Tuesday, 27 August 2013

China Updates- Foreign Exchange

The State Administration of Foreign Exchange (SAFE) of China in July issued the Guidelines for the Administration of Foreign Exchange Under Service Trade under Circular 30 (effective September). Circular 30 simplifies foreign exchange rules for the service industry whilst abolishing numerous previous SAFE regulations.

The Guidelines provide that the State does not impose restrictions on international payments in services trade as long as the payments are based upon genuine and lawful transactions. Nor are banks required to inspect and verify the transaction documents for receiving and paying foreign exchange under services trade where the value of such funds is US$50,000 (or equivalent) or less. However, where the nature of the funds is unclear, banks should request the submission of transaction documents. Likewise, where the funds exceed US$50,000 or equivalent, transaction documents must be submitted to banks for approval before the transaction can be processed. In the case of dividend payments, for example, the bank must verify the annual financial audit report issued by a certified public accounting firm, the board resolution on profit distribution, and the company's most recent capitalverification report. 

Announcement 40 was also issued in July (by SAT - the State Administration of Taxation and SAFE), and removed the requirement to obtain a tax payment certificate (proving that tax has been correctly paid) before funds can be remitted abroad. In its place, those making outbound payments of a value of more than US$50,000 are required to file with a local office of the State Tax Bureau (STB). The same applies to reinvestment out of a China investment. The respective filings can be used as support for the banks to execute the requested remittances although there is a period for verification by the STB after they have
received the documents.
All of the above greatly simplifies remittances and tax withholding.

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