Reform of Foreign Exchange Management of Service Trade will be started on 1st Sep.

According to “Circular of the State Administration of Foreign Exchange on Printing and Distributing Laws and Regulations for Foreign Exchange Management of Service Trade” (Hui Fa [2013] No. 30, “Circular”) released by State Administration of Foreign Exchange(SAFE), reform of foreign exchange management of service trade will be started on 1st Sep. 2013. The reform highlights 2 aspects: the procedures in dealing with foreign exchange will be more convenient, the taxation policies on foreign exchange will be relatively loosen.

Measures for the more convenient procedures are stipulated in Guidance for Foreign Exchange Management of Service Trade, and implementation rules, mainly include:

Examination of trade documents is unnecessary for the transaction, all the foreign exchange issues related to service trade could be processed directly in financial institutions.

In principle, foreign exchange payment and receipt for service trade with amount less than USD50, 000 may skip the examination of trade documents, except for special circumstances, such as the undefined capital and etc.. Foreign exchange payment and receipt for service trade with amount more than USD50, 000 shall conduct examination of trade documents by the financial institutions.

For those payment and receipt which shall process examination of trade documents, the financial institutions could simplify or combine the procedures for dozens of documents; most of the examination or file requirements conducted by the foreign exchange administrative departments are cancelled.

The requirements on overseas deposit of foreign exchange income derived from service trade are loosen. The corporation group is allowed to deposit the foreign exchange income derived from service trade in the overseas financial institutions.

Measures for the taxation policies are stipulated in Announcement on Issues Concerning Taxation Record Filing for External Payment Projects Including Service Trade (“Announcement ”) released jointly by State Administration of Taxation and SAFE, the key points include:

The tax certificate for the payment of foreign exchange has been canceled.

Archival filing is applied to the taxation management of the payment of foreign exchange. Except those circumstances which do not need to be archival filed in the “Announcement”, the other circumstances shall be archival filed, e.g. a single foreign payment equivalent to more than USD 50,000(USD 50,000 is excluded), foreign investor remits its lawful income derived from within China to the overseas account, or foreign investor reinvests its lawful income derived from within China.

It is remarkable that after the reform, the supervision by foreign exchange administrations and taxation administrations will be changed from the examination in advance to afterwards or selectively examination. In order to avoid legal risks, enterprises shall prepare, manage the relevant documents and evidence in accordance with Guidance for Foreign Exchange Management of Service Trade and Implementation Rules.