Following the issue of the Rules on Foreign Exchange Administration for Outbound Direct Investments by Onshore Entities (“Rules”) by SAFE on 13 July 2009, SAFE issued the Notice to clarify the registration procedures that onshore banks would need to comply with for their own outbound direct investments. For the purpose of the Notice, onshore banks include policy banks, State-owned commercial banks, joint stock commercial banks, urban and rural commercial banks. Interestingly, the Notice also applies to locally incorporated foreign banks.
Highlights
- Onshore banks are required to complete the registration with the relevant local branch of SAFE once they have obtained the approval from China Banking Regulatory Commission (“CBRC”) or other regulatory authorities for the following outbound direct investments: (i) establishment of branches (excluding representative offices); (ii) establishment of subsidiaries; (iii) purchase of equity interests in an offshore entity in accordance with law; or (iv) other direct investment projects as approved by the relevant regulatory authorities.
- Once the registration is completed, an onshore bank may directly proceed with the purchase and remittance of foreign exchange funds through its own business system, and the bank is required to report back to SAFE through the relevant business system within 3 business days upon such purchase and remittance of the funds.
- An onshore bank may directly purchase and remit foreign exchange funds or remit its own foreign exchange funds out of the PRC for preliminary expenses of an outbound investment. Under the Rules, such expenses are generally capped at 15% of the total investment amount for the proposed project unless otherwise approved by the relevant local branch of SAFE. If the outbound investment project is not approved by the CBRC or other regulatory authorities, the remaining amount of funds that have been remitted out of the PRC for the preliminary expenses must be remitted back to the PRC within one year from the date of the outward remittance.
- The profits generated by an onshore bank from outbound direct investments are not allowed to be converted into RMB separately, and must be consolidated into the overall foreign exchange profits of the bank and converted into RMB in accordance with the relevant rules. This seems to be a more stringent requirement for onshore banks compared with other onshore entities given that under the Rules, if the profits are remitted back to the PRC, the onshore entities would have the discretion to either keep foreign currency funds or convert into RMB.
- If an onshore bank transfers to anther onshore entity all or part of its equity interest in an offshore entity acquired from its outbound investment, the consideration for such transfer is required to be paid onshore in RMB, and each of the transferor and transferee is required to complete the relevant registrations in relation to the transfer of equity interest.
- For those investments made by onshore banks prior to the date of the Notice, these banks are required to complete the relevant registrations by 31 October 2010.
Please contact Fang Jian (jian.fang@linklaters.com tel: +86 21 2891 1858) if you would like further details.
