CHINA UPDATE:
Circular 78 to be Replaced - Simplified SAFE Filings Expected
The Alert:
As you are likely aware, employee equity offers in China are
subject to strict foreign exchange processes under Circular 78 issued in
2007 by the State Administration of Foreign Exchange (the
"SAFE"). Under Circular 78, public companies wishing to
grant stock options or restricted stock units to employees in China or
offer them the opportunity to participate in an employee stock purchase
program must first complete a somewhat arduous registration with the
SAFE. Although the specific requirements differ by province,
companies must also track and report all equity transactions to the SAFE
on a quarterly basis, and an annual renewal filing is also generally
required.
However, based upon recent discussions with the Beijing SAFE, it is
anticipated that the SAFE will soon issue a new circular to replace
Circular 78. The exact date is not clear yet, but the new circular
will likely provide simplified procedures for the SAFE filings, as well
as additional guidance regarding companies' internal administrative
processes in relation to employee equity. Furthermore, the Beijing
SAFE has informally advised that current applications for SAFE approval
should be held until the new circular is published, although for now the
Shanghai SAFE is still accepting submissions. Companies should
consult with counsel regarding any pending or upcoming SAFE filings, and
we will of course continue to monitor the developing law and keep you
updated.
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