Foreign exchange controls in China
China has been moving towards a more flexible currency system, although the Chinese currency, RMB, is still not a freely convertible currency. There are two types of accounts when it’s investment related, registered capital account and current trade account.
Current account items:
- transactional items
- including payments and receipts with respect to trading of goods, provision of services and other normal fund transfers that occur in the ordinary course of business
Capital account items:
- items that serve to increase or decrease the debt or equity of an entity through the inflow or outflow of capital
- includes direct investment, all forms of loans, and investment in securities
For whatever inward or outward foreign currency transactions, the company needs to make a timely declaration to the bank to declare the nature of the business transaction. They may need to use a standard code defined by the State Administration of Foreign Exchange (SAFE) to make such reporting.
On a daily basis, when you are using your foreign currency, convert it into RMB to cover local expenses such as salary, local vendors’ payments, you basically have to submit the supporting documents to show that the conversion is for the business operational purpose.
When the company try to make the conversion from the RMB into foreign currency and arrange a transfer to pay your foreign vendors, you also may have to go through a similar checking process. The foreign currency transaction is not allowed to be done with online banking like the RMB transaction.
One more additional thing is the withholding tax, especially when you pay your overseas service provider. You have to go to the bank and go through this withholding tax on behalf of the foreign vendors.
Given those work that has to be done at the bank counter and in the tax bureau, it does cost more time to handle all the bank errands. Canadian companies should plan more lead time for such transactions, and also update yourselves with any new changes.
The Canadian Trade Commissioner Service in China recommends that readers seek professional advice regarding their particular circumstances. This publication should not be relied on as a substitute for such professional advice. For more information please contact us.
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