Laws of the People's Republic of China

The State Administration of Foreign Exchange

Circular of the State Administration of Foreign Exchange on Authorizing SAFE Branches to Deal with the Share Transfer, Liquidation, and Other Foreign Exchange Business for Enterprises with Foreign Investment

Huifa [1999] No.397

December 22, 1999

The "Circular Concerning Relevant Issues on Strengthening the Administration of Foreign Exchange under Capital Accounts" (Huifa [1998] No.21) was issued by State Administration of Foreign Exchange in September 1998 to normalize the illegal capital transactions and to adapt to the current domestic circumstances. According to the Article 3 , Section 9 of this Circular, approval of SAFE is required when domestic institutions change into foreign exchange and transfer abroad their proceeds obtained from share transfers or liquidation of investment.

Since illegal practices in this field have been corrected, we hereby issue this Circular as follows in order to improve the investment environment for foreign funds and to improve the working efficiency by shortening the examination and approval procedures.

1.

SAFE branches in all provinces, autonomous regions, municipalities under the direct jurisdiction of the State Council, Beijing and Chongqing foreign exchange administration departments, and Dalian, Qingdao, Ningbo, Xiamen and Shenzhen branches, are authorized to examine and approve foreign investors' application for changing into foreign exchange and transferring their proceeds obtained from share transfers or liquidation of investment. SAFE branches shall report for file their approvals with the capital account administrative department of the head office of SAFE case by case.

2.

A domestic enterprise, when applying for purchasing foreign exchange to buy shares from foreign shareholders, shall present following documents to local SAFE branch:

(1)

Written application;

(2)

Registration Certificate of Foreign Exchange;

(3)

Share transfer agreement;

(4)

Documents issued by MOFTEC approving the changes in enterprises with foreign investment's shareholding structures;

(5)

New business license, approval certificate granted by MOFTEC, approved joint venture contract and constitution;

(6)

The latest capital verification, auditing report, or valid asset appraisal report of the former enterprise with foreign investment;

(7)

Statements of foreign exchange accounts held by the domestic enterprise on the day of the application;

(8)

Tax certificate proving the prepayment of income tax, submitted by the domestic enterprise, in the case that the foreign party has obtained benefits from the share transfer;

(9)

Other documents required to be complemented.

3.

When applying for purchasing foreign exchange to pay the foreign party for liquidation, an enterprise with foreign investment shall submit to local SAFE branch the following materials for examination:

(1)

Written application;

(2)

Original copy of the Registration Certificate of Foreign Exchange;

(3)

Documents issued by MOFTEC or its branches approving the liquidation;

(4)

Liquidation agreement reached by the liquidation committee;

(5)

Verification certificate of the capital contribution;

(6)

Liquidation report provided by a CPA;

(7)

All notices on the opening of existing foreign exchange accounts;

(8)

Statements for foreign exchange accounts on the day of finalizing the liquidation;

(9)

Evidence for the cancellation of tax registration;

(10)

Other documents required to be complemented.

4.

Article 3 , Section 9 of the document Huifa [1999] No.21 is repealed.

The notice is specially notified.