Against the backdrop of accelerating globalization and evolving international trade dynamics, the Hainan Free Trade Port (Hainan FTP) has emerged as a forefront initiative in China’s national strategy of opening-up. It offers businesses a freer and more facilitative operating environment for cross-border transactions. However, as cross-border capital flows and trade activities increase, ensuring foreign exchange (FX) compliance has become a key challenge for enterprises operating in Hainan.
This guideline outlines the key legal and regulatory framework as well as practical compliance steps that Hainan FTP enterprises must follow in respect of capital inflows, trade-related FX receipts/payments, and profit repatriation, to help enterprises achieve sound development while fully utilizing policy benefits under the FTP regime and enhancing the efficiency and compliance of their cross-border operations.
I. Legal and Regulatory Basis #
Foreign Investment Law of the People’s Republic of China
STA & SAFE Joint Announcement No. 40 (2013) – Tax Filing Requirements for Cross-Border Payments for Trade in Services and Other Transactions
SAFE Circular [2017] No. 3 – Notice on Strengthening Authenticity and Compliance Review in Foreign Exchange Transactions
STA & SAFE Joint Announcement No. 19 (2021) – Supplementary Announcement on Tax Filing for Cross-Border Service Payments
SAFE Circular [2020] No. 14 – Operational Guidelines for Current Account Foreign Exchange Business (2020 Edition)
SAFE Hainan Circular [2020] No. 22 – Notice on Supporting Offshore Trade FX Management in Hainan FTP
II. Capital Inflows and Usage #
1. Capital Inflow Policy #
Administrative approval by SAFE for foreign direct investment (FDI) and outbound direct investment (ODI) has been eliminated. Banks are authorized to process such transactions directly.
After completing FDI FX registration, enterprises may open capital accounts for receiving foreign capital, repatriated profits, and conducting FX settlement or remittance. No prior SAFE approval is required for:
- Foreign capital inflows exceeding the subscribed capital listed on the business license;
- Outbound investment funds exceeding NDRC filing or MOFCOM approval amounts;
- Foreign debt exceeding the threshold based on net assets.
2. Usage of Capital and Facilitation Measures #
Initially, banks may request payment documentation to process capital account payments. Subsequently, for eligible enterprises, banks may offer payment facilitation services for capital account FX income.
In such cases, enterprises can make domestic payments without submitting transaction documents for each payment, relying instead on a Payment Order under Capital Account FX Payment Facilitation Service issued by the bank.
Conditions for Accessing Facilitation Measures: #
- The bank must be connected to SAFE’s Capital Account Information System;
- The bank’s previous year FX compliance rating must be B or above (excluding B-);
- The bank must maintain robust internal control and risk management systems.
Banks retain discretion to offer such services based on due diligence and familiarity with the client’s operations. For unfamiliar or high-risk enterprises, banks may restrict access. Post-transaction sampling reviews may be conducted.
III. FX Compliance in Trade Transactions #
1. Review Principles for Cross-Border Trade #
Under SAFE Hainan Circular [2020] No. 22, banks shift from ex-ante review to post-transaction audit for cross-border and offshore trade transactions in Hainan FTP.
“New offshore international trade” is defined as trade between residents and non-residents where goods do not physically enter or leave China’s customs territory and are excluded from China’s customs statistics, including:
- Offshore resale (back-to-back transactions);
- Entrusted offshore processing;
- Third-country procurement.
Funds flowing between:
- Free Trade Accounts (FT Accounts),
- Non-resident accounts within and outside the mainland,
are subject to macro-prudential regulation.
Banks must comply with AML, CTF, and anti-tax evasion obligations, and perform “know your customer” (KYC), “know your business” (KYB), and due diligence reviews when handling FT Account transactions.
2. Compliance for Current Account Transactions #
Current account FX payments and transfers are not subject to approval, provided that transactions are genuine and lawful.
New offshore trade transactions fall within the current account FX category, and compliant FX income and payments are not subject to restriction.
When handling these transactions, banks must follow the 2020 Operational Guidelines (SAFE Circular [2020] No. 14) and apply standard KYC/KYB and due diligence principles, focusing on:
- Authenticity and legality of transaction documentation;
- Commercial rationality of trade arrangements.
Banks may determine on a case-by-case basis which documents to review.
IV. Profit Repatriation #
1. Distribution and Loss Recovery Requirements #
Enterprises must first:
- Offset accumulated losses from previous years, and
- Set aside statutory reserves under the Company Law and relevant foreign investment laws.
Only the remaining after-tax profits may be distributed and remitted to shareholders. If profits are distributed before meeting these conditions, shareholders must return the improperly distributed amount.
2. Calculating Distributable Profits #
Distributable profit is calculated as:
Current period net profit + retained earnings (or – unrecouped losses) + other inward transfers.
It is typically reflected under the “Retained Earnings” line item in the audited financial statements.
Profits that have been declared but not yet remitted are recorded under “Dividends Payable”, and the foreign shareholder’s portion represents the repatriable profit amount.
3. Tax Compliance Requirements #
Profit distribution must comply with PRC tax laws. Upon completing remittance, banks may annotate transaction details on the tax certificate (e.g., Tax Filing Form for Cross-Border Service Payments) and retain a copy.
If tax filing is conducted electronically, the bank must verify the filing record online.
4. FDI Reporting Compliance #
Banks must verify that the enterprise has:
- Completed its Annual FDI Report (Multi-Report);
- Ensured accuracy of submitted data.
If the enterprise has not yet filed or if data is inaccurate, the bank should prompt the enterprise to correct the issue prior to remittance.
Required Documents for Profit Repatriation: #
- Written application;
- Shareholders’ or board (or partners’) resolution on profit distribution;
- Audited financial statements;
- Tax filing certificate (unless exempt under applicable policy).
V. Future Trends in Hainan #
On November 8, 2024, the Hainan Provincial Development and Reform Commission and Department of Commerce released a draft of the Hainan Free Trade Port Foreign Investment Regulation (Consultation Version) for public comment.
Key provisions include:
Article 7 – Market Access Expansion:
The Hainan FTP will continue to expand foreign investment access in sectors such as telecommunications, transportation, healthcare, agriculture, and culture.
Article 21 – Free Inflows and Outflows:
Foreign investors may freely remit capital contributions, profits, capital gains, disposal proceeds, IP royalties, compensation or indemnity payments, and liquidation proceeds in RMB or foreign currency, without restriction on currency type, amount, or remittance frequency.
Foreign employees (including Hong Kong, Macau, and Taiwan residents) may freely remit their lawful income and salaries.
Although still in draft form, the Regulation signals a policy trend toward liberalization of capital flows in the Hainan FTP.
Conclusion #
With the continuous refinement of the Hainan FTP’s policy environment and growing internationalization, enterprises are facing increasingly nuanced FX compliance obligations in their cross-border operations.
By thoroughly understanding and adhering to the legal framework and practical procedures set forth in this guideline, enterprises can effectively mitigate regulatory risk, optimize capital timing, and maximize policy benefits related to capital inflows, trade transactions, and profit repatriation.
Looking ahead, as regulatory frameworks continue to improve and facilitation measures expand, enterprises in the Hainan FTP will enjoy greater development opportunities and be better positioned to integrate into global markets in a compliant and efficient manner.
This article is for informational purposes only and does not constitute legal advice. For case-specific consultation, please contact us. Read our full Legal Disclaimer, which also includes information on translation accuracy.
