FAQ: Common Misconceptions on Individual Foreign Exchange Business under the Current Account

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Q: Is there a quota limit on an individual's settlements and purchases of foreign exchange under the current account?

A: Foreign exchange management in the case of individuals follows the general principle of current account convertibility. Therefore, there is no quota limit on an individual's settlements and purchases of foreign exchange under the current account. Individuals may handle real and legitimate current account transactions directly at a bank regardless of the transaction amount, but materials that prove the transaction amount must be provided.

Common Misconception: Exchange settlements and sales under the current account in an amount over US$50,000 cannot be handled at banks.

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Q: What are the policy differences for domestic individuals as far as the management of current account foreign exchange settlements and sales are concerned?

A: There are differences in the management of foreign exchange settlements and sales involving domestic and overseas individuals. One of the differences is the annual facilitation quota; overseas individuals have no obligation to provide foreign exchange to China, thus there is no corresponding annual quota for facilitating foreign exchange purchases for them. Another difference lies in the management focus. The source and destination of foreign exchange together are the key management focus in the settlement/ purchase of foreign exchange for domestic individuals, while for overseas individuals, the source and destination of the renminbi in the settlement/purchase of foreign exchange is the key.

Common Misconception: Policy, transaction handling and material requirements of domestic and overseas individuals' settlements and sales of foreign exchange are all the same.

04

Q: For domestic and overseas individuals, what supporting materials need to be provided for foreign exchange settlements and sales under the current account that do not count against the quota?

Example: the settlement of overseas salary income – individuals may provide an overseas employment contract and income statements.

(2) Overseas individual's foreign exchange settlement under the current account: materials need to be provided proving the authenticity and legal use of the renminbi involved. Example: exchange settlements to pay rent in China – individuals may provide a leasing contract or invoice for their rental payments.

(3) A domestic individual's foreign exchange purchases under the current account: materials need to be provided to prove the authenticity and legality of the use of the foreign exchange. Example: purchase foreign exchange for studying abroad – individuals may provide notice of payment of tuition or living expenses.

(4) Overseas individual's foreign exchange purchases under the current account: materials proving the authenticity and legality of the source of the renminbi. Example: exchange settlement of domestic salary income – individuals may provide a domestic employment contract and income statements (including tax certificates).

Common Misconception: Domestic individuals need to provide renminbi materials proving legality while overseas individuals should provide materials prooving the legality of the foreign exchange.

06

Q: What is the "watch list"? Can individuals on the "watch list" make exchange settlements and sales?

A: Individuals are not allowed to evade quota management and authenticity management through means like splitting larger transactions into many smaller ones. The State Administration of Foreign Exchange maintains a "watch list" management framework for exchange settlements and sales for individuals. Those in the "watch list" are not entitled to make use of the annual facilitation quota during the year they are put on the list and for two years afterwards. When handling exchange settlements and sales, they need to show a current ID card and proof of the transaction amount.

Common Misconception: Individuals on the "watch list" are no longer allowed to make foreign exchange settlements and sales.

08

Q: Following the release of the , how should individuals engaging in new forms of trade, such as crossborder e-commerce or market procurement, handle their exchange collection and settlements?

A: Individuals engaging in new forms of trade, such as cross-border e-commerce or market procurement, may handle their exchange collection and settlements through their foreign exchange accounts, including personal foreign exchange savings accounts. It can be specifically divided into two situations by whether relevant trading materials are needed: settlements of small sum trading can be handled with an individual's ID card using the annual facilitation quota; transactions handled with relevant support materials (showing the transaction amount) or electronic information can be processed without counting them against the quota.

Common Misconception: When handling exchange settlement and sale through personal foreign exchange savings account, individuals must choose from using an annual facilitation quota for all transactions or not using the quota for any transaction.

09

Q: What does the electronic transaction information specifically refer to in the ? Is this the same as an electronic document? What institutions can individuals choose to handle exchange settlements and sales related to new forms of trade?

A: "Electronic transaction information" generally refers to the orders, logistics and payments data generated from online trading, while the term "electronic document" normally refers to electronic formats for contracts, invoices, customs declarations, transportation documents automatically generated or from scanned paper documents. They are not exactly the same thing. Their review methods are also different; electronic transaction information will be reviewed automatically according to certain rules which are often applied in electronic business, while electronic documents are generally reviewed manually, and this is commonly undertaken at a bank counter.

When handling exchange settlements and sales with support materials (including paper and electronic documents showing transaction amounts), individuals may choose any bank which has been deemed qualified to handle exchange settlement and sales operations; when handling exchange settlement and sales with electronic transaction information, individuals may choose any institution or bank which is qualified to handle crossborder exchange payment business.

Common Misconception: Individuals must handle settlement and sales related to new forms of trade at institutions or banks which have obtained cross-border exchange payment business qualifications.

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Q: Are there any differences in foreign currency banknote management practices as far as domestic individuals and overseas individuals are concerned? What are the key areas of foreign currency banknote management?

A: Foreign currency cash has its own particular features. It may not be used in pricing and settlement in China, and according to regulations, citizens can take no more than US$10,000 (or an equivalent amount of other foreign currency) out of the country. Thus, unlike exchange settlements and sales or income and expenditure transactions, the management of foreign currency banknotes is basically the same for domestic and overseas individuals. The key points of the management policy are as follows:

(1) A daily quota management system is in place for foreign currency deposits of both domestic and overseas individuals. Deposits within the quota limit can be handled at banks; deposits exceeding the quota limit require an ID card and supporting materials that can prove the legitimacy of the cash source. Proof of the source can be further divided into two types: a) if the cash was brought in via China customs – the Baggage Declaration Form for Incoming Passengers bearing an official seal of the customs administration must be provided; b) if the cash was withdrawn from a domestic bank – a foreign currency cash withdrawal receipt of the original deposit bank is required. It should be noted that if the foreign exchange remittance/settlement transactions involve cash exceeding the banknote deposit facilitation quota limit and the remittance/settlement facilitation limit, individuals must provide the bank with proof of the source of cash and

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payments in foreign exchange as long as the foreign exchange is owned by the individual or purchased legally.

The key aspect of the management of foreign exchange business of individuals is in settlements and sales. The management focuses on foreign exchange income and expenditure is mainly daily quotas. This quota can also be interpreted as a facilitation quota, that is, for foreign exchange expenditures with an accumulated amount of no more than US$50,000 under the current account, domestic individuals may the transaction processed directly at a bank and using their ID card; if the cumulative amount exceeds this quota, proof of the intended use the foreign exchange will be needed. Cross-border foreign exchange income of domestic individuals under the current account may be directly deposited in their accounts.

Common Misconception: Management, transaction handling and material requirement of domestic and overseas individuals' foreign exchange income and expenditures are all the same.