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IntroductionTemporary CapitalAccountFunctions
Main ApplicationProceduresForeign CurrencyCapital Account
In the course of doing business in China, foreign companies (FIEs) will needto be familiar with the different bank accounts applicable and their respectivefunctions/uses. In this article, we will introduce some of the bank accountscommonly used by FIEs.Before the official incorporation of a FIE, if it needs cash urgently for thepurpose of pre-incorporation expenses, it can choose to set up a TemporaryCapital Account. This account is to temporarily receive funds directly relatedto the investment in China. However, this account is not a necessity. It shouldbe based on the needs and requirements of the company and approval bythe State Administration of Foreign Exchange (SAFE).
The money in the Temporary Capital Account can only be used to payrental, utilities and other payments with regard to the pre-incorporation ofthe FIE. The money cannot be used for payment of employee salary andpayments relating to the operations of the business. This is because atthis point of time, the company has not been officially set up.
The capital in the Temporary Capital Account is to be injected directly bythe investing party and constitutes part of the total registered capital ofthe FIE. The maximum amount of capital in the Temporary CapitalAccount is to be maintained at 5% of the total Registered Capital (RC)and cannot be more than USD 100,000.
The capital monies in the Temporary Capital Account can only betransferred to other bank accounts and no cash withdrawal is allowed.
When there is a need to use the money in the Temporary CapitalAccount, approval must be obtained from the State Administration ofForeign Exchange (SAFE).
Apply to the SAFE for FIE Principal Business Certificate and code and
Set up the Temporary Registered Capital Account in a bankWhen a FIE company is in the process of incorporating and has obtained theForeign Exchange Registration IC Card, it shall apply for a Foreign Currency
Different Bank AccountsAnd Their Functions
FunctionsMain ApplicationProceduresForeign CurrencySettlementAccount
Functions
Capital Account. This bank account is used to accept the RC from the foreigninvestor. In addition, when the FIE needs to increase its RC, the increasedamount of RC shall be credited to this account.
FIE investors can only inject the FIE’s RC into the Foreign CurrencyCapital Account. FIE should take note that the total injected capitalshould not be more than the total RC of the FIE.
Within three months after getting the temporary business license, atleast 20% of the total RC has to be injected into the Foreign CurrencyCapital Account; the remaining is to be injected within two years. [or asstipulated in the articles of association]
If the FIE has applied for a Temporary Capital Account, the account shallbe cancelled once the Foreign Currency Capital Account has been setup. At the same time, all the capital in the Temporary Capital Accountshall be transferred to the Foreign Currency Capital Account andconstitute part of the RC.
When the FIE needs to use the capital in the Foreign Currency CapitalAccount, it has to transfer the capital into RMB Basic Account or otheravailable bank accounts before making payments.
Apply to the SAFE for FIE Foreign Currency Approval (“
外汇业务核准件
”)
，
and
Set up the Foreign Currency Capital Account in a bank.This account is a foreign currency fund collection and payment account.Money from the Foreign Currency Capital Account can also be transferred tothis account, to be used for payment purposes.
Funds collected from customers for services can be transferred directlyto the Foreign Currency Settlement Account. However, transactionsrelating to the sale of goods have to be paid to the bank’s pre-checkingaccount (“
待核查账户
”) which it to be checked by the bank before theyare transferred to the company’s Foreign Currency Settlement Account.
When using this account to make payment, the company has to submitboth invoice and contract relating to the payment, in order for thetransaction to be approved. Approval is granted by the SAFE.
The money in the Foreign Currency Settlement Account can be used forpayment of travel expenses in foreign currency or, less frequently forpayment of salary in foreign currency.
Main ApplicationProcedures
RMB Basic BankAccountFunctionsMain ApplicationProceduresRMB General BankAccountFunctionsMain ApplicationProcedures
Foreign DebtSpecial Account
Application period for the Foreign Currency Settlement Account isaround 1 to 2 working days.FIE shall set up the RMB Basic Bank Account at the same time of setting upthe Foreign Currency Capital Account. RMB Basic Bank Account enables aFIE to conduct day-to-day transfer and funds settlement, as well as receiptsand payments of cash. A company can only have one basic bank account.
RMB Basic Bank Account can be used for RMB collections andpayments and cash withdrawals.
Salaries and bonus payments can only be paid from the basic account.
There are no restrictions on time and minimum amount for deposits orwithdrawal.
Apply to the SAFE for the Certificate of RMB Basic Bank AccountOpening Approval (“
人民币基本账户开户许可证
”)
，
and;
Set up the RMB Basic Account in a bank.The RMB General Bank Account is similar to the RMB Basic Bank Accountand can be used for RMB collections and payments. However, cashtransactions and payments for salary and social insurance are not allowed. AFIE can set up multiple general accounts.
For large companies, it is advisable that the RMB General Bank Accountis to be used solely for fund collection purposes while the RMB BasicBank Account can be used for payment purposes. This is for bettermanagement of the company’s financial accounts.
For smaller companies, it will not be necessary to have both accounts.The RMB Basic Bank Account will be able to satisfy the needs of its day –to-day operations.
According to regulations, companies are not allowed to set up both RMBBasic Bank Account and General Bank Account in the same bank.Should the bank be the same, it is required that the two accounts are setup in difference branches.When a FIE’s fund is not enough and the investor is unwilling to increase theRC for the FIE, the FIE can choose to apply for foreign loan from its investor.Under such circumstances, a Foreign Debt Special Account is required.
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