Safe Requirements China
The State Administration of Foreign Exchange of China, Shanghai Branch (Shanghai SAFE), has verbally informed our local partner company Martin Hu & Partners that the annual re-registration requirements for stock plans registered with Shanghai SAFE are no longer required. As the definitions in Circular 7 are still unclear and compliance requirements vary from province to province, individuals are strongly advised to check with their local SAFE office for specific enforcement and compliance requirements. Dezan Shira & Associates is also able to help you in these areas. On October 23, 2019, China`s State Administration of Foreign Exchange (SAFE) issued a notice outlining 12 facilitation measures to ease controls on cross-border trade and investment finance requirements. Any changes to SAFE registration (including periodic updates to the participant list) that are not the material changes listed above do not need to be reported regularly to SAFE, but may be recorded at the same time as the registration of a significant change. Our local partner firm also points out that from 2022, a company will be able to apply for the exchange quota for outgoing transfers (if it is not a «zero quota») on a three-year basis. If a quota is exceeded for a single year, it must continue to be updated annually. We are not aware of any changes in the process for stock plans registered with a SAFE office in any other part of China, nor are we aware of any changes in the requirements for quarterly filings with Shanghai SAFE. When did the changes take effect or will they come into effect? There is no specific date for the entry into force of the new directive. It is likely that all annual applications for re-registration that have already been submitted but for which SAFE consent has not yet been approved will be dealt with on a case-by-case basis. Our local partner company notes that so far, they have only heard of Shanghai SAFE as an application pending annual re-registration, and in this case, the SAFE official has requested to withdraw the application in accordance with the new policy.
Tapestry commentary This will be a welcome development for companies offering stock plans in China under a SAFE registration issued by Shanghai SAFE. The abolition of the annual re-registration procedure and the proposed changes to the quota requirements will remove or minimise the administrative burden on the undertakings concerned. We are seeing more and more global companies offering stock rewards to employees residing in China, with a significant number of them signing up for Shanghai SAFE. Ongoing reporting requirements for SAFE registrations are cumbersome and can be complicated, especially if you have a large number of participants and/or need to account for the impact of local business acquisitions or divestitures. Regardless of the province of your registration, make sure you are up to date with the obligations that apply to you and start preparing each submission in advance. We thank our partner law firm in China, Martin Hu & Partners, for warning against this change. If you have any questions about this notification, please let us know. Matthew Hunter and Sonia Taylor If FIE does not meet SAFE requirements, bureaux de change can take over capital account information and banks refuse to settle foreign exchange transactions under the FIE capital account.
If FIE does not meet SAFE`s conditions, banks will not allow FIE to distribute profits to foreign shareholders. Dezan Shira & Associates is a specialized services firm that provides foreign direct investment, tax, accounting, payroll and due diligence advice to multinational clients in China, Hong Kong, India, Singapore and Vietnam. The firm specializes in assisting foreign companies with their tax obligations. For more tips and details on these latest measures, please send china@dezshira.com an email, visit www.dezshira.com or download the company brochure here. Companies listed outside China that wish to offer stock ownership plans in China must register the plan with a local branch of the State Administration of China, known as «SAFE». Once the sign-up process is complete, companies can offer stock rewards to their local employees. After registration, a number of ongoing requirements apply. The Shanghai SAFE, for example, historically required quarterly applications, a request for substantial changes to the existing registration, and an annual re-registration process. What has changed? The annual re-registration process for stock plans registered with Shanghai SAFE is no longer required. Shanghai SAFE will continue to require filing if there is a material change to the existing registration. As a reminder, any request for a significant change must be sent to SAFE or through the designated bank within 3 months of the change.
A «material change» for these purposes includes (but is not limited to): Here is a brief introduction to the revised SAFE registration procedures and compliance requirements.