China WFOE Registration Guide (18) – Setting up Different Bank Accounts And Their Functions of a WFOE

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1. Introduction

In the course of doing business in China, both the foreign investors and the foreign invested companies (FIEs), including Wholly Foreign Owned Enterprise, will need to be familiar with the different bank accounts applicable and their respective functions/uses. In this article, we will introduce some of the bank accounts commonly used by FIEs and their functions.

2. Temporary Capital Account

Before the official incorporation of a FIE, if it needs cash urgently for the purpose of pre-incorporation expenses, it can choose to set up a Temporary Capital Account. This account is to temporarily receive funds directly related to the investment in China. However, this account is not a necessity. It should be based on the needs and requirements of the company and approval by the State Administration of Foreign Exchange (SAFE)

Functions

(1) The money in the Temporary Capital Account can only be used to pay rental, utilities and other payments with regard to the pre-incorporation of the FIE. The money cannot be used for payment of employee salary and payments relating to the operations of the business. This is because at this point of time, the company has not been officially set up.
(2) The capital in the Temporary Capital Account is to be injected directly by the investing party and constitutes part of the total registered capital of the FIE. The maximum amount of capital in the Temporary Capital Account is to be maintained at 5% of the total Registered Capital (RC) and cannot be more than USD 100,000.
(3) The capital monies in the Temporary Capital Account can only be transferred to other bank accounts and no cash withdrawal is allowed.
(4) When there is a need to use the money in the Temporary Capital Account, approval must be obtained from the State Administration of Foreign Exchange (SAFE).

Main Application Procedures

(1) Apply to the SAFE for FIE Principal Business Certificate and code and
(2) Set up the Temporary Registered Capital Account in a bank

In practice, however, it is very difficult to set up such a Temporary Capital Account mainly because the local banks do not have the knowledge and experiences.

3. Foreign Currency Capital Account

This account is a foreign currency fund collection and payment account. Money from the Foreign Currency Capital Account can also be transferred to this account, to be used for payment purposes.

Functions

(1) Funds collected from customers for services can be transferred directly to the Foreign Currency Settlement Account. However, transactions relating to the sale of goods have to be paid to the bank’s pre-checking account which it to be checked by the bank before they are transferred to the company’s Foreign Currency Settlement Account.
(2) When using this account to make payment, the company has to submit both invoice and contract relating to the payment, in order for the transaction to be approved. Approval is granted by the SAFE.
(3) The money in the Foreign Currency Settlement Account can be used for payment of travel expenses in foreign currency or, less frequently for payment of salary in foreign currency.

Main Application Procedures

(1) Application period for the Foreign Currency Settlement Account is around 1 to 2 working days.

4. RMB Basic Bank Account

FIE shall set up the RMB Basic Bank Account at the same time of setting up the Foreign Currency Capital Account. RMB Basic Bank Account enables a FIE to conduct day-to-day transfer and funds settlement, as well as receipts and payments of cash. A company can only have one basic bank account.

Functions

(1) RMB Basic Bank Account can be used for RMB collections and payments and cash withdrawals.
(2) Salaries and bonus payments can only be paid from the basic account.
(3) There are no restrictions on time and minimum amount for deposits or withdrawal.

Main Application Procedures

(1) Apply to the SAFE for the Certificate of RMB Basic Bank Account Opening Approval, and;
(2) Set up the RMB Basic Account in a bank.

5. RMB General Bank Account

The RMB General Bank Account is similar to the RMB Basic Bank Account and can be used for RMB collections and payments. However, cash transactions and payments for salary and social insurance are not allowed. A FIE can set up multiple general accounts.

Functions

(1) For large companies, it is advisable that the RMB General Bank Account is to be used solely for fund collection purposes while the RMB Basic Bank Account can be used for payment purposes. This is for better management of the company’s financial accounts.
(2) For smaller companies, it will not be necessary to have both accounts. The RMB Basic Bank Account will be able to satisfy the needs of its day –to-day operations.

Main Application Procedures

(1) According to regulations, companies are not allowed to set up both RMB Basic Bank Account and General Bank Account in the same bank. Should the bank be the same, it is required that the two accounts are set up in difference branches.

6. Foreign Debt Special Account

When a FIE’s fund is not enough and the investor is unwilling to increase the RC for the FIE, the FIE can choose to apply for foreign loan from its investor. Under such circumstances, a Foreign Debt Special Account is required.

Functions

(1) To receive loans from overseas and to make payment as per the loan contract.
(2) This account cannot be used to pay RMB loan principal and interest.
(3) Each time money is transferred from this account, approval has to be granted by the SAFE.

Main Application Procedures

(1) Apply to the SAFE for the Foreign Debt Approval and registration which requires around 20 working days and;
(2) Set up the Foreign Debt Special Account in a bank.

7. Foreign Debt Special Loan Repayment Account

When a FIE needs to repay its foreign loan and interest to the investor, it can set up another account known as the Foreign Debt Special Loan Repayment Account. This account is not a necessity as repayment can also be done through the Foreign Debt Special Loan Account.

Functions

(1) Repayment of the foreign currency loan principal and interest
(2) Transferred from other foreign currency accounts or exchanged from RMB.

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