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Comprehensive Guide to Closing a Business in China

Foreign investors may choose to close their business in China for various reasons. To legally close a business, investors must follow a series of procedures to liquidate and deregister the company, involving multiple government agencies such as market regulatory bureaus, foreign exchange administrations, customs, tax departments, and banking authorities.

Failing to follow these procedures can lead to severe consequences for the legal representatives and the company’s future operations in China.

Reasons for Closure Common reasons for deregistration include voluntary liquidation, bankruptcy declaration, expiration of the business activity period defined in the company’s articles of association, mergers, disbandment, dissolution, or relocation.

Procedure It is strongly advised that investors do not "walk away" without completing the prescribed procedures. Neglecting these steps can result in severe repercussions, including civil liability, criminal charges, immigration difficulties, loss of property and assets, and damaged reputation, affecting future investments in China.

Steps to Close a WFOE:

1. Form a Liquidation Committee and Prepare an Internal Plan The liquidation committee, comprising the company’s shareholder(s), should formulate and implement an internal liquidation plan. This plan should address employee terminations, asset liquidation, creditor payments, and lease conclusion. The committee will handle all matters related to the deregistration process, including notifying creditors, preparing liquidation reports, and conducting administrative tasks.

Important Tip: Ensure the liquidation plan is approved by the board of shareholders before proceeding with settling debts or distributing remaining returns.

2. Liquidate the Assets The liquidation committee should begin liquidating assets, allocating returns in the following order:

  1. Liquidation expenses

  2. Outstanding employee salaries or social security payments

  3. Outstanding tax liabilities

  4. Any other outstanding debts

If the company’s assets cannot settle the debts, a bankruptcy declaration must be filed with the court.

3. File with SAMR and Notify Creditors The WFOE must file a record with the State Administration for Market Regulation (SAMR) and make a public announcement on SAMR’s website to notify creditors. The notification period is 45 days, or 20 days for a simplified deregistration process.

4. Terminate Employees Begin terminating employees as early as possible, ensuring statutory severance is paid to each employee.

5. Tax Clearance and Deregistration Tax deregistration typically takes four to eight months. The tax authority will collect various documents, including:

  • Signed board resolution

  • Evidence of lease termination

  • Tax filing records for the previous three years

An audit with a local CPA firm may be required to obtain a liquidation report. If successful, a tax clearance certificate will be issued.

6. SAMR Deregistration Application Submit the liquidation report, signed by the shareholder, confirming tax clearances, employee terminations, and settlement of creditor claims to SAMR.

7. Deregister with Other Departments Deregister with relevant departments such as the State Administration of Foreign Exchange (SAFE), social insurance bureau, customs bureau, and other licensing authorities.

8. Close Bank Accounts Close all bank accounts, ensuring the balance in the RMB general account is transferred to the RMB basic account. The RMB basic account must be the final account to close, with the balance directly transferred to the shareholder.

By following these detailed steps, investors can ensure a smooth and legal closure of their business in China, avoiding potential legal and financial pitfalls.

Can Woodburn help you?

 

Woodburn Accountants & Advisors is one of China’s most trusted business setup advisory firms.


Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.

 

Talk to an expert


Schedule a 30-mins complimentary, no-obligation call to see how Woodburn can help you. Book a call with our Head of Business Advisory - Kristina Koehler-Coluccia.

Topics we can advise on include:

  • Company Registration

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Our calls are automatically scheduled via Zoom - or via Teams, WeChat or WhatsApp upon direct request. 

Our advisory calls are available from Monday-Friday from 8am to 5pm CEST and Wednesday until 9pm CEST.

 



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Woodburn Accountants & Advisors is one of China and Hong Kong’s
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