In order to regulate the remittance of funds for outbound direct investment (ODI) by domestic entities, the State Administration of Foreign Exchange (SAFE) requires domestic entities to report the relevant data of ODI on a regular basis, including the shareholding ratio of domestic enterprises and the asset amount of the invested enterprises. Since 2015, the requirement of annual foreign exchange inspection for ODI has been replaced with an annual filing system, through which domestic investors are required to submit their ODI-related asset and equity information.
According to the national foreign exchange policy, domestic investors should submit their ODI-related asset and equity data as of the end of the previous calendar year through the digital platform of SAFE every year. Under the filing system, domestic investors are responsible for the authenticity and accuracy of the data submitted. SAFE will no longer review the filing item by item, but conduct spot checks on the submissions.
For outbound investment activity, after completion of the relevant registration procedure of ODI, the annual filing system is one of the important measures for the continual supervision of the competent authorities, to which relevant domestic entities should pay full attention.
The filing entities are domestic PRC investors in offshore enterprises that have gone through the ODI procedure before 31 December of the previous calendar year. It should be noted that ODI under the filing system should be interpreted in a broad sense, including not only the general outbound investment activities of enterprises regulated by commercial, development and reform departments, but also those of domestic financial institutions and individuals. To be specific, the filing entities include: (1) domestic enterprises that have gone through the ODI filing/approval procedure; (2) financial institutions; and (3) domestic individual shareholders of special purpose vehicles (SPVs) under SAFE circular No. 37, issued in 2014.
If two or more domestic PRC investors co-establish or control an offshore enterprise, one of them should be the filing entity, and the relevant information should be reported to the foreign exchange bureau where it has gone through the ODI procedure. The other domestic investors are then not required to file. In principle, the largest shareholder among domestic investors shall bear the filing responsibility. If the shareholding ratios are the same, it can be agreed upon that one of the domestic investors be the filing shareholder.
Timing, channel, content
The specific time for filing each year is subject to the relevant notices issued by the SAFE and its local branches. The filling time in the past two years (2019 and 2020) ranged from 1 April to June 30.
The filing entity shall submit through the digital platform of SAFE (http://zwfw.safe.gov.cn/asone/). For enterprise login, the required institution code is nine to 17 digits of the unified social credit code on the business licence; the user code is: quanyidj; and the initial password is: 20150101Aa.
The content to be filed includes the data of the asset and equity of ODI in the previous calendar year, including:
(1) The shareholding ratio of domestic PRC shareholders. If the offshore enterprise is held by more than one domestic investor, the shareholding ratio of all PRC shareholders shall be consolidated;
(2) Assets, liabilities and equity according to the relevant accounting subjects from the consolidated financial statements of the first-tier offshore enterprises (including offshore SPVs);
(3) Equity and the balance of undistributed profits attributable to Chinese shareholders;
(4) The net profit that belongs to Chinese shareholders; and
(5) Dividends payable to Chinese shareholders.
At the same time, the foreign exchange bureau may conduct spot checks on filing-related entities. If chosen, the entity should also submit the data of the previous calendar year on a quarterly basis, in addition to the annual submission. The scope of filing content is consistent with the above-mentioned annual filing.
Failure to file
If the filing entity fails to submit ODI-related asset and equity data according to the regulations, the SAFE will impose restrictions on its business in its capital account information system, and the bank shall not handle its foreign exchange business under the capital account, which in practice may lead to its inability to remit subsequent investment funds and repatriate profits from offshore enterprises. If the filing entity fails to submit on time, it may apply to the SAFE for supplementary submission, in which case an explanatory letter shall be presented for such delay. If the requirements are met after a SAFE examination, the restrictions on its foreign exchange business will be lifted.
In addition, for those who fail to file on time without reasonable cause, especially those who repeatedly fail to file, the SAFE may impose administrative penalties on the relevant filing entities. According to public information, some domestic entities have already been punished for this reason, and the penalty amount is generally several tens of thousands of renminbi.
Selena She and Kenneth Kong are partners at Llinks Law Offices
Llinks Law Offices
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