In the course of doing business in China, generally the wholly foreign-owned enterprise (“WFOE”) will need to be familiar with the different bank accounts applicable and their respective functions/uses. There are several types of bank accounts commonly used by a WFOE: Foreign Currency Capital Account, Foreign Currency Settlement Account, RMB Basic Account, RMB Tax Payment Account and RMB General Account.
- Foreign Currency Capital Account (Mandatory)
This bank account is used to accept the registered capital (“RC”) from the foreign investor. In addition, when the WFOE needs to increase its RC, the increased amount of RC shall be credited to this account as well.
Its main functions are as below:
l The foreign investor can only inject the WFOE’s RC into the Foreign Currency Capital Account; and
l When the WFOE needs to use the capital in the Foreign Currency Capital Account, it has to transfer the capital into RMB Basic Account or other available bank accounts before utilization.
- Foreign Currency Settlement Account (Optional)
With the Foreign Currency Settlement Account, the WFOE could charge and receive foreign currency directly to its customers. It could also make foreign currency settlement directly from the account.
Funds collected in foreign currency from customers for services can be transferred directly to the Foreign Currency Settlement Account. However, transactions relating to the sale of goods may to be paid to the bank’s pre-checking account (“待核查账户”) which is to be checked by the bank before they are transferred to the WFOE’s Foreign Currency Settlement Account;
When using this account to make payment, the company has to submit both invoice and contract relating to the payment;
The money in the Foreign Currency Settlement Account can be used for payment of travel expenses in foreign currency or, where applicable for payment of salary in foreign currency.
- RMB Basic Account (Mandatory)
It is mandatory for a WFOE to open a RMB Basic Bank Account. RMB Basic Bank Account enables a WFOE to conduct day-to-day transfer and fund settlement, as well as receipts and payments of cash. Each WFOE can only have one RMB basic bank account.
Its main functions are as below:
RMB Basic Bank Account can be used for RMB collections and payments and cash withdrawals;
Salaries and bonus payments can only be paid from the basic account.
There are no restrictions on time and minimum amount for deposits or withdrawal.
- RMB Tax Payment Account (Optional)
RMB Tax Payment Account has to be opened in certain banks which are authorized by the tax bureau for tax payment purpose.
Its functions are as below:
The tax bureau will designate a domestic bank for such account. If the WFOE’s RMB Basic Account is opened at the domestic bank, then a separate tax account is not necessary;
Withdrawal of cash or purchase of the checks for transferring out the funds is not available in the RMB Tax Payment Account. However, it can transfer in the checks issued by other company for tax payment. In this regard, it can only transfer out the funds in the case of liquidation.
- RMB General Account (Optional)
The RMB General Bank Account is similar to the RMB Basic Bank Account and can be used for RMB collections and payments. However, cash transactions and payments for salary and social insurance are not allowed. A WFOE can request for multiple general accounts.
Its functions are as below:
For larger companies, the RMB General Bank Account should be designated for fund collection purposes while the RMB Basic Bank Account can be used for payment purposes. This is for better management of the company’s financial accounts;
For smaller companies, it will not be necessary to have both accounts. The RMB Basic Bank Account will be able to satisfy the needs of its day –to-day operations.