Shareholder loans permitted to overseas subsidiaries

Liu Yi and Philips Zhenyu Ding
Run Ming Law Office
[email protected], [email protected]

In order to facilitate and finance outbound investment by Chinese domestic entities, the State Administration of Foreign Exchange (Safe) recently issued the Circular on Foreign Exchange Control Issues Relevant to Overseas Loans Extended by Enterprises in China (国家外汇管理局关于境内企业境外放款外汇管理有关问题的通知) (the Overseas Loan Circular) – see page 63 for full translation. This allows PRC domestic entities to make shareholder loans to their directly owned subsidiaries overseas by way of either a direct loan or a trust loan.

Before the issuance of the Overseas Loan Circular, only multinational companies (either foreign controlled or domestic controlled) were allowed to grant loans to their group members located overseas. The Overseas Loan Circular has expanded the scope of permitted lenders from multinational companies to any non-financial domestic entity in the PRC, subject to several qualifications.