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New foreign exchange rules on receipt of foreign currency remittance
The State Administration of Foreign Exchange ("SAFE") issued a new circular, namely Hui Fa [2006] 49 ("Circular 49"), on improving the administration of foreign exchange ("forex") receipt and settlement (i.e. conversion into RMB) for the trading of tangible goods (hereinafter referred to as "trading items"). The circular, to be effective from 1 November 2006, is aimed at strengthening the forex administration on the authenticity of trading items and protecting China's balance of international receipts and payments.
The following summarises the salient points of the circular:
Applicable Scope
The circular is applicable to all enterprises except for those located in special areas set out below:
- Bonded zones;
- Bonded ports;
- Export processing zones;
- Bonded logistics parks; and
- Bonded logistics centres.
Annual Assessment
SAFE will conduct annual assessment on all enterprises in respect of their forex receipt and settlement status. SAFE will put an enterprise on its "monitoring list" under any one of the following circumstances:
- The difference between forex receivable and actual forex receipt under trading items is more than 10% (10% inclusive) within a one-year period.
- The enterprise has a record of having been penalised by SAFE due to violation of forex administration rules over the past one year.
- SAFE is of opinion that the enterprise should be included in the monitoring list after considering factors including its credit history, operating period, etc.
For enterprises, such as those engaged in export of ships and large-scale equipment sets, which require special arrangements for forex settlement to meet production and operation needs, SAFE may consider allowing appropriate relaxation on the above condition (1) upon review and examination provided that the subject enterprise has recorded a difference between forex receivable and actual forex receipt under trading items of no more than USD500,000.
Consequence
If included in SAFE's monitoring list, an enterprise will be subject to stricter forex administration procedures in its applications for forex settlement, specifically under the following three scenarios:
- Entrepot trade
For entrepot trade where advance forex payment has been made, the subject enterprise has to provide the original verification certificate of forex payment for import (enterprise's copy) properly stamped by the remitting bank, and the entrepot trade agreement for forex conversion upon receipt at bank.
For entrepot trade involving advance receipt of forex, the relevant forex cannot be converted into RMB until overseas payment has been made. The remaining forex is then allowed to be settled into RMB at bank upon providing the original verification certificate of forex payment for import (enterprise's copy) properly stamped by the remitting bank as well as the entrepot trade agreement.
- Other trading items
Conversion of forex receipt under other trading items (including deposit received for export) requires the original export declaration form (marked with serial number of the slip of forex receipt for export) and the relevant trading contract.
- Commissions and trading expenses
Conversion of forex receipt of trade-related expenses such as commissions (agency fees), insurance fees, etc. requires the provision of relevant contract and invoice.
Similarly, conversion of forex receipt under other current account items also requires the provision of relevant contracts and invoice.
In the absence of the above mentioned documentary evidence, banks are not allowed to convert forex into RMB for enterprises which have been put on SAFE's "monitoring list". |
