Don’t Close Your WFOE in China – Freeze it!

January 22, 2023
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If you are an international company doing business in China, we know the last three years might have been difficult for you. While some companies managed to keep their operations going and even thrived, others might not have been as fortunate.

Closing your company might seem like the inevitable next step but you should know that it is a long, painful, expensive, and complicated process. But it is not the only possible solution; Instead of rushing into shutting down your WFOE, we urge you to consider another option – freezing your China operation until you are either ready to pick it up again and continue your work or, only if there is no more hope, to close it completely.

How does it work?

By “freezing” your activity we refer mostly to your duties towards the local tax authorities, as you are required to submit financial reports monthly/quarterly/yearly even if you have minimal activity. Freezing your company could mean reducing that workload, depending on the type of freezing you choose.

There are two ways to freeze a company and you should know that not all companies are qualified to apply. You should consider it if you have minimal business activity and have no more employees or plan to release your employees.

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Deep Freezing

This process is more complicated to go through but will result in less on-going reporting to local tax authorities. It will also allow you to easily proceed to full closure in case you choose to do that. Deep freezing your company still means you can resume operations at some point in the future, so you won’t lose your local name and licensing, but reviving the company again will be a longer process.

Who is this suitable for? Companies that are currently considering leaving the Chinese market altogether but are not yet ready to completely let go. If you are up to a one last push or believe that you could resume in a year or two from now, deep freezing could work for you.

Light freeze

If you still have potential business on the horizon, a light freeze might be a better way for you to go. In this solution, your WFOE can be “revived” much faster than if it was in deep freezing. If at some point you need to issue an invoice (Fapiao) you could still do it with an easy renewal process.  However, you are still required to submit the periodical reports to local tax authorities even if you declare 0 activity.  You may still ask your accountant to reduce your monthly costs since the work he will need to do will be very minimal.

The Immediate benefits

Closing a company in China can be a long and even more complicated process than opening one. This is something to remember even if you haven’t set up your company in China just yet. By freezing your company, you will be delaying this process and earn valuable time to reassess your China market strategy.

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By freezing your company, you could potentially reduce your local expenses as well. We witnessed some companies working in China that had to downsize their operations in the last few years. But they did not want to completely give up on the market without one last fight. Freezing their operations allowed them to reassess their local strategy which seems like a better course of action.

How to get started

A review of your operations’ situation in China as of the end of last year. This might require a review of your company’s status also with the relevant bureaus.

Please note:
1 – During the freezing process, you still need to have a registered address for your WFOE and keep the roles of the legal representative, directors, supervisors, and other necessary roles such as the finance person in charge. Also, check your stamps are still valid and are in a safe place.
2 – You can freeze a company for a period of up to 6 months and no more.

The next step will be to assess which freezing process will better suit your needs and situation. Our team of experts will be happy to review and discuss the options with you.

If you are still hopeful about your opportunities in the Chinese market, this could be the solution for you. Contact us today to check if your business in China can apply for freezing.

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