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foreign exchange administrative regulations and relevant circulars

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					Foreign Exchange Administrative Regulations and Relevant Circulars
Foreign Exchange Administrative Regulation and Relevant Circulars Since 2008, China government promulgates and revised a series of regulations on the administration of foreign exchange, including: Foreign Exchange Administrative Regulations of the People's Republic of China (2008 Revision) issued on 5th August 2008 Circular of the State Administration of Foreign Exchange and the State Administration of Taxation on the Relevant Issues of the Trial Tax Filing System of Overseas Payment for Service Trade (Hui Fa [2008] 8) issued on 26th February 2008 Circular of the General Department of Foreign Exchange Administrative Authority on improving the management of the settlement operations for registration capital of foreign-invested enterprises (Hui Zong Fa [2008] 142) 29th August 2008 Foreign Exchange Administrative Regulations of the People's Republic of China (FEAR) The macro-economic growth of China has given rise to the strong appreciation of RMB. It has also been attracting the speculative capital and huge hot money flowing into China. In order to balance the international payments and avoid the surge of speculative foreign exchange, China government revised the foreign exchange administrative regulations. The government changed the policy of “loose management on inflow and strict management of outflow”. General Provisions The State will not impose any restrictions on international payments or transfers on current account. When any material imbalance in international receipts and payments occur, or any serious economic crisis occur in China, the State may implement the necessary safeguards, controls and other measures.

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Administration of Foreign Exchange on Current Account Current account foreign exchange income may, in accordance with relevant provisions of the state, be retained or converted into RMB. Foreign exchange payments from current account shall, in accordance with relevant provisions, be made on the strength of valid documents. Administration of Foreign Exchange on Capital Account Any foreign organization or individual that seeks to make a direct investment in China shall, after obtaining approval from the relevant competent department, make the registrations with the relevant foreign exchange administrative authority. Any domestic organization or individual that seeks to make a direct investment overseas shall make the registrations in accordance with the relevant provisions. Any such organization or individual that is required to obtain approval from or make a filing with the relevant competent authority in accordance with State provisions shall go through the approval or filing formalities before making said registrations. Where any foreign exchange income on capital account is to be retained or converted into RMB, an approval shall be obtained from the relevant foreign exchange administrative authority, other than where no approval is required under State provisions. Any foreign exchange payment from capital account shall, in accordance with State Council foreign exchange administrative department provisions, be made on the strength of valid documents. Where an approval from the relevant foreign exchange administrative authority is required in accordance with State provisions, the relevant approval formalities shall be handled before the foreign exchange payment is made. Foreign exchange on capital account and funds converted from foreign exchange shall be utilized in accordance with the purposes approved by the relevant competent authority and the relevant foreign exchange administrative authority.
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Administration of the Foreign Exchange

Business of Financial

Institutions, RMB Exchange Rates and the Foreign Exchange Market Any financial institution that seeks to engage in or cease engaging in foreign exchange settlement and sales business shall obtain an approval from the relevant foreign exchange administrative authority. The foreign exchange administrative authorities shall administer the foreign exchange business of financial institutions on an overall position basis. A well-managed floating exchange rate system based on market supply and demand shall be implemented for RMB exchange rates. The State Council foreign exchange administrative department may, in light of changes in the foreign exchange market and monetary policy requirements, make adjustments to the foreign exchange policies in accordance with the law. Supervision and Administration and Legal Liability Foreign exchange administrative authorities shall discharge their duties in accordance with the law and shall have the power to take actions such as conduct onsite inspections, carry out an appropriate investigation and gather relevant evidence, consult, copy and seize the relevant transactional documents, freeze up or seize relevant property. Any domestic organization engaged in foreign exchange business activities shall, in accordance with relevant provisions, submit its financial reports, statistical statements and other information. Rank the behavior of receiving or making payments in foreign exchange which should have been made in RMB as illegal arbitrage. Penalize on foreign exchange control evasion, illegal arbitrage, illegal conversion into RMB, unauthorized changing the usage of the foreign exchange or funds converted from foreign exchange and the breach the relevant provisions by financial institutions and other institutions.

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Circular of the State Administration of Foreign Exchange and the State Administration of Taxation on the Relevant Issues of the Trial Tax Filing System of Paying Abroad for Service Trade (Hui Fa [2008]8 )

From 1st April 2008, the administration measures of advance tax filing of overseas payments for service trade was implemented in six pilot areas including Tianjin, Shanghai, Jiangsu, Sichuan, Fujian and Hunan. This changes the original procedure of submission of tax certificates to one of advance tax reporting for record. Applicability When domestic organizations go through the procedures of overseas payment for service trade with the amount of more than (or equivalent to) US$50,000 in the designated foreign exchange banks, they shall go through the tax filing procedures. This Circular, shall not apply to the circumstance of overseas payment by individuals. The overseas payment such as dividend, interests shall still follow the original procedure to get the tax certificates for processing the overseas payment. Applicable items The overseas payment arising out of transportation (excluding international ocean shipping), tourism, communication, building erection, labor contracting, insurance, financial services (including guarantee fee, excluding interests), computer and information service, usage of proprietary rights and franchise, sports, culture and entertainment services and other commercial services and government services, etc. Processing Procedures Domestic Organizations shall go through the tax reporting for record procedures with the State Taxation Bureau in advance before going through the procedures of overseas payment for service trade with the amount of more than (or equivalent to) US$50,000. With the Filing Form stamped by the seal of the tax authority and other documents required by foreign exchange administrative authority to process the overseas payment in the designated foreign exchange banks.
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The withheld and collected tax shall be declared and paid within stated time. When one contract requires more than one payment, the domestic organizations shall go through the tax reporting for record procedures prior to each payment. Circular of the General Department of Foreign Exchange Administrative Authority on improving the management of the settlement operations for registered capital foreign exchange of foreign-invested enterprises (Hui Zong Fa [2008]142) In the new revised Foreign Exchange Administrative Regulation promulgated on 5th August 2008, the China government strengthened the management of foreign exchange on capital account, the Hui Zong Fa [2008]142 is enacted to improve the administration of foreign exchange capital of foreign-investment enterprises, standardize the relevant business operation in bank. Convert the foreign exchange capital into RMB Where a foreign-investment enterprise applies to a bank for conversion of foreign exchange capital into RMB, it shall, submit the capital for verification by an accounting firm and provide the order of RMB payment. No bank shall process any foreign exchange capital conversion for which the capital verification formalities have not been completed. The RMB fund from the conversion of foreign exchange capital The RMB fund from the conversion of foreign exchange capital of a foreign-investment enterprise (fund) shall be used within the business scope as approved by the examination and approval of the government. Fund shall not be used for other domestic equity investment except for the investing foreign-investment enterprise. Except for a foreign-investment real estate enterprise, no foreign-investment enterprise shall use the funds to purchase domestic real estate for any purpose other than its own use. The RMB fund for the petty cash and the cash for payroll converted from foreign exchange capital can be kept in RMB account. The time limits for operation

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Where the capital account and RMB account of foreign-investment enterprise are in the same bank, the foreign exchange settlement bank shall, on the same day, complete the formalities for foreign exchange conversion, transfer to RMB account and make the payment transfer from RMB account. Where the two accounts are not in the same bank, the foreign exchange settlement bank shall mark: “conversion from foreign exchange capital” on the transferred voucher when it transfers RMB converted from foreign exchange capital. The RMB receiving bank shall make the payment according to the “order of RMB payment” account in two working days (including the current day of receipt). Tax Advisory Services SBA Stone Forest Corporate Advisory Company offers the following Tax Advisory Services: By SBA Stone Forest Corporate tax planning for proposed business models and restructuring strategy IIT planning and Annual IIT Assessment Assistance Transfer pricing Tax due diligence Tax advisory retainer service Corporate Annual Tax Assessment Review Specific tax issue settlement

For more information, please visit www.SBASF.com or contact us at:
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Copyright and Disclaimer: This article and all its components (including images, audio and text) are copyright held by SBA Stone Forest Corporate Advisory (Shanghai) Co., Ltd. No part may be reproduced, copied, transmitted in any form or by any means without the written permission of SBA Stone Forest Corporate Advisory (Shanghai) Co., Ltd. While utmost care has been taken to ensure accuracy with the relevant laws at the time of writing, no person should rely on the contents on this

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article without first obtaining advice from a qualified professional person. This article is issued on the terms and understanding that (1) the author is not responsible for the results of any actions taken on the basis of information in this article, nor for any error in or omission from this article; and (2) author expressly disclaims all and any liability and responsibility to any person, whether a reader of this publication, in respect of anything, and of the consequences of anything, done, or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this article.

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Description: foreign exchange administrative regulations and relevant circulars