China - Shanghai Free Trade Pilot Zone New Policies
1. SFTPZ – New Policies Made Available
Issue 1 January 2014
China tax alert
Shanghai Free Trade Pilot Zone (“SFTPZ”)
was officially launched on September
29, 2013. Ever since, a series of policies
have been announced by Shanghai
government, related to finance, trade,
shipping, customs, “Negative lists”
and put-on-record procedures, so as to
enhance the trade, investment and financial
liberalization reform of the SFTPZ. With
the detail implementation of the innovative
administration mechanism, free investment
environment, and supportive tax policies, the
SFTPZ is expected to attract a rush of global
investors.
The breaking-through implementation
policies released recently mainly focus
on financial sector and tax treatment.
We will share with you in this alert our
observations and insights on Opinions of
the People’s Bank of China on Providing
Financial Support for the Development of
China (Shanghai) Pilot Free Trade Zone
(hereinafter “the Regulation”) and Notice on
Issues Concerning the Corporate Income
Tax Policies Governing Investment with
Non-monetary Assets and Other Asset
Restructuring Practices by Enterprises of
China (Shanghai) Pilot Free Trade Zone
(hereinafter “the Notice”).
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2. 1. Opinions of the People's Bank of
China on Providing Financial Support
for the Development of China
(Shanghai) Pilot Free Trade Zone
• Innovation in financial regulations
and upgrade of financial reform
-
Outline of the Regulation:
On 2 December 2013, the Regulation was
issued, providing constructive directions
on bank account system, financing
and conversion of foreign currency,
cross border use of RMB, interest
rate liberalization, foreign exchange
administration reform, supervision and
administration by government.
The breaking-through news brought by
the Regulation cover a wide range of
areas, some of which are:
- Set-up of RMB and foreign
currency free trade accounts:
a) Resident and non-resident
enterprises are allowed to open
free trade accounts, which
can realize free exchange and
circulation of capital; b) Financial
institution can provide RMB
settlement service to cross border
e-commerce in cooperation with
qualified payment institutions.
- Facilitation of foreign exchange
conversion in investment and
financing: a) Enterprises in the
SFPTZ can apply for cross border
payment and foreign exchange
conversion directly through banks
for cross border direct investment
purpose. b) The overseas parent
companies of the enterprises in
the SFTPZ can issue RMB bonds
on domestic capital markets.
- Expansion of cross border use of
RMB: a) Banking and financial
institution in the SFTPZ can
provide cross border RMB
settlement services to enterprises
for the purposes of current
account transactions and direct
-
investment. b) Enterprises in the
SFTPZ can open mutual cash
pooling and centralized collection
and payment for current account
transactions with affiliated
companies.
Deepened reform of foreign
exchange administration: a) The
scope of pilot multi-national
companies for consolidated
operation and management of
foreign exchange funds will be
expanded and the management
of cash pooling in foreign
currencies will be simplified. b)
The foreign exchange registration
administration procedures
of direct investment will be
simplified. c)The administration
procedures for specific projects
of financial of domestic leasing
companies and similar subjects
will be simplified.
Acceleration of interest rate
liberalization qualified: Financial
institutions shall be rated as
priority entities that are permitted
to issue negotiable certificates
with large-amount deposits.
Grant Thornton Observations
The financial reform of the SFTPZ
focuses on promoting the RMB
globalization and pushing the SFTPZ to a
higher level in international competition.
The Regulation further dips its toe
in cross border use of RMB, capital
exchange, interest rate liberalization
and foreign exchange conversion in
investment and financing in the SFTPZ,
revealing the government’s resolution
of accelerating financial reform deeply
and steadily. We look forward to more
specific implementation rules as the
Regulation is still a very high-level
document.
It is also worthwhile to note that the
Regulation enables funds to be freely
transferred between free trade accounts
and offshore accounts by setting
up RMB and foreign currency free
accounts. We notice that fund transfers
between resident free trade accounts
and other domestic accounts outside the
SFTPZ could still be subject to relevant
regulations on cross border transactions.
As far as we know, that the free
trade accounts are very likely to be
implemented in the first quarter of 2014.
To make investment and financing
activities more efficient, domestic and
foreign enterprises, non-bank financial
institution, as well as other economic
entities can finance RMB or foreign
currency from overseas.
As to the cross border use of RMB, the
financial institutions and enterprises
in the SFTPZ may borrow RMB from
overseas. However, RMB borrowings
shall not be used for investment in
negotiable securities or derivatives, or to
provide entrusted loan.
The Regulation has a remarkable effect
on individual cross border investment.
Qualified Chinese individuals employed
in the SFTPZ can engage in various
outbound investments, including
securities investments.
To facilitate trade and investment,
the procedures for foreign exchange
registration have been simplified, as
well as the administration of cash
pooling in foreign currencies. The
Regulation implies a further effort
on the establishment of interest rate
liberalization mechanism in the SFTPZ.
Furthermore, it is still uncertain how a
relaxation of the upper limit on interest
rates will be achieved, and this will be the
key concentration on successive detail
rules in this area. We will follow this issue
closely and update our readers whereas
possible.
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