Shutting down your Chinese WFOE is not an easy decision, yet it usually means that all other options have been exhausted. Unfortunately, the shutdown process isn’t a short affair, and must be executed in accordance with a wide list of regulations and requirements. During the gradual shutdown, the WFOE must continue to operate from a reporting standpoint, until the dissolvement is finalized. Closing the company without filing the appropriate reports, paying all taxes and more will lead to fines and irreversible sanctions.
The WFOE shutdown process normally takes at least 6-12 months, and includes a complex regional and local tax file closing stage. The deregistration process timeframe is also determined by the number of employees, number of suppliers and clients, volume of trade in the near and far past, the WFOE’s geographic location, and more. The tax office wants to be sure that there are no lose ends once the WFOE is closed, no open invoices, no payments to pay, no tax refunds unclaimed, and no Accounts Receivables nor Accounts Payable that may come up in a later stage.
PTL Group’s expert shutdown process management
WFOE shutdowns must be executed according to precise protocols. Relying on professional knowledge and expertise, PTL Group’s experts facilitate a quicker shutdown process that covers everything from A to Z. Step by step, we’ll help you achieve your dissolvent goal while continuing the company’s day-to-day operations, as required by law.
Our services include:
- Audit report preparation
- Tax clearance & deregistration
- Licenses deregistration
- Customs invoices and accounts closure
- Bank account closing
- Advanced financial consulting
- Guarding legal documents, stamps, and licenses
- Foreign currency exchange and repatriation of funds
Did you know?
- The Chinese WFOE shutdown process requires a completion of all annual tax reporting at the end of the tax year, as the annual audit reports are considered the starting point for the company’s closing. Therefore, the ideal timing for the WFOE’s closing would be at the end of the financial year, right after the audit reports are confirmed and signed.
- During shutdown, the WFOE’s bank account should be empty and clean with no transactions for several months. Each time there is a transaction, the clock timeline is set back to 0.
- We cannot stress this enough: WFOE dissolution must be done legally, without skipping any key steps. If your company fails to adhere to the legal requirements, then this will result not only in fines, but also on penalties on the company’s directors and shareholders. Also, if it is proven that any damages are caused to the company’s creditors, the WFOE’s legal representative will be considered personally liable.
- Company employees may also be deemed responsible for certain shutdown-related violations. If this is the case, these employees will be blacklisted without delay. Blacklisting will cause them immense professional harm, as it will be updated into the national database.
- The WFOE shutdown includes termination of all assets and obligations, from closing bank accounts and terminating employee contracts, to selling all company assets, closing debts and canceling the company’s chops. This, of course, is just a partial list.
- In case you were wondering, shutting down a WFOE comes with certain costs. Naturally, the company must pay all remaining taxes and debts, but that’s not all. The company must also pay its employees as per their contract indicates, not to mention VAT and custom duties that come with selling or transferring goods as a result of the shutdown. If the shutdown is guided by legal services, as is usually the case, they also carry fees that must be paid.
- In many cases, the WFOE shutdown comes with employee termination. This falls under ‘Termination without Fault’, as it is not due to the employees’ performance or conduct. That said, the termination must be executed in accordance with employment laws, including prior notice, severance pay, and more. Read more on employee termination in China.
- FYI – you can shut down your WFOE and still conduct trading activities in China. How? By relying on an effective and proven trading agent. By collaborating with a local and licensed trading agent – like PTL Group – your products can still be marketed and sold in China, even if you no longer have a business entity in the region. Get more information on Trading Services in China.