Announcement on Notification of Problems Related to RMB Settlement on Export of Goods

Recently everyone is very concerned about “Announcement (2012) No. 23”. This publication refers to the notification of problems related to RMB Settlement on export of goods by People’s Bank of China, Ministry of Finance, Ministry of Commerce, General Administration of Customs, State Administration of Taxation and China Banking Regulatory Commission (hereinafter referred to as “six ministries”).

In accordance with article 1 of this document provinces (autonomous regions and municipalities) as well as cities specifically designated in the state plan which host import and export business can, according with the “Administrative Measures for the Pilot RMB Settlement in cross-border Trade” (Announcement (2009) No. 10), already carry out RMB settlement for export. This shows that the RMB settlement for the export of goods already has been fully liberalized. From the release of Announcement (2009) No. 10, to the present everyone’s attention is on the expected dilution of the initial concept and the replacement by the new announcement of the six ministries, related to the implementation of special key aspects for the supervision of the settlement of RMB for the export of goods.

Companies that were “black listed” will be in focus for supervision: “banks handle the process for RMB cross-border transactions of these enterprises with the support of an information system regarding
receipts and payments, to strengthen the oversight and to achieve effective risk prevention. After the process is finished, related documents should be kept for future inspections. Enterprises which are on
the list for supervision and wish to execute RMB settlement for cross-border trade, if they received RMB, are not allowed to do so. These “black list” will be updated annually. The updated list will be send at the end of January per year by each province (autonomous region and municipality) as well as each city specifically designated in the state plan to the six ministries. The six ministries will then update the list within 60 days.

The “black list” of 2012 has been announced so far. However the document that identifies the scope of the enterprise for supervision as follows:

1) Within the last two years received fraudulent export refunds, involved
in tax evasion, issued or received VAT invoices with fictitious
amounts;
2) Within the last two years suspected of tax evasion, suspected of
receiving fraudulent export refunds and suspected of issuing or
receiving VAT invoices with fictitious amounts;
3) Within the last two years engaged in smuggling and other serious
violations of custom’s supervision;
4) Within the last two years more serious violations of financial
regulations;
5) Within the last two years more serious violations of state laws and
foreign trade regulations;
6) Within the last two years more serious legal offenses.

Review of Relevant Announcements

From the announcements made by the Chinese government related to the RMB settlement of cross-border trade, in particular from No. 10 of July 2009 to the above mentioned No. 23 of 2012. It is obvious that we have a step-by-step progress for liberalization.

Announcement (2009) No. 10 of July 1, 2009 “Administrative Measures for RMB Settlement of Cross-border RMB Transactions”: the oversea pilot area is Hong Kong, Macao and ASEAN Regional; the domestic pilot area is four cities as Shanghai and certain cities of Guangdong Province.

According to YinFa (2010) No. 186 issued in 2010 by six ministries, namely, Announcement concerning Enlargement of Scope of Pilot Points of RMB Settlement of Cross-Border Trade, the oversea pilot RMB settlement area is expanded to all countries and regions; the domestic pilot area is expanded to over 20 provinces; at the same time, the document identifies the RMB settlement of import trade, cross-border service trade and other trade items are liberalized, which means, only RMB settlement of export goods need to be applied by the enterprises on the list of pilot enterprises. Otherwise, the export tax refund of the enterprise not on the pilot could not be accepted. On the other side, the import trade and the non-trade RMB settlement are totally liberalized.

The focus of this article, YinFa (2012) No. 23, the RMB settlement of export trade is totally liberalized, only the enterprises on the black list are deemed to be supervised.

Our Understanding and Suggestions

If you want to avoid the exchange risk of import & export business, RMB settlement is a right choice. Many oversea banks have already begun to apply the RMB business, and the domestic enterprise can execute the RMB settlement of import & export trade and oversea non-trade service by completing cross-border RMB settlement application in the account opening bank. But we should pay attention that Announcement No. 23 has just issued on 3rd February, 2012 and the black list of non-pilot enterprise has not been issued yet. Is the RMB settlement of import & export trade of goods totally liberalized? Could the non-pilot enterprise execute the RMB settlement according to Announcement No. 23? We should wait for some time and pay attention to the development of the policies to avoid the risk in tax refund.

If you have further requests, ECOVIS Ruide has a professional consulting team and professional personnel who can provide further instruction and consulting service.

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