Circular on the Operating Guidelines for Issues Relevant to Requests for Confirmation of Capital Verification Required in the Re-investment of Foreign-invested Companies with an Investment Nature

(Issued by the State Administration of Foreign Exchange on March 29 2011.)

Hui Zi Han [2011] No.7

Operating Guidelines are hereby formulated for relevant matters in order to further clarify the procedures for the approval involved when foreign-invested companies with an investment nature make domestic investments and for the request for the verification of the capital of their investee enterprises. They are hereby issued to you, please implement accordingly.

Pursuant to relevant provisions of the Supplementary Provisions on the Investment in, and Establishment of, Companies with an Investment Nature (Order of Mofcom [2006] No.3), when a foreign-invested company with an investment nature re-invests lawful income derived in China (including renminbi profits, capital reductions, liquidation, capital withdrawals, equity transfers, early investment recovery or other lawful income derived in China) in an enterprise in China, the exchange control bureau of the place where the foreign-invested company with an investment nature is located shall first issue a capital-account foreign exchange transaction approval document for a foreign investor increasing the registered capital of the company in question using renminbi profits or other such lawful income derived in China (Re-investment Approval Document).

Once the foreign-invested company with an investment nature has converted the lawful income derived in China into an increment in registered capital, it may then re-invest the same in an enterprise in China in accordance with relevant regulations.

When the foreign-invested company with an investment nature re-invests in the enterprise in China, the exchange control bureau of the place where the investee enterprise is located may carry out the relevant procedures for registration of a request for confirmation of capital verification on the strength of an accounting firm's work liaison letter and application for a request for confirmation of capital verification (inward type), Letter of Request for Confirmation of the Capital Contribution of a Foreign Investor, a photocopy of the Re-investment Approval Document and other such documents and shall, in a timely manner, fax the Inquiry Letter Concerning Re-investment by a Foreign-invested Company with an Investment Nature of Lawful Income Derived in China (“Inquiry Letter”; see Appendix 1) to the exchange control bureau of the place where the foreign-invested company with an investment nature is located.

The exchange control bureau of the place where the foreign-invested company with an investment nature is located shall, within two working days after receipt of the Inquiry Letter, complete a Reply to an Inquiry Concerning Re-investment by a Foreign-invested Company with an Investment Nature of Lawful Income Derived in China (“Inquiry Reply”; see Appendix 2) and respond.

Once the exchange control bureau of the place of the re-investment receives the Inquiry Reply, it shall carry out the relevant procedures for registration of a request for confirmation of capital verification in accordance with current provisions in a timely manner.

When a foreign-invested company with an investment nature wishes to re-invest lawful income derived in China in another enterprise in China, the foreign-invested company with an investment nature or the foreign-invested enterprise in the place where the lawful income was derived may, after duly carrying out the capital increase and re-investment approval procedures, directly transfer the funds to the enterprise in China requiring the re-investment.

When an enterprise in China in which a foreign-invested company with an investment nature has re-invested wishes to remit foreign exchange profits back to the foreign-invested company with an investment nature, it may carry out the transfer procedures directly with a designated foreign exchange bank on the strength of the Foreign Exchange Registration Certificate for a Foreign-invested Enterprise, profit distribution resolution of the board of directors and proof of tax payment, etc.