Beijing, China -- (SBWIRE) -- 07/26/2009 -- The People’s Bank of China (PBOC) recently issued answers to questions submitted to it regarding the Administrative Measures for the Pilot Operation of RMB Settlement for Cross-border Trade. Under the pilot program, selected enterprises will now be allowed to settle foreign trade accounts using RMB.
According to the PBOC, the pilot program was initiated as a result of the global financial crisis in which the exchange rates of the major international settlement currencies including the US dollar and euro etc have seen large fluctuations. As a result of the severe exchange rate fluctuations, Chinese companies were confronted with high risks of fluctuation of exchange rate when conducting trade settlements with currency of a third nation. In addition, China has seen a rapid development of trade, investment and personal exchanges between China and nations composing the Association of Southeast Asian Nations (ASEAN) as well as with Hong Kong and Macao and saw an increasing demand for using RMB as a means of payment.. For these reasons, the State Council decided on April 8, 2009 to carry out a pilot program in which the RMB could be used to settle cross-border trade between Shanghai and four cities in Guangzhou Province (Guangzhou, Shenzhen, Zhuhai and Dongguan) and ASEAN, Hong Kong, and Macao.
Under the pilot program, the PBOC will maintain strict supervision over the commercial banks and pilot enterprises in order to enforce the existing anti-money laundering system, the RMB deposit account management system, as well as to establish an information management system for RMB cross-border collection and payment to gather and store various information about RMB settlements and to conduct statistical analysis.
Shanghai and Guangdong were selected for the pilot program because these regions were viewed as relatively well-prepared in supporting central government monitoring policies and due to the pool of suitable enterprises to include in the pilot program. Pilot program companies were chosen after they had been recommended by the governments of Shanghai and Guangdong and approved by the PBOC in collaboration with the Ministry of Finance, Ministry of Commerce, General Administration of Customs, State Administration of Taxation and China Banking Regulatory Commission.. The companies were selected based on such criteria as significant experience of international settlement business, sound credibility, a history of conducting business in full compliance with regulations of taxation, commerce, customs and foreign exchange administration, the companies government filings were complete and up to date, registered capital was fully paid in, and the companies were operated out of real business sites.
In its statement, the PBOC issued answers to several questions regarding the operations of the pilot program as regards to the pilot companies engaged in the cross border trade. Pilot enterprises must guarantee the authenticity of cross-border trade settled in RMB and establish and strictly maintain statistical records so that the government can monitor cross-border trade settled in RMB. Pilot enterprises must collect their RMB payments within 210 days after the goods are shipped, otherwise they must report within five working days, the uncollected transaction amount to the PBOC. The statistical information that is collected by the program enterprises must be filed with the relevant customs, banking, foreign exchange, and taxation authorities. To satisfy the actual requirements of pilot enterprises, companies are allowed to deposit their RMB denominated export income into overseas banks but are required to report the income to the local branch of PBOC via domestic settlement banks. Pilot enterprises shall select one domestic settlement bank as the “major reporting bank” for their RMB settlements and this major reporting bank shall be responsible for reminding the pilot enterprises to fulfill its information reporting requirements.
Under the program, export trade settled in RMB is fully eligible for export tax rebates (exemption) in accordance with the relevant regulations. The pilot enterprises are not required to present foreign exchange verification and writing-off forms when conducting customs declaration for cross-border trade settled in RMB and export tax rebate (exemption). The specific administrative measures for export tax rebate (exemption) are yet to be formulated by competent taxation departments under the State Council. Pilot program enterprise who are found to have violated State regulations on RMB settlement will be punished according to law and will be disqualified as a pilot program enterprise. For enterprises who have been disqualified from the pilot program, the PBOC will enter the company’s breach of the law regarding RMB settlement into an information management system for RMB cross-border collection and payment and shared with other relevant departments.
Reported by: Scott Garner, JD, CPA
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