Control over the foreign exchange of foreign resident organizations

Administration of foreign exchange accounts

Resident organizations should file with the competent Administration of Foreign Exchange by presenting the approval documents issued by relevant authorities and certificate of registration with the relevant Administration of Industry and Commerce. A Filing Form for Foreign Exchange Account by Foreign Resident Organization will be issued, against which the applicant can process the opening of the foreign exchange account at a designated bank.

The sources of foreign exchange receipt should be the remittance from outside China for operational outlays and the expenditures should be expenses that are related to office operations.

Administration of foreign exchange payments

Foreign exchange received by foreign resident organizations can be deposited into their bank accounts or sold to the designated banks or remitted/carried out of China against valid proofs.

Legitimate RMB income earned by foreign resident organizations may be converted into foreign currency and remitted out of China at designated banks upon presentation of valid proofs and fee lists.

Should resident organizations and their personnel sell their personal items, equipment or appliances brought into China from abroad or purchased in China, they may convert the RMB proceeds into foreign currency and remit them out of the country through designated banks by presenting their business registration certificate (issued by the Administration of Industry and Commerce) and pertinent sales proofs.

Control over the foreign exchange of foreign- invested enterprises

Foreign exchange registration

Foreign-invested enterprises (FIEs) should, within 30 days after the issuance of the business licence, process foreign exchange registration with the competent Administration of Foreign Exchange and obtain Certificate of Foreign Exchange Registration against presentation of the following documents: approval documents issued by examination and approval authorities, capital verification report, business licence and its copy and the approved contract and articles of association.
After foreign exchange registration, in the event of any changes in the name , address and scope of business, or ownership transfer, capital addition or merger, the foreign-invested enterprises should go to the pertinent Administration of Industry and Commerce to register the changes, after which the changes should be registered with the competent Administration of Foreign Exchange in the foreign exchange register.
FIEs upon expiry or accidental termination of the enterprise, should, with approval for dissolution from the original approval authorities, cancel the foreign exchange registration with the Administration of Foreign Exchange within 30 days after liquidation.
Foreign exchange registration certificates will be reviewed on an annual basis by the relevant authorities. Fabrication, lending , transfer or selling of a registration certificate are strictly forbidden.

Control over foreign exchange accounts

Categories of accounts and scope of receipts and payment:

foreign exchange settlement account
special account for foreign exchange capital
temporary special account
special loan account
special debt service account
'B' share account
special account for stocks.

The opening of foreign exchange accounts
FIEs can open foreign exchange accounts within and outside China and in different locations of China. In order to do so, they will have to meet the relevant requirements of exchange control.

The use of foreign exchange accounts
The Administration of Foreign Exchange will review and ratify the highest limit for the foreign exchange account based on the paid-up capital and the cash flow needs under the current account of the FIE. Foreign exchange receipts within the limit are allowed to be retained but the part in excess of the limit will have to be sold to the designated banks.

Deposits by FIEs in foreign exchange control accounts can be converted into time deposits, but they are still subject to the control of a maximum limit.

The close of the account
The closure of a foreign exchange account by a FIE should be processed with the Administration of Foreign Exchange within 10 days after the clearing of the account. The certificate of account closure by the opening bank and the certificate of foreign exchange registration should be presented for account closing procedures. After the foreign exchange bank account is closed, the amount belonging to the foreign investor can be transferred or remitted out of China, while the amount that goes to Chinese investors should be sold to the designated bank.

Control over foreign exchange receipts and payments

Control over exchange receipts and payments under current account
The exchange receipt on the current account of a FIE can be sold to the designated banks or retained in its foreign exchange account if the exchange receipts are within the ratified limit.

The exchange payments under the current account of a FIE can be made from its own foreign exchange account or the required amount for payments may be purchased from the designated banks.

Control over international commercial loans
FIEs can use international commercial loans without the approval of the Administration of Foreign Exchange, however, they will need to go through the procedures of external debt registration. In addition, the cumulative amount of mid-term and long- term international borrowings by FIEs should not exceed the difference between the registered capital and the total investment.

Control over foreign currency bonds
The issuance of foreign currency bonds, convertible bonds, negotiable certificates of deposit and commercial documents by FIEs should be approved by the Administration of Foreign Exchange and undergo external debt registration.

Control over foreign exchange borrowings from domestic financial institutions
The borrowing of foreign exchange loans by FIEs from domestic financial institutions does not require approval by the Administration of Foreign Exchange, but FIEs will have to complete foreign exchange loan registration procedures.

Control over external guarantees
External guarantees within a period of less than a year provided by FIEs for domestic entities will need to be approved by the local administration of foreign exchange. The external guarantees for more than one year by FIEs for domestic or overseas entities will have to be approved by the State Administration of Foreign Exchange. External guarantees by wholly foreign-owned enterprises will not need approval by the Administration of Foreign Exchange. An external pledge or hypothecation with the assets of a FIE as its security will not require approval from the Administration of Foreign Exchange. However, all external guarantees will have to undergo registration procedures at the Administration of Foreign Exchange.

Control over renminbi borrowings from domestic Chinese- funded financial institutions against guarantees provided by external organizations
FIEs can use their own foreign exchange funds as pledges for their borrowing of renminbi from domestic Chinese-funded financial institutions. FIEs can accept guarantees from their foreign shareholders, overseas banks or foreign banks within the territory of China for their borrowing of renminbi loans from domestic Chinese-funded financial institutions. The renminbi loans borrowed by FIEs can be used for the purpose of making up shortages in cash flow or long-term investments in fixed assets. The maximum term of such loans should not exceed five years .

Control over the payments under capital account
A FIE should present proof of external debt registration, external debt contract, and notice by creditors for repayment of principal and interest to the Administration of Foreign Exchange when applying for repayment of principal and interest. Upon approval by the Administration of Foreign Exchange, the FIE may make payment through its foreign currency account or at designated banks against the approval documents.

For repayment of foreign exchange loan principal to domestic Chinese-funded financial institutions in China, the FIE will need to obtain approval from the Administration of Foreign Exchange. No approval is needed, however, for the payment of interest.

Approval by the Administration of Foreign Exchange will need to be obtained when FIEs perform the obligations of external guarantees.

Control over foreign exchange settlement and selling

The amount of current account foreign exchange receipts by FIEs in excess of the limit prescribed by the Administration of Foreign Exchange will have to be settled.

Foreign exchange capital, borrowed international commercial loans, the revenues from the issuance of 'B' shares and overseas public offerings can be settled. The settlement of borrowed foreign exchange loans by FIEs from domestic Chinese-funded financial institutions are not allowed.
All selling and payments of foreign exchange should be processed against presentation of valid proofs and commercial documents, or by filing forms issued by the Administration of Foreign Exchange, or through requisition of foreign exchange selling ratified by the

Administration of Foreign Exchange. All selling and payments of foreign exchange under capital account must be processed against the document of ratification issued by the Administration of Foreign Exchange. Those who are unable to produce valid certificates as prescribed by the Administration of Foreign Exchange and valid commercial documents will have to submit applications to the Administration of Foreign Exchange for approval, against which selling and payments of foreign exchange can be processed. For the selling and payments of foreign exchange against the presentation of the filing document, the designated bank will examine and verify the authenticity of such document in accordance with relevant regulations. Such examination and verification will not be carried out by the designated banks if no approval documents issued by the Administration of Foreign Exchange are presented. For the non-trade foreign exchange payments, the applicant needs to provide a taxation certificate in addition to other certificates and documents. Payments on capital account should be made with the applicant's own foreign exchange, and purchase of foreign exchange for payment purpose is only allowed when the applicant's own foreign exchange falls short of the amount required.

Control over the purchase of foreign exchange for payment purposes under trade arrangements governs the following realms of administration:
- Those who purchase foreign exchange for payments against prescribed valid certificates and valid commercial documents;
- Those who purchase foreign exchange for payments against foreign exchange filing forms;
- Those who purchase foreign exchange for payments against requisition of foreign exchange selling ratified and issued by the Administration of Foreign Exchange; classification of customs declaration;
- administration of foreign exchange purchases for payments by bonded warehouses;
- administration of foreign exchange purchases for payments under the arrangements to transfer goods for additional processing.
Control over foreign exchange purchases for payments under non-trade arrangements.
Control over foreign exchange purchases for payments on capital account. Advance purchases of foreign exchange for repayment of loans is forbidden.

Control over the investment profits and investment capital

Administration over profits repatriation
The legitimate profit earned by a FIE can be remitted out of China. In doing so, the FIE needs to present the following documents:

Foreign exchange registration certificate;
Capital verification report by an independent accounting firm;
Board resolution on profit distribution;
Tax payment certificate and tax declaration form;
Audit report on current-year profits by an accounting firm.

Upon approval, the FIE can expatriate the profit from its own account or purchase foreign exchange from designated banks for profit repatriation.

Administration over reinvestment
The foreign investors in FIEs are allowed, upon approval by the Administration of Foreign Exchange, to make reinvestments with their after-tax profits or the funds available as a result of liquidation, equity transfer or anticipatory returns on their investment. Against rein- vestment certificates issued by the Administration of Foreign Exchange, the FIEs can make foreign exchange payments from their foreign exchange accounts or purchase foreign exchange with the Renminbi they have earned to make the payments.

For reinvestment of profits, the following documents need to be examined and verified :

Foreign exchange registration certificate;
Capital verification report by a certified accounting firm;
Annual audit report;
Board resolution on profit distribution;
Letter of confirmation on reinvestment by the foreign investors;
Tax payment certificate.

For reinvestment with the proceeds from a liquidation, an equity transfer and anticipatory returns on investment, the following criteria should be met. Foreign investors should be able to produce proof that they have:

legitimately paid-up capital in the original FIEs (for this purpose, documents such as the approval granted by trade and investment authority, contract, articles of association and capital verification report will be examined and verified.)
Proof that the funds for reinvestment are authentically from the proceeds of liquidation, equity transfer or anticipatory returns on investments and the procedures of such liquidation, equity transfer and anticipatory returns on investment are legal and in conformity with relevant regulations (documents regarding liquidation, equity transfer, etc will be examined and verified.)
The foreign investors making a reinvestment are at the same time a shareholder of the reinvested enterprise and have an obligation to make a capital contribution (such documents as the approval granted by competent trade and investment authorities for reinvestment, contract and articles of association will be examined and verified)

Administration over capital increases
With approval by the Administration of Foreign Exchange, the foreign investors of FIEs can increase their capital contributions from their profit, development funds or reserve funds. Such capital increases can be processed with approval documents issued by the Administration of Foreign Exchange.

Capital increase from profit
Examination and verification of the following documents will be required for a capital increase from profit:

Foreign exchange registration certificate;
Capital verification report by a certified accounting firm;
Annual audit report;
Board resolution on profit distribution;
Letter of confirmation of capital increase by the foreign investors;
Approval documents by the original approving authority;
Tax payment certificate.

Capital increase with development funds and reserve funds
Examination and verification of the following documents will be required for capital increases with development funds and reserve funds:

Foreign exchange registration certificate;
Capital verification report by a certified accounting firm;
Approval documents by the original approving authority;
Board resolution on capital increase;
Amended contract and articles of association;
Tax payment certificate.

Administration of equity transfers
After a transfer of equity by the foreign investor in a FIE, the proceeds from such a transfer, upon approval by the Administration of Foreign Exchange, can be remitted out of China. The foreign investor can do so either from its foreign exchange account or by purchasing foreign exchange from the designated banks. However, the enterprise needs to submit an application to the Administration of Foreign Exchange with the following documents:

An application report;
Foreign exchange registration certificate;
The agreement for equity transfer;
Approval documents regarding the change of equity structure issued by the competent trade and investment authority:
- Business licence after the equity changes, certificate of approval, approved and valid contract and articles of association;
- The latest capital verification report and audit report (or valid asset valuation report);
- Account statements of all the enterprise's foreign exchange accounts;
- Tax payment certificate.

Administration of liquidation
When a FIE is legally liquidated, the portion of funds that belongs to foreign investors can be remitted out of China upon approval. The remittance can be made from the foreign exchange account of the FIEs or the foreign investor can purchase foreign exchange from the designated banks for the purpose of remittance. An application will have to be filed with the Administration of Foreign Exchange with the following documents, and remittance can be processed against approval of the Administration of Foreign Exchange:

An application report;
Foreign exchange registration certificate;
Approval for liquidation and termination by competent trade and investment authority;
Resolution of the liquidation committee;
Capital verification report;
Liquidation report prepared by an accounting firm;
Advice of bank account;
Account statements of the foreign exchange accounts;
Cancellation certificate of Tax Registration.

Administration of the transfer of investment funds by investment holding companies
Investment holding companies need to obtain approvals from the Administration of Foreign Exchange before they can transfer investment funds within the territory of China. To obtain approval, the following documents need to be provided together with an application to the Administration of Foreign Exchange:

Capital verification report by a certified accounting firm;
Approval documents regarding the newly-invested enterprise and the business licence of industry and commerce, approved contract and articles of association;
Resolution regarding the investment project in China by the Board of the investment holding company;
Foreign exchange registration certificate.