China - Tightening Forex Control on Overseas Equity Incentive Plans

Global Watch ()

Back in 2007, the State Administration of Foreign Exchange (“SAFE”) for the first time issued an internal guideline Hui Zong Fa [2007] No.78 (“Circular 78”) which provides detailed procedural requirements for Chinese employees to participate in their employers’ overseas equity incentive plans. Since then, there have been an increasing number of multi-national companies complying with the foreign exchange registration requirements as stipulated in Circular 78 (commonly known as the “SAFE registration”) for their overseas equity incentive plans in order to facilitate the inbound and/or outbound fund flows properly for their Chinese participants.

Four years down the road, the SAFE has recently taken further steps to tighten the registration requirements by issuing another internal guideline (the “New Guideline”) in February 2012. In this issue, we would like to share with you the salient points of the New Guideline and our observations and suggestions.