Circular of the State Administration of Foreign Exchange on Issues concerning the Administration of Foreign Exchange Used for Domestic Individuals' Participation in Equity Incentive Plans of Companies Listed Overseas

Promulgation date: 2012-02-15

Effective region: NATIONAL

Promulgator: State Administration of Foreign Exchange

Document no: Hui Fa [2012] No.7

Effectiveness: Effective

Effective date: 2012-02-15

Category: Foreign Exchange ( Banking Law->Foreign Exchange ) 

 

 

Circular of the State Administration of Foreign Exchange on Issues concerning the Administration of Foreign Exchange Used for Domestic Individuals' Participation in Equity Incentive Plans of Companies Listed Overseas

Hui Fa [2012] No.7

February 15, 2012

The branches and foreign exchange management departments of the State Administration of Foreign Exchange in all provinces, autonomous regions and municipalities directly under the Central Government, the branches of the State Administration of Foreign Exchange in Shenzhen, Dalian, Qingdao, Xiamen and Ningbo, and all designated Chinese-funded foreign exchange banks,

In order to standardize and improve the foreign exchange administration in Domestic individual'participation in equity incentive plans of companies listed overseas, relevant issues are hereby notified in accordance with the Administrative Regulations of the People's Republic of China on Foreign Exchange, the Administrative Measures for Individual Foreign Exchange (Order of the People's Bank of China [2006] No. 3) and other relevant regulations and provisions.

Article 1 For the purpose of this Circular, the term "companies listed overseas"shall refer to companies listed on overseas stock exchanges, including stock exchanges in Hong Kong, Macao and Taiwan.
The term "equity incentive plans"shall mean equity incentive plans provided by an overseas listed company to the directors, supervisors, officials and other employees of its domestic company who have an employment or labor relationship with such company by granting its own stocks to them, including employee stock ownership plans, employee stock option plans and other equity incentive programs permitted by relevant laws and regulations.
The term "domestic companies"shall mean companies that are listed overseas that registered in China, or domestic branches (or representative offices) of companies listed overseas, or parent companies, subsidiary companies, partnerships or other domestic institutions that directly or indirectly control or are controlled by companies listed overseas.
The term "domestic individuals"(hereinafter referred to as "individuals") shall mean directors, supervisors, officials or other employees of a domestic company specified in Article 52 of the Administrative Regulations of the People's Republic of China on Foreign Exchange, including Chinese citizens (including citizens of Hong Kong, Macao and Taiwan) and foreign individuals.

Article 2 Individuals who participate in equity incentive plans of the same overseas listed company shall, through the domestic company to which the said company is affiliated, collectively entrust a domestic agency (hereinafter referred to as the "domestic agency") to handle issues like foreign exchange registration, account establishment, funds transfer and remittance, and entrust an overseas institution (hereinafter referred to as "overseas trustee") to handle issues like exercise of options, purchase and sale of corresponding stocks or equity, and transfer of corresponding funds.
A domestic agency shall be a domestic company participating in the equity incentive plan or a domestic institution which is qualified for asset custody business as chosen by the domestic company according to law.

Article 3 A domestic agency shall, on the strengthen of the following materials, go through foreign exchange registration procedures with the branch or foreign exchange management department of the State Administration of Foreign Exchange (hereinafter referred to as the "SAFE") at the place where it is located (hereinafter referred to as the "local office of the SAFE") for all individuals participating in the equity incentive plan:
1. A written application and a Foreign Exchange Registration Form for Domestic individuals'Participation in Equity Incentive Plans of Companies Listed overseas (see Annex 1, hereinafter referred to as "Foreign Exchange Registration Form");
2. Relevant announcements of the overseas listed company and other materials that can demonstrate the authenticity of the equity incentive plan (where any State-owned enterprises are involved or it is otherwise subject to approval by the competent authorities, approval documents issued by the competent authorities shall also be presented);
3. A power of attorney or agreement under which the domestic company entrusts the domestic agency to be solely responsible for handling all matters concerning the individuals'participation in the equity incentive plan;
4. A letter of commitment issued by the domestic company to demonstrate the authenticity of its employment or labor relationship with such individuals (with a list of the individuals, their ID numbers, types of equity incentives involved and other relevant information attached thereto); and
5. Where there is any discrepancy between the aforesaid materials or such materials cannot demonstrate the authenticity of the transaction, supplementary materials as required.
After confirming the aforesaid materials to be correct, the local office of the SAFE shall issue a certificate of foreign exchange registration for the equity incentive plan to the domestic agency accordingly.

Article 4 An individual may use his or her own foreign currency funds in his or her personal foreign currency deposit account, RMB funds or other domestic legal funds to participate in an equity incentive plan. Where an individual participates in an equity incentive plan with his or her own foreign currency funds, the relevant bank shall handle funds transfer procedures on the strength of the copy of the certificate of foreign exchange registration for the equity incentive plan, a statement of the employment or labor relationship between the individual and the domestic company and other relevant materials (all of the aforesaid materials shall be stamped with the seal of the domestic agency). Where an individual participates in an equity incentive plan with his or her RMB funds, he or she shall transfer the RMB funds to an account of the domestic agency and then the domestic agency shall go through foreign exchange purchase and payment procedures for them in accordance with Article 5 of this Circular.

Article 5 Where a domestic agency needs to remit funds out of China for the purpose of individuals'participation in an equity incentive plan, the domestic agency shall apply with the local office of the SAFE for a foreign exchange payment quota, on a yearly basis, on the strength of a written application, a certificate of foreign exchange registration for the equity incentive plan (if the application for a foreign exchange payment quota is filed while the initial foreign exchange registration for the equity incentive plan is made, it is not required to provide the certificate ), a newly filled-out Foreign Exchange Registration Form and other relevant materials.
After confirming the aforesaid materials to be correct, the local office of the SAFE shall issue to the domestic agency a certificate of foreign exchange registration for the equity incentive plan setting out the foreign exchange payment quota granted. A bank shall handle relevant foreign exchange purchase and payment procedures for the domestic agency within such foreign exchange payment quota on the strength of the certificate.

Article 6 A domestic agency shall open a special foreign exchange account for domestic purposes with a bank on the strength of a certificate of foreign exchange registration for the equity incentive plan. Receipts of the account shall include foreign currency funds transferred from individuals'personal foreign currency deposit accounts, foreign currency funds derived from the purchase of foreign exchange by the domestic agency for individuals, principal and earnings repatriated after the sale of stocks or equity under the equity incentive plan by individuals, dividends repatriated and other receipts approved by the local office of the SAFE. Expenditures of the account shall include funds transferred abroad for participation in the equity incentive plan, conversion of repatriated funds into RMB funds or transfer of repatriated funds to the individuals'personal foreign currency deposit accounts, and other expenditures approved by the local office of the SAFE.

Article 7 After repatriation of foreign currency income obtained by individuals from participation in an equity incentive plan, the domestic agency shall request the bank to transfer the funds from its special foreign exchange account for domestic purposes to corresponding personal foreign currency deposit accounts on the strength of relevant written applications, the certificate of foreign exchange registration for the equity incentive plan, vouchers of overseas transactions and other relevant materials, and manage and use the funds in accordance with relevant provisions on personal foreign currency deposit accounts.
In respect of the portion of repatriated funds corresponding to the original principal used for purchasing foreign exchange and all the earnings therefrom, the domestic agency may convert such funds into RMB for all the individuals with the bank on the strength of the aforesaid materials and then transfer the RMB funds obtained from such conversion to the individuals'respective domestic RMB accounts.

Article 8 In the case of any significant change in the equity incentive plan of a company listed overseas (such as amendment to any key clauses of the original plan, addition of a new plan, or any other change in the original plan arising out of the merger, acquisition or reorganization of the overseas listed company or the domestic company or other major events), the domestic agency or the overseas trustee shall, within three months of the occurrence of such change, go through change registration procedures with the local office of the SAFE on the strength of a written application, the original certificate of foreign exchange registration for the equity incentive plan, a newly filled-out Foreign Exchange Registration Form and materials which demonstrate the authenticity of relevant transactions.

Article 9 In the case of the termination of an equity incentive plan due to expiration of the plan, delisting of the overseas listed company, merger, acquisition or reorganization of the domestic company or other major events, the domestic agency shall, within 20 working days after the termination of the plan, go through procedures for cancellation of foreign exchange registration for the equity incentive plan with the local office of the SAFE on the strength of a written application, the original certificate of foreign exchange registration for the equity incentive plan and other relevant evidentiary materials.
After confirming the aforesaid materials to be correct, the local office of the SAFE shall handle procedures for cancellation of foreign exchange registration for the equity incentive plan. After completion of the procedures, the domestic agency shall handle settlement of accounts, funds transfer and other follow-up matters.

Article 10 A domestic agency shall submit a Filing Form for Domestic Individuals'Participation in Equity Incentive Plans of Companies Listed Overseas (see Annex 2) to the local office of the SAFE within the first three working days of each quarter. The deposit bank of a domestic agency shall submit a Statements of Establishment and Closure of Domestic Special Foreign Exchange Accounts for Domestic Individuals'Participation in Equity Incentive Plans of Companies Listed Overseas (see Annex 3) and a Statements of Receipts and Expenditures of Special Foreign Exchange Accounts for Domestic Individuals'Participation in Equity Incentive Plans of Companies Listed Overseas (see Annex 4) to the local office of the SAFE within the first three working days of each month.
A local office of the SAFE shall examine and summarize relevant reports and statements and submit the summary thereof to the head office of the SAFE within the first five working days of each month.

Article 11 Where an individual transfers funds abroad or receives funds from abroad related to his or her participation in the equity incentive plan of an overseas listed company through the special foreign exchange account for domestic purposes opened by a domestic agency, the domestic agency shall make an indirect declaration of international receipts and payments in accordance with relevant provisions.

Article 12 The SAFE and its branches shall supervise, administer and inspect foreign exchange operations related to individuals'participation in equity incentive plans of companies listed overseas, and may take regulatory measures against and impose administrative sanctions on individuals, domestic companies, domestic agencies and banks which violate this Circular.

Article 13 In respect of any applications, or registration or filing materials submitted as required by this Circular, Chinese versions thereof with equal legal effect shall be provided. Where a document is made in Chinese as well as other languages, the Chinese version shall prevail.

Article 14 This Circular shall come into effect on the date of promulgation. The Circular of the General Affairs Department of the State Administration of Foreign Exchange on Printing and Distributing the Operational Rules on the Foreign Exchange Administration of the Participation of Domestic Individuals in Overseas Listed Companies' Employee Stock Ownership Plans and Share Option Schemes (Hui Zong Fa [2007] No. 78) and the Circular of the General Affairs Department of the State Administration of Foreign Exchange on Delegating the Power of Examination and Approval of Initial Foreign Exchange Purchase and Payment Quotas and Establishment of Foreign Currency Accounts Related to Domestic Individuals'Participation in Employee Stock Ownership Plans of Companies Listed Overseas (Hui Zong Fa [2008] No. 2) shall be simultaneously repealed.

After receiving this Circular, all branches and foreign exchange management departments of the SAFE shall, as soon as possible, forward it to the central sub-branches, sub-branches and foreign-funded banks under their respective jurisdiction. After receiving this Circular, all designated Chinese-funded foreign exchange banks shall, as soon as possible, forward it to their branches. Any issues encountered in the implementation hereof shall be reported to the Capital Account Management Department of the SAFE in a timely manner.

Attachment:

Annexes 1: Foreign Exchange Registration Form for Domestic Individuals' Participation in Equity Incentive Plans of Companies Listed Overseas

Annex 2: Filing Form for Domestic Individuals' Participation in Equity Incentive Plans of Companies Listed Overseas

Annex 3: Statements of Establishment and Closure of Domestic Special Foreign Exchange Accounts for Domestic Individuals' Participation in Equity Incentive Plans of Companies Listed Overseas

Annex 4: Statements of Receipts and Expenditures of Special Foreign Exchange Accounts for Domestic Individuals' Participation in Equity Incentive Plans of Companies Listed Overseas