China Further Eases Foreign Exchange Control over Capital Accounts

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SHANGHAI – The State Administration of Foreign Exchange (SAFE) of China promulgated a circular on January 24 to improve and further ease the administrative control over capital account foreign exchange items (Huifa [2014] No.2, hereinafter referred to as “Circular 2”). Circular 2 will enter in to effect on February 10.

The approval procedure for profit repatriation will be simplified and banks will no longer review any transaction documents if the remittance amount is under US$50,000. For remittance of profit over US$50,000, banks in principle do not need to review the audit report and capital verification report; however, they will still check the board resolution on profit distribution and the original tax record-filing documents to verify the authenticity of the transaction.

There will be no limitation on the amount of profit being repatriated. Currently, the amount of profit that is allowed to be distributed generally should not exceed the total amount of “dividends payable” and “undistributed profit” presented in the most recent audited financial report of the company.

In addition, Circular 2 broadens the current rule and allows companies in China to lend to their affiliates overseas in which they have direct or indirect shareholdings. It also cancels the two-year limit on the foreign lending quota.

Financial leasing companies, including foreign invested financial leasing companies, will be freed from quota restrictions for foreign lending. They will be able to open the special account for foreign lending directly at local banks. The special account could be used to retain lease revenue from overseas, and the settlement procedure of the revenue in the special account will be simpler.

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