Laws of the People's Republic of China

State Administration of Foreign Exchange

The Notice of the State Administration of Foreign Exchange on the Sale and Payment of Foreign Exchange for Non-trade Purposes by Transnational Companies

Hui Fa No.62 [2004]

June 29, 2004

The branches and foreign exchange administrative departments of the State Administration of Foreign Exchange of all provinces, autonomous regions and municipalities directly under the Central Government, the branches of the State Administration of Foreign Exchange of Shenzhen, Dalian, Qingdao, Xiamen and Ningbo, and all Chinese-funded designated foreign exchange banks:

In order to improve the environments of China for using foreign investment, perfect the administration on sale and payment of foreign exchange for non-trade purposes of transnational companies and promote the sound development of foreign economy, the State Administration of Foreign Exchange (SAFE) has made experiments for the reform of the administration on sale and payment of foreign exchange for non-trade purposes by transnational companies in Shanghai, Beijing and Shenzhen in 2003. Upon the experience from the said experiments, we hereby notice the issues relevant to the national administration on sale and payment of foreign exchange for non-trade purposes of transnational corporations as follows:

1.

The term ¡°transnational corporations¡± as mentioned in the present Notice refers to an a corporation that concurrently comprises of affiliated companies both at home and abroad and whose global or regional (including China) investment management functions are exercised by one of its affiliated companies within China, including Chinese-funded holding corporation (namely Chinese-funded transnational corporations) and foreign-funded holding corporation (namely foreign-funded transnational corporations).

2.

The term ¡°affiliated companies¡± of a transnational corporation as mentioned in the present Notice include affiliated companies both at home and broad, of which the domestic affiliated companies involve:

(1)

a branch company established in China by a foreign-funded transnational corporation;

(2)

a foreign-funded enterprise in which a transnational corporation has a controlling share or an equity participation (the ratio of equity participation shall not be lower than 25 percent, the same below);

(3)

a branch company established in China and relegated to be managed by the overseas head office or an affiliated company of a foreign-funded transnational corporation;

(4)

a foreign-funded enterprise in which the overseas head office or an affiliated company of a foreign-funded transnational corporation has a controlling share or an equity participation and whose management is relegated to it; and

(5)

a branch company established in China by a Chinese-funded transnational corporation or a company in which it has a controlling share or an equity participation.

The overseas affiliated companies of a transnational corporation include:

(1)

the overseas head offices of foreign-funded transnational corporations;

(2)

the branch companies established outside China by the overseas head office of a foreign-funded transnational corporation and companies in which it has a controlling share or an equity participation; and

(3)

the branch companies established outside of China by a Chinese-funded transnational corporation and companies in which it has a controlling share or an equity participation.

3.

If a transnational corporation and its affiliated companies in China that meet the conditions specified in this Notice needs to handle the procedures for sale and payment of foreign exchange for non-trade purposes as provided for in this Notice, they shall, on the strength of the following materials, apply to the local branches or foreign control departments (hereinafter referred to as ¡°foreign exchange branch¡±) of the State Administration of Foreign Exchange where they are located:

(1)

the application with the signature of its legal representative;

(2)

the approval document for the establishment of the company issued by the department of commerce, the business license and the original of the foreign exchange registration certificate for the foreign-funded enterprise and their copies;

(3)

the list of its overseas affiliated companies; and

(4)

other materials as required by the foreign exchange branch.

Where they are found to meet the conditions upon examination by the local foreign exchange branches, the local foreign exchange branches shall issue approval documents.

4.

The transnational corporation and its domestic affiliated companies shall, when completing the procedures for sale and payment of foreign exchange for non-trade purposes as provided for in this Notice, file an application to a designated foreign exchange bank on the strength of the approval document issued by the foreign exchange branch and the relevant certification materials provided for in this Notice, and the designated foreign exchange bank shall, upon authentic verification, handle the procedures for sale and payment of foreign exchange for non-trade purposes.

5.

The expenses advanced or apportioned between a Chinese-funded transnational corporation and its overseas affiliated companies shall be paid abroad only by the domestic head office of the Chinese-funded transnational corporation, and any other domestic affiliated company of the Chinese-funded transnational corporation shall not pay the advanced or apportioned expenses to any of its overseas affiliated companies.

6.

The salaries, benefits and allowances of the employees from foreign countries, Hong Kong, Macao or Taiwan or of the employees of the P.R.C with the right of permanent residence overseas, advanced by an overseas affiliated company of a transnational corporation, which should be paid by the transnational corporation or its domestic affiliated company, may be debited directly to its foreign exchange account or paid after purchasing the foreign exchange from a designated foreign exchange bank on the strength of such certification materials as the notices of overseas payment, such identity certificates as the passports of foreign employees, employment certificates (including the employment certificates issued by the competent departments for social security or the specialists¡¯ certificates issued by the competent department for foreign affairs, the employment contracts and etc., the same below ), the bills of RMB incomes and tax certificates.

7.

The overseas commercial insurance premiums of foreign employees advanced by an overseas affiliated company of a transnational corporation, which should be paid by the transnational corporation or its domestic affiliated company, may be debited directly to its foreign exchange account or paid after purchasing the foreign exchange from a designated foreign exchange bank on the strength of such certification materials as the notices of overseas payment, the passports or other identity certifications of foreign employees , employment certification, overseas insurance policy (or the notices of payment issued by an overseas insurance company specifying the names of foreign employees) and tax certificates.

The overseas social insurance premiums of foreign employees advanced by an overseas affiliated company of a transnational corporation, which should be paid by the transnational corporation or its domestic affiliated company, may be debited directly to its foreign exchange account or paid after purchasing the foreign exchange from a designated foreign exchange bank on the strength of such certification materials as the notices of overseas payment, the passports and other identity certifications of foreign employees, employment certificates, and the overseas legal documents related to social insurances.

8.

Such expenses as the expenses for overseas business trips and overseas training fees of the employees of a transnational corporation or its domestic affiliated companies advanced by one of its overseas affiliated company, which should be paid by the transnational corporation or its domestic affiliated companies, may be debited directly to its foreign exchange account or after purchasing the foreign exchange from a designated foreign exchange bank on the strength of the notices of overseas payment, employment certificates, the relevant expenses documents and the materials proving that the employee have gone abroad for business trips or participated in training.

9.

Such management expenses as the fees for research and development, procurement expenses and marketing expenses apportioned by a transnational corporation or its domestic affiliated companies, which should be paid by the transnational corporation or its domestic affiliated companies, may be debited directly to its foreign exchange account or after purchasing the foreign exchange from a designated foreign exchange bank on the strength of such certification materials as the apportioning agreements, the notices of overseas payment and tax certificates.

10.

Other expenses, which should be apportioned by a transnational corporation or any of its domestic affiliated companies or have been advanced by any of its overseas affiliated companies, to be paid abroad by it or its domestic affiliated companies thereof may be debited directly to its foreign exchange account or paid after purchasing the foreign exchange from a designated foreign exchange bank on the strength of such materials as the notices of overseas payment, the original documents of the relevant expenses and tax certificates.

11.

The transnational corporation or any of its domestic affiliated companies may download the relevant contracts or agreements, the notices of payment and etc., fix its seals on the same and go through the procedures for the sale and payment of foreign exchange for non-trade purposes on the strength of the same.

12.

In case ¡°such identity certificates as the passports of foreign employees ¡± or ¡°the employment certificates¡± provided for in Articles 6 and 7 or ¡°the employment certificates¡± provided for in Article 8 hereof fail to be provided under special circumstances, they may be replaced by the employee list issued and sealed by the transnational corporation or any of its domestic affiliated companies that applies for the purchase and payment of foreign exchange, which shall contain such elements as the names, nationalities, salaries or benefits treatment of foreign employees. Meanwhile, the transnational corporation or its domestic affiliated companies thereof shall also guarantee the authenticity of the said list that it provides and the legality of foreign employees enumerated in the said list, and state that it will bear the relevant legal liabilities.

13.

All foreign exchange branches shall submit the name list of the approved transnational corporations and the domestic affiliated companies thereof to the SAFE in time for archival purpose.

14.

All transnational corporations and their domestic affiliated companies, which are found to be governed by this Circular upon examination and approval shall complete the procedures for the purchase and payment of foreign exchange for non-trade purposes, shall be liable for the authenticity of its affiliation with any of its overseas affiliated companies. If the affiliation terminates or changes, they shall report it timely to the foreign exchange branch of the place where it is located, and the foreign exchange branch shall report it to the SAFE.

15.

In case a transnational corporation or any of its domestic affiliated companies violates any provision of this Notice and commits any act of falsifying an affiliation or making overdue reports or concealing the truth in reporting on the termination or change of an affiliation, the foreign exchange branch shall have the power to disqualify the company that is governed by this Circular from completing the procedure for the purchase and payment of foreign exchange for non-trade purposes, and impose corresponding punishment upon it with reference to the provisions relating to foreign exchange control.

16.

Solely foreign-funded enterprise (in which the capital contribution made by foreign investors shall not be less than 25 percent), which abides by the foreign exchange control provisions, commits no major acts in violation of foreign exchange control provisions during the recent three years, has a sound financial standing, has a comparatively large volume of the receipt and payment in its current account and exercises major influence on the locality, may, subject to the approval by the foreign exchange branch of the place where it is located, also go through the formalities for sale and payment of foreign exchange for non-trade purposes with reference to the provisions of this Notice.

All foreign exchange branches shall submit the name list of the said approved foreign-funded enterprises to the State Administration of Foreign Exchange for archival purpose.

17.

Such items as definitely provided for in this Notice shall no longer be subject to the corresponding provisions of the Notice of the State Administration of Foreign Exchange Regarding the Sale and Payment of Foreign Exchange in Non-trade Account That are not Definitely Provided for in the Existing Regulations.

18.

The power to interpret this Notice shall be vested in the SAFE.

19.

This Notice shall come into force as of August 1st, 2004. The Notice of the State Administration of Foreign Exchange Regarding the Administration on Sale and Payment of Foreign Exchange for Non-trade Purposes of Transnational corporations (for a Trial) (Hui Fa No.87 [2003]) shall be repealed simultaneously.

After receiving this Notice, each branch shall, as soon as possible, transmit it to the sub-branches and foreign-funded banks within its jurisdiction; each Chinese-funded designated foreign exchange bank shall, as soon as possible, transmit it to all branches. If any question arises in implementing this Notice, please feed it back to the State Administration of Foreign Exchange in time.