国家外汇管理局发布关于在部分地区开展外商投资企业外汇资本金结汇管理方式改革试点 有关问题的通知 (04/08/2014)
On July 4, 2014, the State Administration of Foreign Exchange (SAFE) published the Notice on Several Issues Concerning Reform Pilot Program of Registered Capital Conversion by Foreign Invested Enterprise in Certain Regions (the Notice), which became effective August 4, 2014. The Notice implemented certain reforms in the registered capital conversion system applicable to foreign-invested enterprises (FIEs) in the following pilot regions (the Pilot Regions):
- Tianjin Binhai New Area
- Economy Group of Shenyang
- Suzhou Industrial Park
- Donghu National Independent Innovation Demonstration Zone
- Guangzhou Nansha New Area
- Hengqin New Area
- Chengu High-Tech Industrial Development Zone
- Zhongguancun Science Park
- Chongqing Liangjiang New Area
- Border development and opening-up regions in Heilongjiang province in which pilot foreign exchange administration reform is carried out
- Wenzhou Comprehensive Financial Reform Pilot Area
- Pingtan Comprehensive Experimental Area
- China-Malaysia Qinzhou Industrial Park
- Guiyang Comprehensive Bonded Zone
- Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone
- Qingdao Comprehensive Wealth Management and Financial Reform Pilot Area
The Notice replaced the Notice by Comprehensive Department of State Administration of Foreign Exchange on Practice Concerning Improving the Regulation over Payment and Foreign Exchange Conversion of the Registered Capital of Foreign Invested Enterprises (Circular 142) and its subsequent circulars with respect to the Pilot Regions.
In contrast with Circular 142, the Notice specifies that the FIEs formed in the Pilot Regions may convert their registered capital on a discretionary basis (as opposed to the payment-based system under Circular 142). That is, after the local SAFE confirmed the injection of the registered capital, FIEs may choose to convert such registered capital into RMB for use in its business operations. The Notice provides that 100 percent of registered capital may be converted, but this percentage is subject to adjustment by SAFE.
FIEs electing to convert its registered capital on a discretionary basis are required to open a capital account of “Account Pending for Foreign Exchange Settlement Payment” and the converted RMB is required to be deposited into this capital account.
The Circular also provides FIEs with the option of converting its registered capital into RMB on a payment-based system in accordance with the procedures under Circular 142.
Usage of Registered Capital and RMB as Converted
Another significant change under the Notice is that FIEs in the pilot regions, subject to certain administrative procedures with SAFE and foreign investment-related regulations, may acquire equity of domestic target companies by way of reinvestment. Additionally the Notice provides that FIEs directly wire transfer their converted registered capital to the bank accounts of their invested companies. However, the Notice provides that the registered capital and the RMB converted therefrom may not be used for the following purposes:
- Payments that are directly or directly outside of the business scope or prohibited by laws;
- Direct or indirect investment in stocks unless otherwise permitted;
- Extending RMB entrusted loans (unless within the business scope), repaying inter-corporate loans (including third-party advances), or repaying RMB bank loans that have been sub-lent to third parties; or
- Purchase of real estate not for self-use (unless the FIE is a foreign-invested real estate enterprise).
Furthermore, FIEs in the Pilot Regions may convert roughly USD 100,000 equivalent as petty cash for daily operation, compared to USD 50,000 outside of the Pilot Regions.
Due Diligence Obligation on Banks
SAFE has been delegating more powers to banks as part of the recent reforms on foreign exchange conversion system. The Notice contains provisions consistent with this trend by requiring the banks be responsible for performing due diligence when conducting registered capital conversions.
The Notice is a step forward in the reform of the foreign exchange conversion system by introducing a discretionary-basis conversion system with respect to the conversion of FIEs’ registered capital.
- Notice on Several Issues Concerning Reform Pilot Program of Registered Capital Conversion by Foreign Invested Enterprise in Certain Regions
- Issuing authority: the State Administration of Foreign Exchange
- Date of issuance: July 4, 2014 / Effective date: August 4, 2014