China eases foreign exchange control
With increasing frequency on cross-border business, the People’s Republic of China has now eased foreign exchange control. The amount that can be transferred freely out of China has been increased from the equivalent of USD 30,000 to USD 50,000.
Outbound and inbound foreign exchange payments
China controls inbound and outbound foreign exchange payments. To make an overseas payment, it is required to purchase the foreign funds with RMB from a bank qualified to do foreign exchange business. Nowadays, most banks in China are qualified to do foreign exchange transactions.
Up to an amount of an equivalent of USD 30,000 Chinese citizens could convert and remit freely every year. Conversions of RMB in foreign currencies exceeding the equivalent of USD30,000 were still possible, but certain formalities needed to be fulfilled. For such transactions, written approval must be obtained by the local State Administration of Foreign Exchange (SAFE). Without the SAFE’s approval letter, banks wouldn't execute the transfer of funds abroad. To obtain the required approval, documents needed to be submitted verifying the underlying transaction, such as an engagement letter/contract signed between the Chinese party and the foreign counterparty.
In addition, to make a single international remittance of USD 30,000 or more from China, the Chinese payer also needed to submit a copy of the contract to the local branches of the State Administration of Taxation (SAT) to record. Additionally, tax return certificates of the payee needed to be filed as well as the foreign payee potentially needed to pay Chinese withholding tax for the revenue gained from China. The relevant payments in that respect included, but are not limited to:
- Service fees from China
- Salaries from China
- Dividends, interest, rent and royalty payments from China
- Other income from transfer of property in China
With increasing frequency on cross-border business, the People’s Republic of China has now eased foreign exchange control. The same formal requirements as mentioned above still remain in place, but the amount of USD 30,000 has now been raised to USD 50,000. New circulars to execute this change have recently been released by the SAT and the SAFE that will be effective from 1 September 2013. Both can be understood as the government’s intention to simplify the foreign exchange administration and the accompanying formalities.