The State Administration of Foreign Exchange (SAFE) recently issued the Circular of the State Administration of Foreign Exchange Concerning Foreign Exchange Administration for Domestic Residents Conducting Overseas Financing and Round-trip Investments via Special Purpose Companies (Huifa No. 37 [2014], hereinafter referred to as the “Circular”) so as to support implementation of the “going-global” strategy, to fully utilize international and domestic resources and markets, to promote the facilitation of cross-border investments and finance, practically serve development of the real economy, and to increase the convertibility of cross-border capital and financial transactions in an orderly manner.

The Circular mainly includes the following:

First, optimizing the administration process: Rationally defining the scope of foreign exchange administration for round-trip investments based on the role and objectives of foreign exchange administration. Transforming foreign exchange administration of round-trip investments and optimizing the relevant administration process based on the concept of “administering cross-border outflows against overseas direct investments (ODI) and cross-border inflows against foreign direct investments (FDI).”

Second, streamlining the administration processes: Adjusting the scope of registration of overseas special purpose companies and only registering those companies directly set up or controlled by domestic residents (first level). Abolishing the established procedures, such as the set-up registration, financing registration, registration for changes in financing of foreign special purpose companies, and simplifying changes in the content of the registration.

Third, simplifying the business materials. Domestic residents carrying out foreign exchange registration for outward investments in person are only required to submit a standard application form in a fixed format, a commitment regarding the legitimacy of the funds, and identification and relevant supporting authenticity evidence. 

Fourth, expanding the channels for capital: Allowing purchases and payments in foreign exchange by domestic residents to be used to establish overseas special purpose companies and overseas working capital and, at the same time, eliminating the restrictions on domestic companies’ overseas lending to special purpose companies.

Fifth, relaxing restrictions on the utilization of funds from overseas financing, abolishing the mandatory rules on the repatriation of funds, i.e., “profits, dividends, and foreign exchange earnings brought about by capital changes derived from special purpose companies by domestic residents shall be repatriated within 180 days from the day of receipt,” and allowing funds from overseas financing and other related funds to be retained for overseas use.

Sixth, clearly incorporating incentive plans for employee rights and benefits in non-listed special purpose companies into the scope of registration to better satisfy the reasonable individual demands of domestic residents.

Seventh, strengthening the idea of risk prevention and control. Intensifying responsibility investigations of violations by putting more efforts into statistics and monitoring and focusing on regulation during the course and ex-post regulation as well as decentralizing to promote the facilitation of cross-border investments and financing.

This Circular will be implemented as of the date of issuance.