Winding Up A Foreign Invested Company in China
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China company deregistration, also called China company cancellation, China company liquidation, China company dissolution, refers to wind up a domestic-owned or foreign invested company in China. When a foreign investor or parent company decides to shut down the operations of a wholly foreign-owned enterprise (WFOE) subsidiary in China, it is crucial to follow the formal legal process for liquidation and deregistration.
How to Close Down Your Business in China
Normally, there are three ways to close down a foreign-invested Company in China.
1. Formally dissolving the Company. The process will take around 1 year and is very complicated to handle. However, this is the safe way for the shareholder the dissolve the Company athough it is relatively time-consuming.
2. Filing for bankruptcy liquidation. If the Company is in bad finance situation and can not pay up the salaries, taxes or debts, then this is the way the company can be closed down.
3. An informal petering out. Due to the time and costs involved in the above two scenarios, this option makes the most sense for those companies that decide to back out from China and no plan to establish a new business in China in the near future.
General Cancellation Procedures
1. Liquidation
The liquidation process for a solvent WFOE requires many steps that must follow a precise timetable. Firstly, the WFOE’s board of directors must draft a resolution to terminate the operations and appoint a liquidation committee. Following notification to local authorities and creditors, a pre-liquidation audit will determine the WFOE’s assets and liabilities, from which a liquidation plan is created. Where liabilities exceed assets, the WFOE must enter into bankruptcy liquidation, which is controlled by the courts. A solvent WFOE may sell its fixed assets and use proceeds to pay off liabilities. Finally, a second audit and completed liquidation report must be submitted to authorities for approval.
2. Tax clearance
During tax clearance, a considerable amount of documentation must be submitted, including the current year tax return, the liquidation tax return, a VAT settlement for liquidation activities, previous statutory audit reports, and other documents as requested. It is therefore extremely important that a WFOE maintains complete and accurate records throughout its operational period.
3. Deregistration
After tax clearance, the WFOE proceeds to cancel registrations with a variety of government agencies. As part of this process, the originals of the various registration certificates must be returned, so it is critical that the originals be safeguarded during the operational period. When this process is completed, remaining WFOE assets/funds may be remitted back to the foreign investors.
Note: If a foreign invested company fails to do so, the Legal Representative can be pursued for all outstanding debts and/or taxes, penalties and interest owed to the government, while the foreign investors can face penalties and be banned from conducting any business in China for lengthy periods.
Contact Us
If you have further inquires, please do not hesitate to contact Tannet at anytime, anywhere by simply visiting Tannet’s website english.tannet-group.com, or calling Hong Kong hotline at 852-27826888 or China hotline at 86-755-82143422, or emailing to tannet-solution@hotmail.com. You are also welcome to visit our office situated in 16/F, Taiyangdao Bldg 2020, Dongmen Rd South, Luohu, Shenzhen, China.
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