China Expands Currency Conversion Program for MNCrussonxiao
On May 19, 2023, the People’s Bank of China (BOC) and the State Administration of Foreign Exchange (SAFE) released the Policy on Continuous Optimization of Cross-border Funds Concentration and Operation of Multinational Corporations in Domestic and Foreign Currencies, decided to carry out pilot projects in Beijing, Guangdong, and Shenzhen to optimize and upgrade the policy of centralized operation and management of cross-border funds of multinational corporations (MNCs) in local and foreign currencies.
The main contents include:
- optimize and integrate the existing policy requirements related to the centralized operation of cross-border funds of multinational corporations, benefiting more enterprises;
- increase the freedom of cross-border fund operation of enterprises, allowing multinational corporations to decide on their own the proportion of foreign debt and overseas lending in accordance with macro-prudential principles;
- support multinational corporations to carry out a centralized operation of cross-border funds in CNY;
- simplify the filing process and materials related to the use of funds review.
This initiative will help accelerate the construction of a new development pattern, enhance the linkage effect of the two domestic and international markets and resources, and better support the development of the headquarters economy.
Back in July 2022, it is worth noting that the [previous version] of the pilot program had already been expanded to multiple regions based on the government notice. The additional cities and provinces include Shanghai, Guangdong, Shaanxi, Zhejiang, and Qingdao. The host company is allowed to centrally collect and pay the funds related to trade transactions between the overseas member companies listed in the cash pool and overseas trading counterparts. These transactions will take up some of the centralized debt limit recorded in the cash pool and require an international balance of payments reporting.
The latest upgrade allows MNCs to determine the collection ratio of foreign debt and overseas according to the macroprudential principle, however, this policy is currently only being implemented in Beijing and Guangdong.
MNCs that meet the following conditions can choose a domestic enterprise as the host enterprise to centralize the operation and management of funds of domestic and foreign member enterprises, to carry out centralized foreign debt lines, centralized overseas lending lines, centralized collection and payment of current account funds and one or more of the following operations can be carried out:
- Having real business needs;
- Have a sound cross-border fund management structure and internal control system;
- Establish the corresponding internal management electronic system;
- The scale of domestic and foreign currency balance of payments exceeds USD 100 million in the previous year (calculated on a consolidated basis for domestic member enterprises participating in cross-border funds centralized operation business);
- No major foreign exchange violations in the past three years (for enterprises established less than three years ago, no major foreign exchange violations since the date of establishment)
- If the host enterprise and the domestic member enterprises are enterprises in the list of trade foreign exchange revenue and expenditure, the classification result of trade in goods shall be a category – A;
- Other prudential supervision conditions stipulated by the State Administration of Foreign Exchange.
The program has been helpful to MNCs and banks.
The pilot program brings substantial improvements to the efficiency of cross-border capital coordination and utilization for MNCs. It enables them to effectively manage funds in local and foreign currencies, reducing currency exchange risks and financial costs.
It enables MNCs to purchase foreign currencies more easily and helps to reduce the risks of exchange rate fluctuations. This is a significant convenience because, under the current rules, foreign currency purchases must be approved by SAFE, greatly slowing the process.
The pilot program “reduces manual processes and greatly improves the flow of cross-border funds by integrating the process of RMB and foreign currency cash pooling. It brings optimization to the service delivery through improving work efficiency and reducing operating costs.
The pilot program is also beneficial to banks that are servicing the companies by “enhancing their overall capabilities in cross-border business services and risk management”, according to the Beijing branch of SAFE.
Finally, the pilot program also helps to advance the internationalization of the RMB, a core goal of the Chinese government. Beyond the current scope of the pilot program, the monetary authorities have stated that they will continue to optimize the program to facilitate cross-border utilization of mixed currency funds. It is also possible that the authorities will lower the requirements in the future so that more companies can participate, as the current bar means that the majority of companies are ineligible for the program.
For more information, please check our website and contact us.
(Continued from the previous article)
- Provision on bona fide acquisition of false special invoices
«Circular of the State Administration of Taxation on the Settlement for the Taxpayers Obtaining the False Special Invoice of Value-added Tax without Acknowledgement» defines what is “bona fide”.
It is stated in the Circular that the purchaser shall be deemed to have obtained the false special invoice in good faith if all the following conditions are met:
- a genuine transaction between the purchaser and the seller;
- the sale is made using the special invoices of the province (autonomous region, municipality directly under the Central Government, and cities listed in the plan) in which the purchaser is located;
- all the contents of the special invoices match with the actual ones, such as the name of the seller, the seal, the number of goods, the amount, and the tax amount; and
- no evidence that the purchaser knows that the special invoices provided by the seller were obtained by illegal means.
On the other hand, tax authorities of the purchaser’s location shall grant credit for input tax or export tax refund in accordance with the law, if:
- the purchaser is able to obtain again from the seller a legal and valid special invoice issued by the anti-counterfeit tax-control system; and
- the purchaser has obtained the certificate that the tax authorities in the place where the seller is located have conducted or are conducting an investigation and punishment on the seller’s false special invoices accordingly.
However, if the above conditions cannot be met, the input tax deducted or the export tax refund obtained by the purchasing party shall be recovered accordingly.
In addition, if the taxpayer has obtained in good faith a false special invoice that has been recovered and deducted in accordance with the law, then the taxpayer does not need to consider the provisions of Article 32 of the «Tax Collection Administration Law of the People’s Republic of China»: – If the taxpayer fails to pay the tax in accordance with the prescribed period, and the withholding agent fails to settle the tax in accordance with the prescribed period, the tax authorities shall, in addition to ordering the payment within the prescribed period, impose a late payment fee of five percent of the tax due on a daily basis. If the taxpayer fails to pay the tax in accordance with the prescribed period, the taxation authority shall, in addition to ordering the payment within the prescribed period, impose a late payment fee of five ten thousandths of the late payment of tax on a daily basis from the date of the late payment of tax. In other words, tax authorities will not add the late payment fee arising from the recovery of past taxes.
- Necessary documentation in case the tax inspection happens
Through the above layer-by-layer analysis, accountants of enterprises need to prepare the necessary financial documents to respond to tax inspection, while supporting themselves if they are bona fide purchasers, including but not limited to: –
- the original special invoice was identified as a false invoice
- purchase and sale contracts/business contracts or other contracts involving the invoice
- the goods involved in the incoming order, outgoing order, transfer orders, or transport documents
- relevant accounting documents
- bank payment voucher
- VAT declaration report for the month in which VAT is deducted, and CIT annual return
- statement of the entire business transaction and tax declaration
To sum up, enterprises do not need to be too panicky after receiving the Notice of Tax Inspection. Prepare the above list of supporting materials first and conduct self-inspection after communicating with the relevant tax officer to understand the situation. Companies that have evidence to prove they are bona fide invoice purchasers should actively respond to the tax authorities’ inspection and cooperate with the follow-up investigation. The enterprise will usually pass the tax inspection successfully if they respect all the conditions mentioned previously.
If you have any questions, please feel free to contact us.
«Circular of the State Administration of Taxation on the Settlement for the Taxpayers Obtaining the False Special Invoice of Value-added Tax without Acknowledgement»
China is now fully open! In order to better coordinate the epidemic prevention and control as well as the needs of economic and social development, and to facilitate the people-to-people exchange between China and foreign countries, the National Immigration Administration of PRC has decided to adjust the visa and entry policy starting as of Beijing time at 00:00 on March 15, 2023.
- Valid visas issued before 28 March 2020 by the Chinese visa authorities abroad will resume functioning.
- Foreigners may apply for all types of visas, including tourism and medical treatment.
- Port visas shall resume being issued in line with the relevant laws and regulations.
- The visa-exemption policy for Hainan, visa-exemption cruise policy for Shanghai, visa-exemption policy for foreigners to visit Guangdong from Hong Kong and Macao, and visa-exemption policy for ASEAN tour groups to Guilin, Guangxi shall resume operation.
In recent times, the immigration policies of many countries are updated in real-time. In addition to the reopening policy, other restrictions are listed below for your consideration.
Chinese embassies in many countries notice: From 15 March, antigen testing instead of nucleic acid testing.
According to the latest requirements of the Chinese government regarding the optimization of pre-trip testing measures for people traveling to China, starting from 15 March 2023, passengers flying directly from specific countries to China are allowed to replace nucleic acid testing with antigen testing (including self-testing with kits). In order to facilitate the pre-trip preparation of travelers, the embassies concerned have issued guidelines on epidemic prevention and control.
- Distal testing: Nucleic acid testing within 48 hours before boarding or self-testing with antigen kits, negative results before going to China, positive results please go to China after turning negative.
- Customs declaration: After obtaining a negative test result, fill out the “Health Declaration Card of the People’s Republic of China” through the WeChat app “Customs Passenger Service” (“海关旅客指尖服务”), the Customs APP or the web version to make declaration.
- Airlines are not required to check pre-boarding nucleic acid test certificates and antigen test results.
- In-flight epidemic prevention: Please insist on wearing a mask during the flight and do your personal protection to reduce the risk of infection.
- Entry quarantine: Upon arrival at the port, complete the necessary customs clearance procedures with the customs health declaration code. Customs will test a sample of people with abnormal health declarations or fever and other symptoms in accordance with a certain percentage.
- passengers with positive test results, in accordance with the requirements of the notification letter, go home/living place for isolation, or medical treatment;
- passengers with negative test results, by the Customs and Excise Department in accordance with the “Frontier Health and Quarantine Law of PRC” and other laws and regulations to implement routine quarantine;
- passengers with normal health declarations and tests can pass the entrance.
- Territorial epidemic prevention and control: Passengers should strictly comply with the requirements of territorial epidemic prevention and control after entering the country.
Policies vary from country to country, so it is recommended that you pay attention to the latest Chinese embassy and consulate notices in real-time before making travel arrangements, read them carefully, and follow them to avoid affecting your trip.
Should you have any further questions, please feel free to contact us.
Further Adjustment of Visa and Entry Policy for Foreigners to China
Authority: National Immigration Administration
Notice on Further Adjustment of Visa and Entry Policy for Foreigners to China
Authority: Embassy of the People’s Republic of China in the United States of America
 Currently, the following countries have issued this notice: France, Italy, Denmark, Spain, Georgia, Tanzania, Nepal, Mongolia, Vietnam, Iran, Greece, Brunei, Thailand, New Zealand, Malaysia, etc.