Doing business are not always so rosy. There will always be some that do not succeed commercially, or that may have to close because of external circumstances affecting their parent company overseas. Closing down a company in China is a time-consuming and costly procedure.
The procedures for closing a foreign invested enterprise (FIE), its dissolution and liquidation, are no easier or shorter than the process of setting up such a company. Therefore, advises from professional consultancy will help business owners save time and money.
Financial and Tax considerations During liquidation
Foreign invested enterprises in China that undergo liquidation will need to deal with two main tax issues. These are:
Clearance of outstanding tax liabilities: the liquidation committee must meet any potential and actual tax liabilities. After confirmation, the liquidation committee will pay the outstanding tax liabilities to relevant departments.
New tax liabilities during liquidation: the liquidation itself may raise new tax liabilities – for example, fixed asset disposal may raise some turnover taxes, and employee compensation will be subject to individual income tax.
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Winding Up/ Deregistering/Closing Down a Company in China
In China, the procedure for company deregistration is rather complicated, particularly concerning compliance to China Customs and the Tax Authority. In general the process can take between one year and two years depending on the complexity of your enterprise.
After the deregistration process with the local and state administration, the final distribution of funds and closing of bank accounts can begin. Depending on the number of bank accounts existing in China and any remaining balance, the timing for this stage can vary significantly.
Finally the company chops and seals can be destroyed thus completing all procedures for a compliant liquidation and deregistration of a china based WFOE or RO.
Failure in Abide by the Legal Process
Failure to properly liquidate and deregister a foreign-owned company in China can have dire consequences for the parent company, and for the legal representative. Winding up a foreign invested enterprise in China is a complicated process, strictly governed in accordance with the relevant laws. The foreign investors of a FIE are strongly advised to follow the laws and proper liquidation procedures rather than attempting to abandon the investment. If failed 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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