1. Circular of the State Administration of
Foreign Exchange on Relevant Issues
concerning Foreign Exchange
Administration of Financing and Return
Investment Undertaken by Domestic
Residents through Overseas Special-
Purpose Vehicles
Hui Fa [2005] No. 75
October 21, 2005
The branches and foreign exchange administration departments of the State
Administration of Foreign Exchange of all provinces, autonomous regions, and
municipalities directly under the Central Government, and the municipal branches
of the State Administration of Foreign Exchange in Shenzhen, Dalian, Qingdao,
Xiamen and Ningbo:
With a view to giving encouragement, support and guidance to the development
of economy of non-public sectors, further improving the policy support system for
venture investments, standardizing cross-border capital transactions of the
investment and financing activities undertaken by domestic residents through
overseas special-purpose vehicles, and in accordance with the Regulations of the
People's Republic of China on Foreign Exchange Administration, the Measures for
the Foreign Exchange Administration of Overseas Investments and the Interim
Provisions for Foreign Investors to Merge and Acquire Domestic Enterprises, you
are hereby notified of the relevant issues concerning the foreign exchange
administration of the equity financing and return investment undertaken by
domestic residents via overseas special-purpose vehicles:
I. The quot;special-purpose vehiclequot; as mentioned in this Circular refers to an
overseas enterprise directly established or indirectly controlled by a domestic
resident legal person or domestic resident natural person for the purpose of
undertaking equity financing (including convertible bond financing) abroad with
the enterprise assets or rights and interests it/he holds inside China.
The quot;return investmentquot; as mentioned in this Circular refers to the direct
investment activities made within the territory of China by a domestic resident
via a special-purpose vehicle, including but not limited to the following ways:
acquisition or replacement of the equity of the Chinese party of a domestic
enterprise, establishment of a foreign-funded enterprise inside China and
acquisition or agreement-based control of assets inside China via the above-
mentioned enterprise, agreement-based acquisition of assets inside China and
establishment of a foreign-invested enterprise with the investment of acquired
assets, and capital increase to a domestic enterprise.
The quot;domestic resident legal personquot; as mentioned in this Circular refers to
an enterprise or public institution legal person or other economic organization
legally established in China; the quot;domestic resident natural personquot; refers to a
natural person who holds a resident identity card of the People's Republic of
China, a passport or other lawful identity certificate, or a natural person who
has no legal identity in China but habitually resides in China due to reasons of
economic interests.
The quot;controlquot; as mentioned in this Circular refers to the acts whereby a
domestic resident obtains the rights to operate, benefit from and make decisions
on a special-purpose vehicle or a domestic enterprise by means of acquisition,
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2. trusteeship, holding shares on behalf of others, voting rights, repurchase,
convertible bonds, etc.
II. Before establishing or controlling an overseas special-purpose vehicle, a
domestic resident shall bring the following materials to the local branch or
foreign exchange administration department of foreign exchange (hereinafter
referred to as quot;foreign exchange officequot;) to apply for foreign exchange
registration for overseas investment:
(1) A written application (which shall go into detail about the basic
information of the domestic enterprise, the equity structure of the overseas
special-purpose vehicle, and the overseas financing arrangements);
(2) The documents on registration of the domestic resident legal person in
China, or the identity certificate in the case of a domestic resident natural
person;
(3) The business plan on overseas financing;
(4) The official reply on ratification of the sources of the domestic resident
legal person's foreign exchange capital (assets), and the approval document as
issued by the competent department of overseas investment;
(5) The quot;Foreign Exchange Registration Certificate for Overseas Investmentquot;
filled in by the domestic resident legal person, or the quot;Foreign Exchange
Registration Form for Overseas Investment of the Domestic Resident Individualquot;
filled in by the domestic resident natural person (see annex);
(6) Other certification materials on authenticity.
The foreign exchange office shall stamp the Foreign Exchange Registration
Certificate for Overseas Investment or the Foreign Exchange Registration Form for
Overseas Investment of the Domestic Resident Individual with the seal for foreign
exchange transactions under capital account after the aforesaid materials are
found in order.
III. Where a domestic resident injects the assets or equities of a domestic
enterprise it owns into a special-purpose vehicle, or undertakes equity financing
abroad after injecting assets or equities into a special purpose vehicle, it
shall go through the formalities for the alteration of foreign exchange
registration for overseas investment in respect of the net assets and equities of
the special-purpose vehicle it holds and the variations thereof, and shall
provide the following materials at the same time:
(1) A written application (which shall go into detail about the changes of the
shareholders and equities of the domestic enterprise and the special-purpose
vehicle and the way of pricing the assets or equities thereof);
(2) The Foreign Exchange Registration Certificate for Overseas Investment
filled in by the domestic resident legal person, or the Foreign Exchange
Registration Form for Overseas Investment of the Domestic Resident Individualquot;
filled in by the domestic resident natural person;
(3) The documents issued by the competent department of foreign investment on
the ratification and filing of the return investment;
(4) The documents issued by the state-owned assets administration department on
the confirmation of the value of the domestic enterprise's assets or equities are
required in case any state-owned asset is involved;
(5) The special-purpose vehicle's registration certificate, business license
and other certification, which are valid abroad;
(6) Other certification materials on authenticity.
IV. The domestic resident may, according to the fund use plan as stated in the
business plan or the prospectus, repatriate the funds, which ought to be arranged
for use in China, after the special-purpose vehicle accomplishes overseas
financing.
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3. V. In case a special-purpose vehicle uses the funds raised from overseas
financing for return investment or provides shareholder's loans or other debt
capital to a domestic enterprise, the relevant domestic enterprise shall go
through the relevant formalities concerning foreign exchange administration
according to the current laws and regulations on the administration of foreign
debts and foreign exchange. The foreign exchange office shall, when registering
the establishment or alteration of a foreign-funded enterprise, foreign debts, or
the foreign exchange capital earnings of a special-purpose vehicle through equity
transfer, examine and check the Foreign Exchange Registration Certificate for
Overseas Investment or the Foreign Exchange Registration Form for Overseas
Investment of the Domestic Resident Individual.
VI. A domestic resident may, after going through the formalities for foreign
exchange registration of overseas investment or for alteration thereof as
required, pay the special-purpose vehicle the profits, dividends and the expenses
for liquidation, equity transfer, capital decrease, etc.
The profits, dividends and foreign exchange income from capital changes,
which are gained by a domestic resident from a special-purpose vehicle, shall be
repatriated to China within 180 days as of the day when they are gained. The
profits or dividends may be either entered into the account for foreign exchange
transactions under current account or put under foreign exchange settlement; the
foreign exchange income from capital changes may, upon approval of the foreign
exchange office, be either saved in the special account for capital account
transactions, or put under foreign exchange settlement.
VII. Where a special-purpose vehicle is involved in the capital increase or
decrease, transfer or replacement of equity, merger or division, investment with
long-term equities or credits, provision of guarantee to a foreign party or other
major events, which requires capital alteration and involves no return
investment, the domestic resident shall, within 30 days as of the day when the
major event happens, apply to the foreign exchange office for going through the
formalities for alteration or filing of the foreign exchange registration for
overseas investment.
VIII. Where a domestic resident has established or controlled a special-purpose
vehicle abroad and has made the return investment prior to the implementation of
this Circular, but fails to go through the formalities of foreign exchange
registration for the overseas investment as required, it shall, pursuant to this
Circular, make up the foreign exchange registration for overseas investment in
the local foreign exchange office by March 31, 2006. After the domestic resident
has made up the formalities of foreign exchange registration for overseas
investment, the foreign exchange office may handle the foreign exchange
registration for foreign investments or foreign debts for the relevant domestic
enterprises.
IX. A domestic venture investment enterprise may establish a special-purpose
vehicle abroad and undertake venture investment activities with reference to this
Circular.
X. If several domestic residents are involved in the same administrative matter
as mentioned above, they shall authorize 1 or 2 domestic residents of them to go
through the relevant formalities on foreign exchange administration by issuing
the power of attorney.
XI. Any other matter not covered in this Circular shall be subject to the current
regulations on foreign exchange administration of foreign investment and overseas
investment.
XII. Any domestic resident who violates the provisions in this Circular and
constitutes foreign exchange evasion or violates other rules on foreign exchange
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4. administration, the foreign exchange, shall be punished by the foreign
exchange office in accordance with the Regulations of the People's Republic of
China on Foreign Exchange Administration and other relevant provisions.
XIII. This Circular shall go into effect as of November 1, 2005. The quot;Circular on
the Relevant Issues concerning Improving Foreign Exchange Administration for
Merger and Acquisition with Foreign Investmentsquot; (Hui Fa [2005] No. 11) and the
quot;Circular on Relevant Issues concerning Registration of Overseas Investments Made
by Domestic Resident Individuals and Foreign Exchange Registration of Merger or
Acquisition with Foreign Investmentsquot; (Hui Fa [2005] No. 29) shall be repealed
simultaneously.
Annex:Foreign Exchange Registration Form of Overseas Investment of the
Domestic Resident Individual(omitted)
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