SAFE Registration Procedures and Compliance Requirements in China

On February 15, 2012, the State Administration of Foreign Exchange (SAFE) issued the “Circular Regarding Issues Relating to Foreign Exchange Administration of Domestic Individuals’ Participation in Equity Incentive Plan of Overseas Listed Companies (huifa[2012] No.7)” (Circular 7) providing that foreigners working in China are subject to SAFE registration if they participate in any form of equity incentive plan with an overseas-listed company.

We provide a brief introduction of the revised SAFE registration procedures and compliance requirements below.

Power of attorney
For SAFE registration and compliance, qualified individuals participating in the same equity incentive plan shall entrust:

• A domestic agent to handle procedures related to SAFE registration, opening of accounts, fund transfers and foreign exchange
• An overseas agent to be in charge of exercising of stock options, purchasing and selling of relevant stock or stock interests, and fund transfers.

Application
Under Circular 7, the required documents for application have been reduced to five items:

1. Application letter: Including the relevant SAFE registration forms
2. Proof of overseas listing: Public notice issued by the listed company that proves the authenticity of the equity-based incentive plans
3. Power of attorney: Letters/agreements appointing the domestic agent in China for registration procedures
4. Employment letter: Proof of the employment relationship issued by the companies in China, including ID number of the employee and the type of share-based award
5. Other documents upon request

The SAFE offices will issue a SAFE registration certificate to the domestic agent once the documents are checked and verified

Post application compliance

• Once the SAFE registration has been completed, SAFE approval is no longer required for conversion of funds. Local banks will be responsible for managing the fund conversion process according to the relevant regulations.
• The local agent should submit a quarterly report to the local SAFE office within the first three working days of the new quarter. The bank should submit monthly reports to the local SAFE office within the first three working days of the month. All the report forms can be found on the SAFE website.
• The local agent should perform an amended SAFE registration within three months after any major change to the original equity incentive plans. Major changes include amendments to the key terms, a change of plans due to an M&A, and other major amendments.
• Local agent should apply for a cessation of SAFE registration within 20 days after the equity incentive plan is terminated.

Special domestic foreign exchange account
A special domestic foreign exchange account is required for handling foreign payments and the collection of money for all domestic individuals participating in the stock incentive plans of overseas listed companies. The local agency is responsible for opening and managing the account.

Stock incentive plans
In the case that domestic individuals need to remit funds from China, the local agency should apply to the local foreign exchange administration for the quota for payment annually by providing:

1. Written application
2. Foreign exchange registration certificate for stock incentive plans
3. Latest filed foreign exchange registration form of domestic individuals participating in stock incentive plans for overseas-listed companies
4. Other relevant materials

After the application is approved, designated banks may handle the respective procedures for purchases and payments of foreign exchange within the given quota.

For fund remittance, the local agency should provide a written application, foreign exchange certificate for stock incentive plans, overseas transaction certificates, and other relevant materials to the designated banks for fund transfers.

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