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What Is Exchange Controls and Remittance of Profits

Updated:2021-10-28 18:45:54    Source:www.tannet-group.comViews:262

When an FIE is established, it must register with the online system of SAFE after its business licence is issued.Under the Regulations for the Administration of Domestic Foreign Exchange Accounts, an FIE must maintain separate foreign exchange bank accounts for current account items and capital account items.

In general, current account foreign exchange can be transferred freely into and out of mainland China, while capital account foreign exchange is highly restricted in its transfer into and out of
mainland China and any such transfers generally require SAFE approval, though in recent years, many SAFE approval requirements have been replaced by registration requirements in SAFE’s foreign exchange system as China moves towards internationalisation of the RMB and
FIEs are now permitted by SAFE rules to convert designated categories of foreign exchange received into RMB to be held in accordance with their business needs under the SAFE’s Notice on Reforming and
Standardising the Administrative Policies on Capital Account Foreign Exchange Settlement.

Current account items include transactions that recur in the course of
international receipts and payments, and which do not have the transfer of capital as their objective, for example, revenue and expenditure from international trade in goods and services. Capital account items are transactions arising from the inflow and outflow of capital, for example, direct investments, loans and securities investments.

Remittance of profits from mainland China to out of mainland China by an FIE is not subject to the prior approval of SAFE. Tax filings and allocations to statutory funds must be completed before any profits can
be distributed, however, and where the profits being remitted exceed US$50,000, an FIE will need to present the necessary supporting documents to the foreign exchange bank.A summary of the process and documents required for the remittance of foreign exchange dividends is set out in Appendix three.The same requirement, where applicable, applies also to the remittance of RMB dividends.

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