Special bank accounts for Foreign Invested Enterprises Go back »

2012-06-29 | Nanjing

In order to adapt to the increasing of foreign investment, to facilitate the entry of foreign capital through multiple channels, and improve the administration of foreign exchange in China, the SAFE issued a circular in 2003, Issues Relevant to Improving Foreign Exchange Control on Foreign Direct Investment Circular (关于完善外商直接投资外汇管理工作有关问题的通知) (the “Circular”), effective as of April 1 2003.

It happens very often, in the practice, that foreign investors must incur in costs prior to the establishment of a joint venture or a WFOE and can encounter difficulties relating to foreign currency at the bank of their choice or at the SAFE. The circular provides practical solutions to some problems relating to management of exchange in foreign direct investment.

A foreign investor who operates direct investment or dealing with activities related to direct investments in China, may require opening a bank account in foreign currency on behalf of the investor, before the administrative department of the place chosen for the establishment of the company. The foreign investor is allowed to open only one account in one bank in multiple currencies, unless otherwise approved by the administration of foreign exchange. The type of accounts provided by the Circular are listed below.

The Expense Account

Like the Temporary Account, the Expense Account is used by a foreign investor who intends to establish an FIE in China. The monies deposited in this account may be allocated to expenses connected with market research, formulation of strategy and start-up costs, etc., during the FIE's initial period. This account cannot be opened before the investors have obtained pre-approval for the company name from the industry and commerce authorities. The cap on the amount of foreign exchange that the investor may deposit into the account is US$100,000.

Generally the account may be kept open for only three months. Once the FIE is established, the balance in the Expense Account may be transferred to the Capital Contribution Account.

The Acquisition Account

A foreign investor may open an Acquisition Account if it needs to acquire land-use rights and immovable property attached to such land, machinery, equipment or other assets, etc., during an FIE's start-up period. The account is to be used for depositing and paying the foreign exchange required for such acquisitions and can be opened only after the relevant asset purchase contract has come into force.

The cap on the amount of foreign exchange that may be held in the Acquisition Account and the length of time the account may be maintained are to be determined according to actual requirements (generally based on the purchase contract). Generally the account may not be maintained for more than six months. As with the Expense Account any remaining balance in the Acquisition Account may be transferred to an FIE's Capital Contribution Account upon establishment of the FIE.

The Guarantee Account

If a foreign investor needs to provide a funding guarantee to a domestic institution before investing, it may apply to open a Guarantee Account for the purpose of depositing and paying the foreign exchange guarantee funds. Like the other two accounts, any balance remaining in the account once the FIE is established, may be transferred to the FIE's Capital Contribution Account.

On making the request for the opening of one of these foreign currency accounts, foreign investors must provide to SAFE documentation that justify the investment there are going to make. SAFE will then determine the maximum amount allowed to be deposited in the account and the duration of the deposit. These types of accounts don’t allow deposit of foreign currency in cash, but only through transfers of money from bank to bank. Deposits, withdrawals and transfers of funds are verified on a case by case by the SAFE.

Once the FIE is established in China, the sums available on one of the special accounts above mentioned can be transferred into the capital account of the company. If the foreign investor does not establish a company in China, any funds remaining in one of the above mentioned account, may be transferred back upon request to SAFE.

For more information please send an email to: c.dandrea@picozzimorigi.it, or visit our website www.picozzimorigi.cn and www.picozzimorigi.com

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© 2012 Picozzi & Morigi Law Firm

Source: © 2012 Picozzi & Morigi Law Firm