Meaning
Specialized bank accounts designated by the State Administration of Foreign Exchange hold transaction funds from equity transfers or corporate liquidations executed by foreign investors. Operating as a capital realization account, this structure manages domestic currency or foreign exchange proceeds arising from the disposal of shares or corporate assets in China. It functions as an administrative custody mechanism that ensures the transaction proceeds are validated before they are converted into foreign currency or transferred abroad, protecting both domestic creditors and tax authorities.
Account Purpose
Domestic buyers must transfer the purchase price of the foreign-owned equity directly into this designated account to fulfill their payment obligations. The capital realization account holds these funds securely while the foreign seller prepares the necessary tax declarations and compliance certifications. It prevents the premature repatriation of capital before all domestic liabilities have been fully discharged.
Regulatory Limit
Funds held within this account are subject to strict administrative controls regarding their withdrawal and transfer. No unauthorized domestic payments or loans can be executed using the capital realization account without specific bank approval. The remitting bank must verify the origin of each deposit and the corresponding equity transfer contract before permitting any disbursement.
Audit Pathway
Commercial banks verify the transaction authenticity by reviewing the registered tax clearance certificates and board resolutions. This step ensures that the capital realization account is cleared in full compliance with Chinese foreign exchange rules. The bank then submits a detailed transaction report to the central database to close the administrative cycle.
