a foreign hosting bank fails to perform its reporting obligation, SAFE and its local branches may require relevant enterprises to close their accounts with the bank.

SAFE and its local branches will review the information received from the enterprises and their overseas hosting banks to ensure the authenticity of the transactions made through the overseas accounts, and when necessary, may require enterprises to submit additional supporting documents. If any abnormality is discovered, SAFE and its local branches may conduct on-site inspections. For that purpose, enterprises must maintain the contracts, vouchers and receipts pertinent to the payments made from or to overseas accounts for five years.