Common Misconceptions on Individual Foreign Exchange Business...
Title : Common Misconceptions on Individual Foreign Exchange Business under the Current Account
01 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.
02 Q: What is the annual quota for the facilitation of settlements and sales?
A: Although settlements and purchases of foreign exchange under the current account for individual customers can be handled at a bank regardless of the transaction amount，the Detailed Rules for the Implementation of the Measures for the Administration of Individual Foreign Exchange (SAFE Document [2007] No. 1) stipulates there is a facilitation quota of US$50,000 (or equivalent) per person per year for individuals. Domestic individuals may conduct settlements and purchases of foreign exchange，while foreign individuals may handle their settlement of foreign exchange directly at banks as long as transactions do not exceed the quota limit. An ID card is required but no related documents are required as proof of a transaction.
Common Misconception: The annual facilitation quota is equal to the "quota limit" on individuals each year.
03 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?
A: Specifically，this can be divided into the following four situations based on the transaction details and the subject’s identity:
(1) A domestic individual's foreign exchange settlement under the current account: materials that demonstrate the authenticity and legality of the foreign exchange source need to be provided. 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.
05 Q: Can domstic individuals purchase insurance abroad and make foreign exchange purchases and payments to pay insurance premiums? What about compensation payments received under an insurance policy?
A: The answer depends on the specific nature of the insurance to be purchased. Personal accident insurance and medical insurance that domestic individuals buy for use during overseas travel，study or business trips are service trade transactions under the current account. That means they are permitted and supported under the policy framework of foreign exchange management. Domestic individuals may make purchases，payments and settlements of foreign exchange with the relevant formalities. However，the purchase of life insurance and some other types of insurance are considered to be transactions under the financial and capital accounts and are not yet allowed. As a result，relevant formalities cannot be handled.
Common Misconception: Formalities for purchases，payments and settlements of foreign exchange related to insurance are all off limits – or all permitted.
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.
07 Q: What major policy changes are there in the Notice by the State Administration of Foreign Exchange of Supporting the Development of New Trade Forms (SAFE Document [2020] No.11)，that involves individual business?
A: Major policy changes for individual business cover three areas: First，the business is directed at satisfying an individual's needs in foreign trade settlement. The Notice stipulates that individuals may conduct foreign exchange settlement under cross-border e-commerce and market procurement trade through their personal foreign exchange accounts. Second，it improves exchange settlement of funds of individuals from the market procurement trade. The Notice made it clear that for enterprises and individual businesses that have made a filing on the market procurement trade platform，banks may refer to the filing information on the platform and handle third-party customs declarations，exports，and exchange collection and settlement business in the name of the individual. Third，it broadens the settlement channels for new forms of individual trade. The Notice supports qualified banks in providing cross-border settlement services for enterprises and individuals with cross-border e-commerce，market procurement trade，and comprehensive foreign trade services based on the respective electronic information related to the transaction.
Common Misconception: New forms of individual trade can only be handled through the individual’s settlement account; An individual’s collection and settlement of foreign exchange under market procurement must maintain a consistency between the flow of goods and the flow of funds. New forms of individual trade using electronic information from a transaction can only be handled through payment institutions.
08 Q: Following the release of the Notice，how should individuals engaging in new forms of trade，such as cross-border 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