China’s Revised Reporting Requirements for International Receipts and Payments (Circular 642)
Chinese resident should report the information regarding international receipts and payments;
If Chinese residents conduct a transaction with non- Chinese residents through a domestic financial institution, the financial institution should report the transaction to local level State Administration of Foreign Exchange (SAFE) office;
Chinese nationals with foreign financial assets and liabilities should report relevant information about their foreign financial assets and liabilities to local level SAFE office.
Enterprises and Institutions
Foreign-invested enterprises, enterprises with outbound direct investment and other non-financial institutions with foreign financial assets, and liabilities in China, must directly report the foreign financial assets and liabilities and the relevant receipt and payment of profits, dividends and interests to the local level SAFE office.
Non- Chinese Residents
Non-Chinese Residents undertaking the business transactions in China should report the information on international receipt and payment.
Things to remember for reporting:
SAFE and it’s local offices are entitled to investigate and verify the information reported by Chinese residents and non-Chinese residents;
Failure to perform the reporting obligation, the penalty shall be imposed, i.e. the penalty for a financial institution is no more than RMB300,000, and no more than RMB50,000 for an individual.
The reporting methods include a combination of indirect reporting with direct reporting and reporting on transaction-by- transaction basis with regular reporting basis.
In November 2013, the State Council announced new reporting measures for international receipts and payments, which will affect corporations registered In China, Chinese residents who have lived in China for over 1 year, and non-Chinese residents.
The aim of the legislation known as “Circular 642” is to strengthen the administration of cross border capital flow, and to ensure reporting obligations concerning foreign financial assets and liability are fulfilled. It has been in effect since January 1st 2014.
Key points from new legislation:
The updated reporting measures covers all economic transactions between Chinese residents and Non-Chinese residents as well as the status of foreign financial assets and liabilities of Chinese residents.
Those affected by the new measures include; natural persons who stay in China for not less than 1 year including (Chinese national and expatriates); Enterprises and institutions (including foreign-invested enterprises, and foreign-invested financial institutions); State agencies, as well as Non-Chinese residents
Firstly, the status of foreign financial assets and liabilities of Chinese residents must now be reported. Under the old reporting regime, Chinese residents only needed to report cross border transactions with non-Chinese residents.
Second, in general the scope of reporting is being expanded e.g., Non-Chinese Residents undertaking transactions in China should report the information on international receipt and payment.
Thirdly, since the Circular 642 lays down the framework of the new reporting requirements on international receipts and payments, we expect the implementation rules to be released to provide the guidance on details of the reporting items, the timeline and reporting mechanism.