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Foreign Exchange Administrative

Regulations and Relevant Circulars

Foreign Exchange Since 2008, China government promulgates and revised a series of
Administrative regulations on the administration of foreign exchange, including:
Regulation and
Foreign Exchange Administrative Regulations of the People's
Relevant Circulars
Republic of China (2008 Revision) issued on 5th August 2008
Circular of the State Administration of Foreign Exchange and the
State Administration of Taxation on the Relevant Issues of the Trial
Tax Filing System of Overseas Payment for Service Trade (Hui Fa
[2008] 8) issued on 26th February 2008
Circular of the General Department of Foreign Exchange
Administrative Authority on improving the management of the
settlement operations for registration capital of foreign-invested
enterprises (Hui Zong Fa [2008] 142) 29th August 2008

Foreign Exchange The macro-economic growth of China has given rise to the strong
Administrative appreciation of RMB. It has also been attracting the speculative capital
Regulations of the
and huge hot money flowing into China. In order to balance the
People's Republic of
international payments and avoid the surge of speculative foreign
China (FEAR)
exchange, China government revised the foreign exchange
administrative regulations. The government changed the policy of “loose
management on inflow and strict management of outflow”.

General Provisions
The State will not impose any restrictions on international payments
or transfers on current account.
When any material imbalance in international receipts and payments
occur, or any serious economic crisis occur in China, the State may
implement the necessary safeguards, controls and other measures.

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Administration of Foreign Exchange on Current Account
Current account foreign exchange income may, in accordance with
relevant provisions of the state, be retained or converted into RMB.
Foreign exchange payments from current account shall, in
accordance with relevant provisions, be made on the strength of
valid documents.

Administration of Foreign Exchange on Capital Account
Any foreign organization or individual that seeks to make a direct
investment in China shall, after obtaining approval from the relevant
competent department, make the registrations with the relevant
foreign exchange administrative authority.
Any domestic organization or individual that seeks to make a direct
investment overseas shall make the registrations in accordance with
the relevant provisions. Any such organization or individual that is
required to obtain approval from or make a filing with the relevant
competent authority in accordance with State provisions shall go
through the approval or filing formalities before making said
registrations.
Where any foreign exchange income on capital account is to be
retained or converted into RMB, an approval shall be obtained from
the relevant foreign exchange administrative authority, other than
where no approval is required under State provisions.
Any foreign exchange payment from capital account shall, in
accordance with State Council foreign exchange administrative
department provisions, be made on the strength of valid documents.
Where an approval from the relevant foreign exchange
administrative authority is required in accordance with State
provisions, the relevant approval formalities shall be handled before
the foreign exchange payment is made.
Foreign exchange on capital account and funds converted from
foreign exchange shall be utilized in accordance with the purposes
approved by the relevant competent authority and the relevant
foreign exchange administrative authority.

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Administration of the Foreign Exchange Business of Financial
Institutions, RMB Exchange Rates and the Foreign Exchange Market
Any financial institution that seeks to engage in or cease engaging in
foreign exchange settlement and sales business shall obtain an
approval from the relevant foreign exchange administrative authority.
The foreign exchange administrative authorities shall administer the
foreign exchange business of financial institutions on an overall
position basis.
A well-managed floating exchange rate system based on market
supply and demand shall be implemented for RMB exchange rates.
The State Council foreign exchange administrative department may,
in light of changes in the foreign exchange market and monetary
policy requirements, make adjustments to the foreign exchange
policies in accordance with the law.

Supervision and Administration and Legal Liability
Foreign exchange administrative authorities shall discharge their
duties in accordance with the law and shall have the power to take
actions such as conduct onsite inspections, carry out an appropriate
investigation and gather relevant evidence, consult, copy and seize
the relevant transactional documents, freeze up or seize relevant
property.
Any domestic organization engaged in foreign exchange business
activities shall, in accordance with relevant provisions, submit its
financial reports, statistical statements and other information.
Rank the behavior of receiving or making payments in foreign
exchange which should have been made in RMB as illegal arbitrage.
Penalize on foreign exchange control evasion, illegal arbitrage,
illegal conversion into RMB, unauthorized changing the usage of the
foreign exchange or funds converted from foreign exchange and the
breach the relevant provisions by financial institutions and other
institutions.

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Circular of the State From 1st April 2008, the administration measures of advance tax filing of
Administration of overseas payments for service trade was implemented in six pilot areas
Foreign Exchange and including Tianjin, Shanghai, Jiangsu, Sichuan, Fujian and Hunan. This
the State changes the original procedure of submission of tax certificates to one of
Administration of advance tax reporting for record.
Taxation on the
Relevant Issues of the Applicability

Trial Tax Filing System When domestic organizations go through the procedures of

of Paying Abroad for overseas payment for service trade with the amount of more than (or

Service Trade (Hui Fa equivalent to) US$50,000 in the designated foreign exchange banks,

[2008]8 ) they shall go through the tax filing procedures.
This Circular, shall not apply to the circumstance of overseas
payment by individuals.
The overseas payment such as dividend, interests shall still follow
the original procedure to get the tax certificates for processing the
overseas payment.

Applicable items
The overseas payment arising out of transportation (excluding
international ocean shipping), tourism, communication, building
erection, labor contracting, insurance, financial services (including
guarantee fee, excluding interests), computer and information
service, usage of proprietary rights and franchise, sports, culture and
entertainment services and other commercial services and
government services, etc.

Processing Procedures
Domestic Organizations shall go through the tax reporting for record
procedures with the State Taxation Bureau in advance before going
through the procedures of overseas payment for service trade with
the amount of more than (or equivalent to) US$50,000.
With the Filing Form stamped by the seal of the tax authority and
other documents required by foreign exchange administrative
authority to process the overseas payment in the designated foreign
exchange banks.

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The withheld and collected tax shall be declared and paid within
stated time.
When one contract requires more than one payment, the domestic
organizations shall go through the tax reporting for record procedures
prior to each payment.

Circular of the General In the new revised Foreign Exchange Administrative Regulation
Department of Foreign promulgated on 5th August 2008, the China government strengthened the
Exchange
management of foreign exchange on capital account, the Hui Zong Fa
Administrative
[2008]142 is enacted to improve the administration of foreign exchange
Authority on
improving the capital of foreign-investment enterprises, standardize the relevant
management of the business operation in bank.
settlement operations
for registered capital Convert the foreign exchange capital into RMB
foreign exchange of Where a foreign-investment enterprise applies to a bank for
foreign-invested conversion of foreign exchange capital into RMB, it shall, submit the
enterprises (Hui Zong
capital for verification by an accounting firm and provide the order of
Fa [2008]142)
RMB payment. No bank shall process any foreign exchange capital
conversion for which the capital verification formalities have not been
completed.

The RMB fund from the conversion of foreign exchange capital
The RMB fund from the conversion of foreign exchange capital of a
foreign-investment enterprise (fund) shall be used within the
business scope as approved by the examination and approval of the
government.
Fund shall not be used for other domestic equity investment except
for the investing foreign-investment enterprise.
Except for a foreign-investment real estate enterprise, no
foreign-investment enterprise shall use the funds to purchase
domestic real estate for any purpose other than its own use.
The RMB fund for the petty cash and the cash for payroll converted
from foreign exchange capital can be kept in RMB account.
The time limits for operation

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Where the capital account and RMB account of foreign-investment
enterprise are in the same bank, the foreign exchange settlement
bank shall, on the same day, complete the formalities for foreign
exchange conversion, transfer to RMB account and make the
payment transfer from RMB account.

Where the two accounts are not in the same bank, the foreign exchange
settlement bank shall mark: “conversion from foreign exchange capital”
on the transferred voucher when it transfers RMB converted from foreign
exchange capital. The RMB receiving bank shall make the payment
according to the “order of RMB payment” account in two working days
(including the current day of receipt).

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