29 January 2021
China’s State Administration of Foreign Exchange, Shanghai Branch (Shanghai SAFE), has verbally notified our local partner firm, Martin Hu & Partners, that the annual re-registration requirements for equity plans registered with Shanghai SAFE is no longer required.
Companies listed outside of China that wish to offer equity plans in China must register the plan with a local branch of China’s State Administration of Foreign Exchange, known as “SAFE”. Once the registration process is complete, companies can offer share awards to their local employees.
A range of ongoing requirements apply following the registration. The Shanghai SAFE, for example, has historically required quarterly filings, a filing for any significant change to the existing registration, and an annual re-registration process.
What has changed?
The annual re-registration process for equity plans registered with Shanghai SAFE is no longer required.
Shanghai SAFE will continue to require a filing if there is any significant change to the existing registration. As a reminder, any application for a significant change must be made to SAFE or through the designated bank within 3 months after the change.
A ‘significant change’ for these purposes includes (but is not limited to):
- one or more new plans being added to the SAFE registration, or a currently registered plan being removed from the registration;
- significant changes to the offshore listed company, such as a merger or restructuring, and as a result, the information of the listed company and/or the number of the onshore entities are changed;
- a change to the offshore trustee;
- a change to the onshore agency;
- any significant change to the plan implementation related to the cash contribution or transfer, etc.; and
- other significant changes subject to the discretion of Shanghai SAFE.
Any changes to the SAFE registration (including the regular participants’ list update) other than the significant changes, as listed above, are not required to be reported to SAFE regularly but can be registered together with the registration of a significant change.
Our local partner firm also notes that, from 2022, a company may apply for the outbound remittance foreign exchange quota (if it is not a “nil quota”) on a three-year basis. If a quota for any single year is exceeded, that must continue to be updated each year.
We are not aware of any change in process for equity plans registered with a SAFE branch in any other part of China, nor are we aware of any change in the requirements to make quarterly filings with Shanghai SAFE.
When did / will the changes takes effect?
There is no clear effective date for the new policy.
It is likely that any annual re-registration submissions that have already been submitted, but for which SAFE consent has not yet been approved, will be dealt with on a case by case basis.
Our local partner firm note that they have so far only heard back from Shanghai SAFE on one outstanding application for annual re-registration and, in that case, the SAFE official requested that the application be withdrawn, in line with the new policy.
This will be a welcomed development for companies offering equity plans in China under a SAFE registration issued by Shanghai SAFE. The removal of the annual re-registration process and the proposed changes to the quota requirements will remove or minimise an administrative burden for affected companies.
We are seeing an increasing number of global companies offer share awards to employees resident in China, with a significant number of those making a registration with Shanghai SAFE.
The ongoing reporting obligations for SAFE registrations are burdensome and can be complicated, especially if you have a large number of participants and/or need to report on the effect of any local acquisitions or disposals of entities. Whichever province your registration is made in, make sure that you are up to speed with the obligations that apply to you and start your preparations for each filing well in advance.
We would like to thank our partner firm in China, Martin Hu & Partners, for alerting us to this change.
If you have any questions on this alert, please do let us know.
Matthew Hunter and Sonia Taylor