New Circular by SAFE to Streamline the Foreign Exchange Administrative Procedures for FDI
Q: When did the State Administration of Foreign Exchange (“SAFE”) promulgate such circular?
A: On November 19, 2012, SAFE promulgated the Circular on Further Improving and Adjusting Foreign Exchange Administrative Policies on Foreign Direct Investment (“Circular No. 59”). It became effective on December 17, 2012. The Circular No. 59 brings significant changes to the current foreign exchange approval regime for foreign direct investment and delegates the original approval and verification authority of the SAFE for certain items to the banks. We set out below the main changes under the Circular No. 59.
Q: What did the Circular No. 59 do for foreign exchange matters?
A: Generally speaking, the Circular No. 59 has abolished many requirements on the foreign exchange regarding foreign direct investment and delegates the original approval and verification authority of the SAFE for certain items to the banks.
Q: In what respects the foreign exchange verification requirements has been abolished?
A: The Circular No. 59 has abolished the foreign exchange verification requirements for certain foreign exchange matters, such as opening of preliminary expense bank accounts by a foreign investor, opening of foreign exchange capital accounts by foreign invested enterprises (“FIEs”), opening of accounts for proceeds from the disposal of assets in an M&A project and opening of accounts for PRC entities to receive deposits in foreign direct investment projects. SAFE and its local counterparts are no longer responsible for verification on the aforesaid matters. The local bank, under the Circular No. 59, is permitted to do verification.
Q: The Circular No. 59 has the impact on cross-border M&A projects and how?
A: Yes. Before the promulgation of the Circular No. 59, a foreign buyer to a cross-border M&A project is required to carry out registration procedures with SAFE for payment of equity purchase price to a Chinese seller. Now, if a foreign buyer pay purchase price to a Chinese seller in cash, they are permitted, under the Circular No. 59, to file with the bank for such payment, and the bank then will file the record with the SAFE after the payment is made.
Q: What is the impact of the Circular No. 59 on the granting loans to overseas entities?
A: The old regulations only allow a foreign invested enterprise (“FIE”) to grant a loan to its overseas subsidiary. Now such restriction has been abolished. A FIE is permitted to loan money to either its subsidiary or parent company, which amount should not exceed with the sum of the amount of the distributed but unremitted profits and the amount of undistributed profits of such FIE to which its parent company is entitled.