Hong Kong: SAFE Issues Circulars To Regulate Forex Controls Over Foreign Invested Partnerships And Direct Investments

Last Updated: 28 December 2012
Article by Yong Ren and Joyce J. Sun
Most Read Contributor in Hong Kong, October 2018

Keywords: SAFE, Forex controls, foreign invested partnerships, FIPs


On 19 November 2012, the State Administration of Foreign Exchange (SAFE) issued two new circulars: (i) Circular on Relevant Issues Regarding Administration of Foreign Exchange for Foreign Invested Partnership (Circular 58); and (ii) Circular on Further Adjustments to Measures for the Administration of Foreign Exchange for Direct Investment (Circular 59). These circulars, both of which came into effect on 17 December 2012, were issued in order to standardise and simplify foreign exchange (Forex) related administrative approvals, and to downscale pre-approvals for routine operations.

Main Impact of Circular 58

Since the promulgation of the Measures for the Administration of the Establishment of Partnerships in China by Foreign Enterprises and Individuals in November 2009, foreign-invested partnerships (FIPs) have become a new investment alternative for foreign investors in addition to wholly foreign-owned enterprises and Sino-foreign joint ventures. Until the issuance of Circular 58, however, there had been no systematic regulation addressing the Forex matters in connection with FIPs. Circular 58 applies to wholly foreign-invested partnerships and Sino-foreign partnerships.

Initial Forex Registration and Subsequent Filings

An FIP must register with the local SAFE office within 30 days of the issuance of its business license. Circular 58 expressly states that the branches of an FIP are not required to undergo additional Forex registration.

If there are changes to any of the key information that an FIP has registered with the Administration of Industry and Commerce (AIC), the FIP must, within 30 days upon the change of registration at the AIC, file the change(s) to that information with the local SAFE office to update its Forex registration.

Capital Contribution Confirmation

FIPs must complete the capital contribution confirmation registration with the local SAFE after the payment of capital contributions by foreign partners. Only after completion of the confirmation registration can the FIPs convert the funds contributed by the foreign partners into RMB, or transfer those funds to other accounts in China.

Moreover, the foreign partners can only remit funds obtained from the liquidation, capital decrease, partnership interest transfer or profit distribution out of China, or use such proceeds for further investment in China, after completing the capital contribution confirmation procedures.

Partnership Interest Transfers

If a domestic partner in an FIP purchases partnership interests from a foreign partner, the domestic partner must first file the change of registration with the local SAFE office and then carry out the foreign currency conversion and remit the purchase price at the bank where the domestic partner is located.

If the foreign partner purchases partnership interests from the domestic partner, the FIP must file the change of registration at the local SAFE office. The transferring domestic partner must open a special asset realization account to receive payment from the foreign partner.

Main Impact of Circular 59

Changes for Foreign Investors

Circular 59 abolishes the requirements to obtain SAFE's approval to open:

  • a pre-establishment expense account,
  • a Forex capital account,
  • an asset realization account, and
  • a margin account.

Approval is no longer required for foreign investors to make further investments in China using profits, proceeds from equity transfer, capital reduction and liquidation, and certain other funds obtained in China.

Circular 59 also simplifies the Forex registration procedures in connection with a foreign investor's payment of a purchase price to Chinese shareholders for equity acquisitions. Prior to the issuance of Circular 59, SAFE registration was required to provide evidence that the foreign investor had fully paid the purchase price. Circular 59 distinguishes between cash and non-cash considerations. If the consideration is entirely in cash, SAFE's system automatically completes the confirmation and registration of the receipt of the purchase price. If part or all of the consideration is non-cash, the target company must register with SAFE to confirm the foreign investor's completion of payment.

Changes for Foreign-Invested Enterprises (FIEs)

For FIEs, SAFE approvals are no longer needed for the following activities:

  • to increase the registered capital by using reserves and undistributed profits which belong to the foreign investors;
  • to convert the registered foreign debt of the FIEs (including the accrued interests) into registered capital; and
  • to repatriate proceeds from capital reduction, liquidation or realised investments to its foreign shareholders.

Changes for Foreign-Invested Holding Companies (Holding Cos)

Circular 59 removes the need for SAFE approvals for:

  • Holding Cos to wire money for re-investments in China; and
  • Holding Cos' invested entities to wire Forex profits and dividends to Holding Cos within China.

Forex registration with SAFE is no longer required when the Holding Cos inject capital into their re-invested entities in China. If the re-invested entity is a joint venture between the Holding Cos and other foreign investors, the capital contribution by the foreign investors still need to be registered with SAFE.

Learn more about our PRC offices and Private Investment Funds, Mergers & Acquisitions, Private Equity practices.

This article was previously published on 19 December 2012

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© Copyright 2012. The Mayer Brown Practices. All rights reserved.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

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