China Clarifies Issues Regarding Cross-Border RMB Settlement by Foreign Investors

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Oct. 9 – With the view to regulate and facilitate foreign investment into China’s financial institutions, the People’s Bank of China released the “Circular on RMB Settlements of Investments in Domestic Financial Institutions by Foreign Investors (yinfa [2013] No.225, hereinafter referred to as Circular),” which clarifies several cross-border RMB settlement issues faced by foreign investors when investing in the country’s financial institutions. Detailed information can be found below.

Applicable Scope
Foreign investors that invest in domestic financial institutions upon approval by the finance supervision authority under the State Council and in accordance with relevant laws may use RMB for the following investment activities relating to financial institutions:

  • Establishment of financial institutions;
  • Capital increases;
  • Mergers and acquisitions;
  • Share purchases;
  • Equity transfers;
  • Profit distribution;
  • Liquidations;
  • Capital reductions;
  • Shareholding reductions; and
  • Early recouping of investment.

Special Accounts
When processing the RMB investment in a domestic financial institution by a foreign investor, the domestic settlement bank shall open RMB bank settlement accounts for the foreign investor and the domestic financial institution in accordance with relevant provisions on bank settlement account management.

Specifically, the domestic settlement bank shall open special accounts for foreign investors to deposit relevant capital. However, the bank does not need to set up special accounts for the outbound remittance of RMB funds obtained from the following activities:

  • Profit distribution;
  • Liquidation;
  • Capital reductions;
  • Shareholding reductions; and
  • Early recouping of investment.

Examination and Approval
Where a foreign investor is required to go through examination and approval formalities before capital verification when remitting offshore RMB investment funds to China, the foreign investor shall submit the approval documents issued by the relevant supervision departments and other relevant materials to its domestic settlement bank for handling capital verification.

However, if the foreign investor is required to conduct capital verification before examination and approval, it may first conduct the capital verification through the domestic settlement bank by producing the duplicates of the application materials submitted to the supervision department, and then submit the approval or record-filing documents of the capital verification to the settlement bank. If the foreign investor fails to obtain approval, the funds remitted into China shall be repatriated via the original route.

Remittances of RMB Profits
Where a foreign investor remits its RMB profits out of China, its domestic settlement bank may directly process the outbound remittance after reviewing the relevant profit disposal resolutions of the foreign-invested financial institution concerned, as wekk as tax payment certificates and other relevant materials.

After reviewing the approval or record-filing documents issued by the finance supervision authority of the State Council and the relevant tax payment certificates, the domestic settlement bank shall handle the outbound remittance of RMB funds obtained from the following investment activities for the foreign investor:

  • Capital reductions;
  • Share transfers;
  • Liquidation; and
  • Early recouping of investments.

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