To further promote the replication and spread of the reformation and pilot experiences in the pilot free trade zones in providing more steadfast support to the economic development of entities providing services, the State Administration of Foreign Exchange promulgated the Circular on Issues Concerning Foreign Exchange Administration of Financial Leasing Businesses (hereinafter, the “Circular”) on October 12, 2017 to allow the collection of rent denominated in foreign currencies in financial leasing businesses. Please refer to the following specific requirements.
This Circular primarily applies to three types of entities, namely, financial leasing companies set up with the approval of bank regulatory authorities, foreign-invested financial leasing companies set up with the approval of commerce authorities, and Chinese-invested financial leasing companies jointly recognized by the Ministry of Commerce and the State Administration of Taxation.
Pursuant to the Circular, when the above financial leasing companies engage in financial leasing work, the rent collected may be in foreign currencies provided that certain conditions should be met, namely that if over 50% of the funds used to purchase the leased objects is derived from domestic foreign exchange loans or foreign currency debts.
Lessees that meet the above conditions may go to a bank to conduct the relevant foreign exchange transaction procedures on their own. However, supporting documents shall be provided to the bank, including the payment notice for foreign currency-denominated rent, documentation sufficient to prove that over 50% of the lessor’s funds for purchasing the leased objects is derived from domestic foreign exchange loans or foreign currency debts of the lessor, as well as any other authenticity-related supporting materials required by the banks. On the other hand, the Circular also specifies that foreign currency rental income generated by a financial leasing company may be deposited in a foreign exchange account set up at a bank by that company pursuant to applicable requirements. The bank may handle the foreign exchange settlement with respect to the amounts in excess of that needed for repayment of foreign currency debt.
The release of this Circular reduces the formalities for using foreign exchange by the lessor and the lessee in the financial leasing process, provides more means of settlement for enterprises, as well as contributes to the efficient use of their capital.