Laws of the People's Republic of China

Circular of the State Administration of Foreign Exchange on Relevant Issues about Foreign Exchange Administration on Duty-free Commodities

Hui Fa [2006] No. 16

April 3, 2006

The branches and foreign exchange management departments under the State Administration of Foreign Exchange in all provinces, autonomous regions, and municipalities directly under the Central Government, the branches in Shenzhen, Dalian, Qingdao, Xiamen and Ningbo; and all designated Chinese-funded foreign exchange banks,

In order to meet the need for the entry/exit personnel who may purchase the duty-free commodities for consumption in the duty-free shops within the territory, and facilitate the operations of the duty-free commodity industry, and accommodate to the growing demand of such traveling personnel as businesspeople and tourists, the following circular is hereby made on relevant issues about improving the foreign exchange control on duty-free commodities:

I.

The "duty-free commodities" as mentioned in this Circular means the import and home-made commodities sold to specific objects as prescribed by the General Administration of Customs by duty-free commodities operating units and duty-free shops according to the kinds of management approved by the General Administration of Customs, including duty-free commodities and duty-free foreign exchange commodities.

The "duty-free commodities operating entities" as mentioned in this Circular means the enterprises that have the qualification for carrying out the business of duty-free commodities operations upon the approval of the State Council or the department authorized thereby.

The "duty-free shops" as mentioned in this Circular means the enterprises established by the duty-free commodities operating entities at the prescribed places for the purpose of selling duty-free commodities upon the approval of the General Administration of Customs.

II.

Duty-free commodities may be priced and settled in foreign currency or Renminbi when they are sold.

III.

When selling duty-free commodities, which are priced and settled in foreign currency or Renminbi, they shall comply with the relevant provisions on the management of Renminbi exchange rate.

IV.

The duty-free commodities operating entities and the duty-free shops may, according to the provisions of foreign exchange administrative departments, open foreign exchange current accounts for the settlement of duty-free commodities.

V.

The quota of the foreign exchange current accounts of duty-free commodities operating entities and duty-free shops shall be 100% approved in the foreign exchange income under the current items of the enterprises.

The range of income of the foreign exchange current accounts of duty-free commodities operating entities shall include: foreign exchange income for operating duty-free commodities and the affiliated expenses, and foreign exchange income transferred into by each duty-free shop and other foreign exchange income under the current items. The range of expenditures shall be the payment made for purchasing the commodities both home and abroad which are operated upon the approval of the General Administration of Customs and the affiliated expenses as well as other foreign exchange outlays under the current items, and the approved foreign exchange outlays under the capital item.

The range of income of the foreign exchange accounts under the current items of duty-free shops shall be the foreign exchange income for selling duty-free commodities and the affiliated expenses as well as other foreign exchange income under the current item. The range of expenditures shall be the payment made for import goods to the operating entities and the affiliated expenses as well as other foreign exchange outlays under the current item, and the approved foreign exchange outlays under the capital item.

VI.

In accordance with the provisions of the State Council that the duty-free commodities operating entities shall be responsible for importing duty-free commodities, duty-free commodities operating entities shall go through the formalities for the purchase and payment of foreign exchange for import and go through verification formalities according to the relevant provisions of foreign exchange control.

VII.

The payment may be settled in either foreign currency or Renminbi when a duty-free shop pays for import goods and the affiliated expenses to duty-free commodities operating entities.

VIII.

The foreign currency cash from the income of selling duty-free commodities by duty-free commodities operating entities and duty-free shops may be deposited into their foreign exchange current accounts. Unless there is necessity to retain a proper scale of changes for the stock due to the turnover of capital, the duty-free commodities operating entity or duty-free shop may not hold large sum of foreign currency cash.

IX.

All of the provisions of this Circular on duty-free commodities operating entities and duty-free shops shall apply to the duty-free commodities enterprises that have the functions of both duty-free commodities operating entities and duty-free shops concurrently.

X.

Other foreign exchange income and expenses involved in the operation of duty-free commodities shall be subject to the relevant state provisions of foreign exchange management.

XI.

The State Administration of Foreign Exchange and its branches and subsidiaries and foreign exchange management departments shall have the right to inspect duty-free commodities enterprises such as duty-free commodities operating entities and duty-free shops and investigate and punish any enterprise that violates the regulations according to the Regulation on Foreign Exchange Management of the People's Republic of China and the relevant provisions on foreign exchange management.

XII.

This Circular shall be carried out 30 days after the day of its promulgation, and the Circular on the Relevant Issues concerning Foreign Exchange Administration of Duty-free Commodities Business (Hui Guan Han Zi [96] No.273 ) shall be abolished simultaneously.

After receiving this Circular, each branch administration of foreign exchange shall forward it to the branches and foreign-funded banks under its jurisdiction as soon as possible. Each designated Chinese-funded foreign exchange bank shall circulate this Circular to its subordinate branches as soon as possible after receiving this Circular. If any problem is encountered in the implementation, please feed them back to the Current Items Administrative Department of the State Administration of Foreign Exchange in time.

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