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In May 2010, the State Council issued the Opinions on
Encouraging and Guiding the Healthy Development of Private
Investment (Guo Fa [2010] No.13) to promote private investment
activities . In order to solve the difficulties faced by private
companies in terms of overseas financing and the lack of liquidity,
and to simplify the foreign exchange control policies for outbound
investment activities by private companies, SAFE released new rules
on private outbound investments, the Circular of State
Administration of Foreign Exchange on Foreign Exchange
Administration in Relation to Encouraging and Guiding the Healthy
Development of Private Investment (Hui Fa [2012] No.33) (the
"Circular") on 11 June 2012. The Circular simplifies the
regulation processes for the remittance of foreign direct
investment capital as well as offshore loans1 granted by
domestic enterprises and relaxes the administration of external
security provided by individuals.
The Circular's main content includes:
Simplifying the management of outbound direct investment
capital remittance
The difference between the total investment amount of the
outbound direct investment project and the actual registered
capital can be remitted back to China after registering the
remittance with SAFE. Previously, domestic enterprises needed to
register outbound investment reduction or outbound investment
withdrawal before it could remit such differences back to
China.
Simplifying the administration of offshore loans
The Circular relaxes the funding sources of offshore loans,
permitting domestic companies to use foreign exchange loans
borrowed from domestic banks to grant offshore loans to companies
they have invested offshore.
Meanwhile, the Circular abolishes the approval requirements for
the purchase, payment and remittance of foreign exchange used for
offshore loans. The Circular prescribes that for offshore loans,
domestic companies may receive/make payments through a special
account for offshore loans opened with a bank with foreign exchange
businesses, within the offshore loan quota approved by SAFE and
after the completion of the registration formalities .
Allowing individuals to provide external security together with
corporate external security
Individual external security: The Circular
permits individuals to provide external security for the financing
granted by offshore lenders to offshore invested companies if
external security is also provided by domestic enterprises for the
same financing. Individual external security can be provided in the
form of guarantees, mortgages, or pledges in favor of offshore
lenders and other manners permitted by Security Law.
External security applications: Domestic
individuals shall entrust the domestic company providing the
corporate external security to apply for the individual external
security at the bureau of SAFE where the company located. If SAFE
approves the domestic company to provide the external security,
SAFE may register the individual external security together with
the external security provided by the company.
Approval: SAFE will not verify the terms of the
individual security, such as the individual's qualifications,
manner of security and the scope of the secured assets.
Registration: SAFE can, on the external
security registration certificate for the corporate external
security, make a note that a domestic individual is providing an
external security for the same debt.
Enforcement: when a domestic individual
external security is enforced, the local SAFE will verify the
relevant evidence.
Footnote
1 Under current foreign exchange regulations,
a domestic enterprise (except for financial institutions) can only
grant offshore loans
(境外放款) to the offshore
companies in which it has equity interest. "Offshore
loans", when used in this newsletter, specifically means the
loans granted by a domestic enterprise to offshore invested
companies.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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