(Promulgated on March 29, 2003 by the State Administration of Foreign Exchange)
To: Branches and Foreign Exchange Management Departments of the State Administration of Foreign Exchange in Provinces, Autonomous Regions and Municipalities, Branches of the State Administration of Foreign Exchange in Shenzhen, Dalian, Qingdao, Xiamen, and Ningbo:
The following circular concerning foreign exchange management of foreign share participation in fund management companies is released to standardise the foreign exchange administration of foreign share participation in fund management companies:
I. Fund management companies with foreign share participation mentioned in this circular includes fund management companies whose share right change is caused by overseas shareholders accepting or subscribing to shares of a domestically funded fund management company, or fund management company jointly established by overseas shareholders and domestic shareholders.
II. Fund management companies with foreign share participation should not open a foreign exchange account without obtaining an approval document to start business from China Securities Regulatory Committee (hereinafter referred to as CSRC).
1. Fund management companies jointly established by overseas and domestic shareholders upon the approval of the CSRC to start business should apply to the local foreign exchange administration to open a foreign exchange capital account with a domestic bank designated to handle foreign exchange, on the strength of the following documents and materials:
(1) written application for account opening;
(2) joint equity agreement or contract;
(3) approval certificate for starting the business by CSRC;
(4) approval certificate of foreign invested enterprise issued by the foreign trade and economic co-operation department;
(5) notice of pre-verification of name issued by the State administration of Industry and Commerce;
(6) other documents and materials requested by the foreign exchange administration.
2. In cases where a fund management company with foreign share participation is formed as a result of overseas shareholders' subscribing to the share right from the domestically established fund management company, the company should apply to the local foreign exchange administration for opening a foreign exchange capital account with a domestic bank designated to handle foreign exchange, on the strength of the agreement for share subscription, the approval document from CSRC, approval certificate from the foreign trade and economic co-operation administration.
III. Assets evaluation procedures of capital inflow of overseas shareholders to the fund management company with foreign share participation should be handled according to the provisions of the Circular of the Ministry of Finance and the State Administration of Foreign Exchange on Further Strengthening the Asset Evaluation Work of Foreign Invested Enterprises and Improving the Registration System of Foreign Capital and Foreign Exchange (No. 1017, Caikuai, 2002).
IV. The scope of a foreign capital account income of a fund management company with foreign share participation is as follows: capital contribution remitted by overseas shareholders. The scope of expenditure of the account is: payment under current account and other foreign exchange expenditure approved by the foreign exchange administration.
V. A fund management company with foreign share participation needing to settle its foreign exchange under the foreign exchange capital account should file an application with the local foreign exchange administration with the following documents and materials, and handle the foreign exchange settlement formalities with the bank designated to handle foreign exchange on the strength of the approval certificate issued by the foreign exchange administration:
1. written application for foreign exchange settlement;
2. certificate or proof of the use of settlement capital;
3. bank statement of account of the current foreign exchange capital account of the company;
4. other materials requested by the foreign exchange administration.
VI. A fund management company with foreign share participation needing to pay profits to foreign shareholders should file an application to the local foreign exchange administration with the following documents and materials, and handle the formalities involved in the purchase and payment of foreign exchange with the bank designated to handle foreign exchange, on the strength of the approval document issued by the foreign exchange administration:
1. written application for purchase and payment of foreign exchange;
2. taxation proof and taxation declaration form;
3. auditing report issued by account firms on the annual profit of the company and allocation of the profits;
4. resolution of profit allocation adopted by the board of directors of the company;
5. bank statement of the current foreign exchange account, capital account of the company;
6. other materials requested by the foreign exchange administration.
The fund management company with foreign share participation should file a record with the local foreign exchange administration in cases where it fails to remit the annual profits payable to the foreign shareholders within four months of the end of a fiscal year. The record-filing document of the foreign exchange administration shall be considered a necessary application document for purchase and payment of foreign capital for profits of foreign shareholders in the future.
VII. In cases where a fund management company is formed as a result of overseas shareholders' acceptance of shares from a domestically funded fund management company, the newly formed fund management company should file a record with the local foreign exchange administration within five working days upon the receipt of the official approval certificate from CSRC. In cases where the transferor is a domestic institution, the institution should, within five working days upon receiving the foreign exchange capital from the transferee, apply for the handling of foreign exchange settlement formalities on the strength of the written application, transfer agreement, approval certificate of CSRC, and approval certificate from the foreign trade and economic co-operation administration.
VIII. A fund management company with foreign share participation having been approved by CSRC and the foreign trade and economic co-operation administration to transfer its shares should file a record with the local foreign exchange administration within five working days upon receiving the approval document from the foreign trade and economic co-operation administration. In cases where foreign shareholders transfer shares to domestic institutions, the transferee should apply to the local foreign exchange administration for verification of purchase and payment of foreign exchange with the following documents and materials in cases where the transferee needs to pay money to the overseas investor for the transfer:
1. written application for purchase and payment of foreign exchange;
2. share transfer agreement;
3. approval document from CSRC and the foreign trade and economic co-operation administration for share transfer;
4. bank statements of all the transferee's current foreign exchange account capital accounts;
5. proof of withheld income tax payment from the transferee in cases where the foreign parties have made gains from transferring shares;
6. other documents requested by the foreign exchange administration.
IX. A fund management company with foreign share participation approved by CSRC and the foreign trade and economic co-operation administration to allow the foreign shareholders to reduce (withdraw) their capital should apply to the local foreign exchange administration for verification of foreign exchange purchase and payment with the following documents and materials:
1. written application for foreign exchange purchase;
2. resolution adopted by the board of directors of the company for foreign shareholders reducing (withdrawing) capital;
3. approval document for capital reduction (withdrawal) from CSRC and the foreign trade and economic co-operation administration;
4. the latest assets evaluation report and audit report of the company issued by the accountant firm;
5. bank statement of account of the company's foreign exchange capital account;
6. proof of withheld income tax payment in cases where gains are made from reduction (withdrawal) of payment on the part of foreign parties;
7. other materials requested by the foreign exchange administration.
X. A fund management company with foreign share participation should not, except for conducting operations specified by CSRC, conduct foreign financing, provide foreign guarantee and other foreign exchange business under capital account, unless otherwise approved by SAFE.
XI. SAFE and its branches have the right to conduct on-the-spot inspection of the foreign exchange capital account, foreign exchange settlement and purchase and payment of foreign exchange of the fund management company with foreign share participation, which should actively co-operate and not supply false materials.
XII. A fund management company with foreign share participation found in violation of the provisions of this circular and other regulations on foreign exchange administration will be punished by SAFE and its branches in line with the provisions of the Regulations of Foreign Exchange Administration of the People's Republic of China and other measures on foreign exchange.
XIII. This circular shall enter into force as of May 1, 2003 and SAFE shall be entitled to the interpretation right of this circular.
This translation, together with any explanatory material, is provided courtesy of Lehman Tax & Accounting.
