Control Over the Current Account of Foreign-invested Enterprises

(a) Foreign Exchange Receipts under the Current Account

An FIE can open a foreign exchange settlement account directly with a designated bank by presenting its Foreign Exchange Registration Certificate and other supporting documents and can retain or sell the foreign exchange to a financial institution engaged in the settlement and sale of foreign exchange according to relevant state regulations. It is no longer required to repatriate its foreign exchange receipts and allowed to either repatriate its foreign exchange receipts or have them deposited abroad in accordance with the prescribed conditions and terms.

(b) Foreign Exchange Payments under the Current Account

When an FIE has to make external payments within its business scope, it may withdraw the required amount from its foreign exchange settlement account and any shortage can be made up for by purchasing foreign exchange with renminbi at designated banks. Details are as follows: (1) remittance of after-tax profits and bonuses to the foreign party of an FIE can be made from the foreign exchange account or at designated banks by presenting the board of directors’ profit distribution resolution; (2) the after-tax wages and other legitimate incomes in renminbi of an FIE’s foreign, overseas Chinese, Hong Kong, Macau and Taiwanese employees may be converted into foreign currency and remitted at designated banks upon presentation of relevant supporting documents; (3) after-tax dividends payable in foreign exchange may be remitted from the foreign exchange account or at designated banks.
Enterprises making advance payment for imports to their head office (or parent company) located outside the mainland, or to the subsidiaries or companies invested by or controlled by their offshore head office (or parent company) in a foreign country or region (including Hong Kong, Macau and Taiwan) are not required to submit a letter of guarantee for the advance payment. The FIE can directly complete the foreign exchange purchase and payment procedures at a designated bank by presenting the relevant proofs such as import contract, import foreign exchange payment verification and cancellation form, proforma invoice, FIE Foreign Exchange Registration Certificate and proof of the companies concerned.

(c) System of Verification and Cancellation of Export Receipts in Foreign Exchange

The exporter shall, after exporting the goods, collect the total transaction price stated on the export contract and the customs declaration form in good time and in full amount. Export receipts under the processing trade are managed in line with the contract, and the foreign exchange receivable by the exporter should, in theory, be equivalent to the difference between the total volume of export and the total volume of import. Normally the exporter should go through verification and cancellation with the foreign exchange administration within 180 days of the date of customs declaration of the exports. In the case of forward collection (where it is clearly stated on the export contract that the date of collection of foreign exchange receipts is more than 180 days after the date of customs declaration), it must complete formalities for filing of record with the foreign exchange administration by presenting the Situation Statement on Filing of Forward Exchange Collection for the Record, the verification and cancellation note for export receipts in foreign exchange, the export declaration, and the forward export contract. The exporter shall put on record the future collection of foreign exchange receipts with the foreign exchange administration within 60 days after making the customs declaration.

Under the Measures for the Online Inspection of Foreign Exchange Collection and Settlement of Export Receipts announced by SAFE in July 2008, enterprises that receive foreign exchange payments for exports must first deposit such payments into their supervised export foreign exchange receipt accounts, which will be incorporated into the executive information system of their foreign exchange accounts. The designated foreign exchange bank will conduct online verification of the electronic data on their foreign exchange receipts from exports (including foreign exchange collected abroad and foreign exchange collected within China in pursuance of relevant provisions, together with advance payments). When the bank makes settlement or transfer of funds from this account, it will log on to the system to verify the amount of foreign exchange receivable under the corresponding category of trade. Receipts covered by transit account only include the foreign exchange receipts of enterprises from exports. Payments can be made from the supervised accounts only after being verified online by the bank and the scope of such payments covers foreign exchange settlements made following an online bank verification, foreign exchange transfers to the enterprise's foreign exchange current account, and foreign exchange returns approved by the foreign exchange administration. No transfers may be made between supervised accounts. Interest will be paid on the balance of these accounts at demand deposit rate.

If you have any questions regarding above matters, please do not hesitate to contact Tony Chan & Co. CPA for enqiries.