(Promulgated by the State Administration of Foreign Exchange on January 24, 2005)
Hui Fa [2005] No. 11
To: All branches of the State Administration of Foreign Exchange (hereinafter referred to as “SAFE”) and Administrative Departments of Foreign Exchange at the level of provinces, autonomous regions, and municipalities directly under the central government, and SAFE’s branches in Shenzhen, Dalian, Qingdao, Shamen, and Ningbo Municipalities
For purposes of maintaining the balance of international payments and ensuring the orderly flow of cross-border capitals in accordance with relevant regulations, we hereby issue the following notice on issues concerning improvement in the administration of foreign exchange in connection with mergers and acquisitions by foreign investors:
1. Any PRC resident who proposes to make overseas investment, either directly or indirectly, for the establishment or control of any offshore enterprise, must go through the formalities of examination, approval and registration by reference to the provisions of the Measures for Administration of Foreign Exchange in Connection with Overseas Investments.
2. In accordance with the Provisional Rules for Mergers and Acquisition of Domestic Enterprises by Foreign Investors, any PRC resident who proposes to sell or assign his or her assets and equity interest in the PRC in exchange for shareholding certificates and other property rights in an offshore company, must secure the verification and approval by the authorities in charge of foreign exchange administration. Without such verification or approval, no PRC resident shall offer any of the assets or equity interest he or she holds in the PRC as consideration to acquire equity interest or other property right in any offshore enterprise
3. When handling formalities of foreign exchange registration for foreign- invested enterprises established through mergers and acquisitions by foreign investors, the SAFE’s branches and Administrative Departments of Foreign Exchange must focus on the examination and verification of the offshore enterprise to see whether it was established or is controlled by any PRC resident, and whether it is under the same management as the acquisition target enterprise (for details, see the Attachment). With respect to any foreign-invested enterprise established by PRC residents through merger and acquisition of a domestic enterprise by an offshore enterprise, the SAFE’s branches and the Administrative Departments of Foreign Exchange shall submit the relevant foreign exchange registration application to SAFE for approval.
4. All SAFE’s branches or Administrative Departments of Foreign Exchange shall make a detailed list of those foreign-invested enterprises, which were established by PRC residents through mergers and acquisitions of domestic enterprises by offshore enterprises, and which have completed the foreign exchange registrations, and shall exercise major supervision and control powers on such matters as inquiry about verification of capital contribution, registrations of foreign investment, foreign exchange and receipts of foreign exchange in connection with equity transfers, registration of shareholders’ loans, remittance of profits, reinvestment by profits, and equity transfers. Any issues, once identified, shall be investigated and dealt with in a timely manner.
The Notice shall be implemented as of the date of issuance.
Attachment: The Operating Procedure of Foreign Exchange Registration of Foreign- Invested Enterprises Established through Mergers and Acquisitions by Foreign Investors
Legal Basis:
The Provisional Measures for Administration of Foreign Exchange Registration of Foreign-Invested Enterprises,
The Notice on Issues concerning Improvements in Examination, Approval, Registration and Tax Administration of Foreign-Invested Enterprises (Wai Jing Mao Fa Fa [2002] No. 575); and
The Provisional Rules for Mergers and Acquisition of Domestic Enterprises by Foreign Investors
Documents to Be Examined and Verified:
1. A written application;
2. A duplicate of the business license of the enterprise;
3. The approval letter and the certificate of approval, issued by the authorities in charge of commerce, for the formation of a foreign-invested enterprise established through merger and acquisition by foreign investors;
4. The merger and acquisition contract and the Articles of Association, which shall have become effective upon approval;
5. The Enterprise Code Certificate; and
6. A completed Form of Registration of Basic Information of A Foreign-Invested Enterprise.
(Note: All of above (1) through (5) must be submitted for verification in originals or copies with an original seal affixed thereto. The copies shall be kept for record by the examination and verification authorities.)
Principal Guidelines of Examination and Verification:
1. The Certificate of Foreign Exchange Registration shall clearly record the business scope of the enterprise, the capital contribution methods and the shareholding percentage of each investor;
2. The relevant documents shall be true and consistent;
3. The enterprise shall go through the formalities of foreign exchange registration in a timely manner after issuance of the business license;
4. The written application shall include the following statement: “There is no direct or indirect shareholding or asset relationship between the new foreign shareholder(s) of this company and the selling Chinese shareholder(s) which sells equity or assets, nor there are any other internal transactions that are in violation of any provisions regarding foreign exchange control. All arrangements for payments and settlements in connection with this transaction are in compliance with the Provisional Rule for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors. If there is any misrepresentation, the company is willing to assume relevant legal liabilities therefor.” Otherwise, any direct or indirect shareholding or asset relationship between the new foreign shareholder(s) and the selling Chinese shareholder(s) of the company shall be disclosed accurately.
Scope of Authorization:
1. The SAFE’s branches and the sub-branches thereunder shall exercise their powers according to their respective territory jurisdiction; and
2. Applications for foreign exchange registration of any foreign-invested enterprise which is established by PRC residents through merger and acquisition of a domestic enterprise by an offshore enterprise shall be submitted for approval from a lower level to a higher level until up to SAFE.
Points of Attention:
1. The term “merger(s) and acquisition(s)” referred to in this Operating Procedure shall have the same meaning as the term “merger(s) and acquisition(s)” referred to in the Provisional Rules for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors.
2. In going through the formalities of foreign exchange registration for a foreign- invested enterprise, the foreign investment contract shall be examined for a determination as to whether the enterprise is established through merger and acquisition of equity or assets by foreign investors, and whether this Operating Procedure shall apply.
3. The merger and acquisition contract shall be examined for a determination as to whether the acquiring offshore enterprise was established or is controlled by any PRC resident, and whether it is under the same management as the acquisition target enterprise. | 
