Maxxelli
10/8/2023, 1:39:34 AM

THE DEREGISTRATION OF A WFOE

Monst

Adam McWhirter, GMS-T

Managing Director at Maxxelli

If the shareholder(s) deems it beneficial, a WFOE (Wholly Foreign Owned Enterprise) may be terminated before it’s natural conclusion; this may occur if the WFOE isn’t making a profit or isn’t running in the way the shareholder would like.

Although it may be tempting to simply walk away from the WFOE, doing this is unwise for several reasons and can make it much more difficult to conduct business in China in the future. In order to close a WFOE, the shareholder must follow three stages:

  • LIQUIDATION
  • TAX CLEARANCE
  • DEREGISTRATION
Although this can be a complex and time-consuming process, it is essential the procedure is followed properly as the consequences of not doing so can be severe.

What Happens when a company does not follow the China company deregistration rules?

  • According to the Chinese law, the responsible legal representative will be blacklisted and will not be able to even buy an air ticket and train ticket in China.
  • Any overdue penalties should be paid if the legal representative of the company applies for a license for up to three years later.
  • The legal representative of a company that has been revoked is not allowed to engage in any business activities for at least 3 years in China.
  • It could even have ramifcations on flying in or out of China if there were penalities imposed; with the worst case scenario being prosecution.
Liquidation 

Liquidation involves the appointment of a liquidation committee by the WFOE’s board of directors. This should be formed within 15 days after the declaration of dissolution, and is made up of all shareholders. This committee’s responsibilities include:

  • Choosing a member to be a legal representative
  • Preparing a balance sheet and list of all assets
  • Formulating and implementing a liquidation plan
  • Notifying local authorities and creditors about the WFOE’s liquidation
  • Making a public announcement in at least one provincial newspaper within 60 days of the committee being formed
  • Preparing a liquidation report
Tax Clearance 

Next, the company will need to submit a Tax Clearance Declaration Report with both the state and local tax bureaus. These authorities will make sure that all taxes have been paid properly and in full, which is why it’s important to have a competent accountant whilst the company is in operation.

In order for this to be completed, the company must have a backlog of all fapiao’s for every single payment the company made, which must be properly accounted for and ordered. Documents that may be reviewed include company contracts, employee payments and accounting vouchers, and it’s likely the authorities will look at the documents from the past 3 years, so having these is vital.

This process is the most time-consuming stage and will take approximately 6 months if all taxes have been paid properly, or longer if there are any outstanding debts or taxes.
  
Deregistration 

Once this stage has been processed and the bureau has issued a ‘notice of cancellation of tax registration’, the next step is deregistration. For this, the stakeholder of the foreign-owned entity will need to deregister with relevant authorities, including:

  • Tax authorities
  • Customs offices
  • The State Administration of Foreign Exchange (SAFE)
  • The Industrial and Commercial Administration Bureau
Part of this process will involve providing the original document of various registration certificates, such as the Certificate of Approval, Letter of Approval and Business License, so it’s important that original documents are kept safe whilst the company is in operation.

Once this final process is complete and all taxes and employee wages have been paid, any remaining assets may be distributed to the shareholder of the WFOE. Once the business licence has been revoked, the legal status of the shareholder is terminated.

Why it’s important to deregister your WFOE?

There’s no doubt that the whole deregistration process for a WFOE is a complex and time consuming one, however, it is vital you follow the procedure properly as failure to do so can have significant repercussions.

Even if all taxes have been paid properly, improper deregistration of the WFOE can still result in all liable parties being placed on a ‘black list’ by the Chinese government, which is issued to all SAIC (State Administration for Industry and Commerce) offices in China. Because of this, conducting future business in China may prove very difficult; the legal representative will not be permitted to act as a company director for three years, and the stakeholders are not permitted to invest in another Chinese company for three years. Moreover, details of those blacklisted may be passed on to border control officials, making it difficult to re-enter the country.

The consequences are even more serious for WFOEs that have abandoned any owed taxes or debts, as failing to properly pay the required liquidation payments is a crime. If a wholly foreign-owned enterprise is abandoned with unpaid taxes or salaries, the company’s legal representatives and directors can be held personally liable and face criminal prosecution.

Are there other options as opposed to a deregistration?

Yes, it is common for WFOE’s to be sold to an external party, often just for the business license.  Maxxelli will cover selling your WFOE in a future article to be published in April 2020.

What is the Basic Timeline?

Although the process is relatively simple if the accounting is all in order, a common frustration comes from the length of time it takes to full deregister the WFOE, as it can easily be a 6 month process.  Of the 3 steps that take the longest time, the tax deregistration is where many of the roadblocks that slow the process appear.
 
During the local and state review process, once the documents are submitted, there may be questions on historic tax filings that will need to be remedied before moving onto to the next step.  It is this process that is largely out of control of the supporting deregistration firm, as we are left up to the efficiency of the local government authorities.

THE BASIC PROCEDURES:
  1. Clear the tax and submit Tax Clearance Declaration Report (an audit report prepared by CPA firm)
  2. The tax bureau will issue a “notice of cancellation of tax registration”.
  3. Online application for cancellation of WFOE
  4. Submit to Foreign Trade & Economic Cooperation Bureau
  5. Cancellation of Letter of approval and Certificate of approval
  6. Announcement on appointed local newspaper & Cancellation of Company Business Licenses
  7. Dissolution of Organizational Code Certificate (original and copy)
  8. Dissolution registration of Statistics Registration Certificate
  9. Cancellation of Alien Employment Permit
  10. Dissolution registration with customs (applicable to trading, manufacturing WFOE only)
  11. Bank accounts closure and capital repatriation
  12. Cancellation of Company stamps
  13. After all these procedures are finished, State Administration of Industry & Commerce will send a “notice of the approval of cancellation for WFOE.”
The Documents required for WFOE de-registration:

  1. Originals of Certificate of approval, Letter of approval, Business License
  2. Taxation registration certificate (2 originals)
  3. Enterprise Code certification (2 originals)
  4. Statistics registration certificates
  5. Foreign exchange accounts permits
  6. Copy of Legal Representative’s passport (first page, signature page and most recent immigration records’ page)
  7. Bank Account Certificates
  8. All chops of WFOE (Company chop, finance, Legal representative)
  9. All accounting related documents: bank statements, invoices of WFOE expenses
Monst
Adam McWhirter, GMS-T

Managing Director at Maxxelli

Joined Maxxelli in 2008, I am currently the Managing Partner. If you have any queries about our services, please do not hesitate to reach out to me directly a.mcwhirter@maxxelli-consulting.com

Latest articles

Interesting articles

blog
general
What's a Mooncake?

As the Mid-Autumn Festival approaches, the allure of mooncakes captivates millions, transcending generations and time. These iconic pastries aren't merely festive treats but symbols of prosperity, family reunion, and cultural heritage. As integral as they are to the festival’s traditions, mooncakes have also evolved into a flourishing industry with a compelling blend of history, economic significance, and future potential. [Mooncake & Tea] The Historical Roots and Gifting Etiquette A Time-honored Tradition Mooncakes have been synonymous with the Mid-Autumn Festival for over a millennium, dating back to the Tang Dynasty (618–907 AD). Initially, they were used as offerings to the moon and later became a customary snack during celebrations. Associated with mystical tales like that of Chang'e, the Moon Goddess, mooncakes embody themes of reunion, completeness, and festivity. The Art of Gifting In contemporary China, mooncakes are not only enjoyed as a culinary delight but are also an essential element of the festival’s gifting etiquette. Presenting mooncakes to family, friends, and business associates is a gesture of respect and goodwill. Traditional boxes are often richly adorned, underscoring the value and joy of the gift. Notably, mooncakes are best given a few days before the festival begins, allowing recipients time to appreciate and enjoy them during family gatherings under the luminous full moon. Sales Statistics and Trends: A Decade of Growth An Ever-expanding Market The mooncake industry has seen substantial growth over the past decade, driven by factors such as urbanization, increased disposable income, and the expanding middle class. In 2013, mooncake sales in China were approximately $1.2 billion. By 2022, this figure had tripled to over $3.2 billion, indicating a compound annual growth rate (CAGR) of roughly 10%.  Record-Breaking 2023 Sales 2023 witnessed another remarkable year for the mooncake industry, with sales surpassing $3.5 billion, marking a 7% increase from the previous year. The growth trajectory not only reflects domestic consumption but also embodies the industry's global reach, with a notable increase in exports catering to the Chinese diaspora and international enthusiasts of Asian cuisine. Influence of Large Brands and High-profile Collaborations Innovation Luxury brands and high-profile collaborations have dramatically influenced the mooncake market. Companies like Starbucks, Häagen-Dazs, and Godiva have introduced unique mooncake offerings, blending traditional ingredients with contemporary flavors like matcha, coffee, and chocolate. Celebrity Endorsements and Designer Packaging Another significant trend is the partnership between mooncake manufacturers and fashion designers or celebrities. For instance, in recent years, Mao Tai and Max Mara co-branded mooncakes that featured exquisite packaging designed by the Italian fashion house, making them standout gift choices. Such collaborations enhance the appeal of mooncakes, especially among younger consumers who value high aesthetic and brand recognition. Mooncake E-commerce Boom Platforms like Alibaba and JD.com have driven the e-commerce mooncake surge, offering consumers convenient access to a variety of brands and flavors. Online pre-sales often see sales records being broken, as people prefer the convenience of having these celebratory delicacies delivered to their doorsteps. Projections for 2024: A Bright Future Ahead Market Sustained Growth With the Mid-Autumn Festival secure in its role as a pivotal cultural event, industry analysts project mooncake sales to approach or exceed the $4 billion mark in 2024. Emerging markets, including those within Southeast Asia and among the global Chinese market, are anticipated to contribute to this growth. Sustainable and Health-Conscious Trends Adding to this growth trajectory are trends emphasizing sustainability and health. Consumers are becoming increasingly conscious of packaging waste and the caloric content of traditional mooncakes. This has nudged producers towards developing eco-friendly packaging and low-sugar, low-fat alternatives, broadening their demographic appeal. Companies making strides in providing healthier options, including those using organic ingredients, are poised to gain significant market share. Innovative Flavors and Formats Fruit and nut varieties, frozen mooncake innovations (such as ice cream-filled mooncakes), and even vegan options are expected to continue expanding their foothold in the market. Furthermore, engagement with augmented and virtual reality experiences linked to these delicacies could appeal to tech-savvy consumers. Cultural Heritage Meets Modernity As mooncakes continue to stand at the confluence of tradition and innovation, one thing remains clear: they are much more than baked goods. They are carriers of culture, embodiments of seasonal joy, and fascinating examples of how reluctant heritage can propel an industry year after year. In conclusion, as we look forward to the Mid-Autumn Festival in 2024 and beyond, it is evident that mooncakes will not only continue to be a linchpin in the celebration but will also keep evolving in ways that honor their rich history while embracing the future. The mooncake industry, bursting with potential, promises more delicious innovations that will keep both our taste buds and traditions alive.

blog
general
Full Moon Festival

As we approach the Full Moon or Autumn Festival, also known as the Mid-Autumn Festival, it's time to delve into the rich history, traditions, and cultural significance of this cherished holiday in China. Beyond its historical roots and vibrant customs, the festival has given rise to a booming industry centered around its most iconic delicacy: the mooncake. [Full Moon 2024] A Glimpse into the History The Mid-Autumn Festival, celebrated on the 15th day of the eighth lunar month, is a time-honored tradition in Chinese culture, dating back over 3,000 years. It correlates with the autumn equinox when the moon is believed to be at its fullest and brightest. Initially an occasion to worship the moon and express gratitude for the autumn harvest, the festival has evolved into a broader celebration of unity, family, and bounty. The origins of the Mid-Autumn Festival are steeped in folklore. One of the most popular legends is that of Chang'e, the Moon Goddess. According to the tale, Chang'e swallowed an immortality elixir and ascended to the moon, where she continues to live to this day. During the festival, devoted families set up altars to honor Chang'e, believing that she brings blessings of harmony and prosperity. Traditions and Customs  Moon Gazing One of the festival’s most evocative traditions is moon gazing. Families gather outdoors to admire the luminous full moon, an experience often accompanied by heartfelt conversations, shared memories, and the symbolic aspiration for reunion and completeness. Lanterns Colorful paper lanterns, carrying good wishes, are lit in homes and public spaces. They come in myriad shapes and sizes, illuminating nights with their soft, enchanting glow. Children carry these lanterns and play moonlight games, contributing to the festival's festive spirit. Dragon and Lion Dances In many parts of China, the Autumn Festival also features dragon and lion dances. These exhilarating performances, accompanied by rhythmic drumming and gongs, are not only mean to entertain but also to usher in good luck and drive away evil spirits. Mooncakes: The Heart of the Mid-Autumn Feast No discussion of the Mid-Autumn Festival is complete without mentioning mooncakes. These round pastries symbolize the full moon and the reunion of families. Traditionally, mooncakes have a dense filling made of lotus seed paste, with yolks of salted duck eggs embedded representing the full moon. Modern variations now include a plethora of fillings such as red bean paste, taro, mixed nuts, and even contemporary innovations like chocolate or ice cream. The Mooncake Industry The demand for mooncakes soars as the festival nears, making it a significant industry in China. According to recent statistics, 2023 saw impressive sales figures, highlighting the industry's expansive growth. The mooncake market in China surpassed $3.5 billion in sales, reflecting an increase of about 7% from the previous year. This growth is driven by both traditional preferences and new, innovative varieties that cater to evolving tastes and global palates. Luxury mooncake gift boxes – adorned with intricate designs and often including high-end ingredients like bird's nest or gold flakes – are immensely popular. Major brands collaborate with international designers to create aesthetically appealing packaging, making mooncakes not just edible delights but cherished gifts. Businesses and corporations also capitalize on the festival, using mooncakes as a means to foster relationships and express gratitude to clients and employees. The Essence of Celebration: Family and Unity While mooncakes and festivities captivate with their charm and flavor, the essence of the Mid-Autumn Festival lies in the bonds it strengthens. For many, it is a rare opportunity to reunite with family members scattered across cities or even continents. The act of sharing a mooncake, quintessentially round, mirrors the wholeness and unity aspired by families. The Full Moon or Mid-Autumn Festival is a testament to China's rich cultural heritage and the power of tradition in forging the communal spirit. Whether it’s through the glow of lanterns, awe-inspiring legends, or the savory-sweet taste of mooncakes, the festival is a glorious manifestation of togetherness, gratitude, and celebration. As we carve out moments beneath the full moon this season, it's a beautiful reminder of both the ancient stories that bind us and the enduring love that connects us, illuminating our shared humanity even in the most modern of times. 

blog
general
Religion in China

Moving to a new country involves a true cultural immersion and understanding of the fabric that holds society together. For many, this includes gaining insights into the religious landscape. China, a land of rich traditions and rapid modernization, offers a unique religious environment that is worth exploring for any expat. This brief overview of religion in China aims to offer a sensitive and informative perspective. For your specific city and locations of worship, be sure to consult with your Maxxelli Consultant. [Temple] Traditional Chinese Religions Buddhism Buddhism, brought from India around the 1st century AD, has become one of the most widespread religions in China. Its influence is evident in numerous temples and daily practices among many Chinese people. The teachings of compassion and mindfulness resonate deeply in Chinese culture, influencing art, philosophy, and everyday practices. Taoism Taoism, an indigenous religion founded by Laozi, emphasizes living in harmony with the Tao (the Way), which is the essential, unifying force of the universe. Taoist philosophy and practices such as Tai Chi and traditional Chinese medicine play significant roles in Chinese life. The religion teaches balance, simplicity, and humility, reminding adherents of the importance of nature and inner peace. Confucianism While often debated as a religion, Confucianism is better described as a philosophical and ethical system. Founded by Confucius, it focuses on morality, family loyalty, and social harmony. Confucian thought deeply influences Chinese society, highlighting the virtues of respect, proper conduct, and the importance of education.  Imported Religions Christianity Christianity has existed in China since at least the 7th century, reaching widespread influence through various missionary efforts in the 16th and 19th centuries. Presently, it consists of various denominations, with the largest being Catholicism and Protestantism. Government-approved Christian gatherings occur in officially sanctioned state churches. Islam Islam arrived in China around the 7th century as well, making its way through the Silk Road. Predominantly practiced by ethnic minorities, , Islam has maintained a constant presence. Mosques are scattered across regions with substantial Muslim populations, notably in Northwest China.  Other Beliefs China is home to an array of other religions brought by expatriates or ethnic groups, including Hinduism, Sikhism, and Judaism. Though these communities are smaller, they also contribute to the country's religious diversity. The religious landscape in China is extremely fluid, with many Chinese people practicing a mixture of Buddhism, Taoism, and Confucianism. Furthermore, secularism holds a significant presence in the country, catalyzed during the 20th century by policies promoting atheism and materialism. It’s essential to understand that in China, the practice of religion is overseen by the state, aimed at maintaining social harmony and stability. The government actively regulates religious activities, emphasizing that they align with socialist values. Officially recognized religions include Buddhism, Taoism, Islam, Protestant Christianity, and Catholicism. Religious Practices for Expats As an expat, practicing your faith in China is generally permissible under the regulations set forth by the government. Public religious gatherings must take place in state-sanctioned venues. However, private worship and adherence to personal beliefs are generally accepted within homes and designated spaces. When practicing or discussing religion in China, ensure you approach the subject with respect and sensitivity. Understanding the historical context and current regulatory stance will help you navigate your religious practices without inadvertently causing offense or misunderstanding. Being well-informed about local traditions and regulations helps build better relationships with your hosts and enriches your stay in this fascinating country. Expats in China find themselves amidst a unique tapestry of beliefs, traditions, and modern regulations. Understanding and respecting this landscape allows for a more fulfilling experience both personally and within the wider community.  Again, for your specific city, if you are looking for a place of worship, please be sure to reach out to your Maxxelli Consultant directly - we are happy to support and make the needed connections.

blog
general
Didi Pet Trasportation

Relocating to a new country comes with its own set of challenges, especially when you have furry companions. For many expats in China, one of the significant hurdles has been finding convenient and pet-friendly transportation. In the past, traveling with pets, especially larger dogs, often meant facing rejections from 95% of Didi and taxi drivers. Fortunately, those days of struggle seem to be coming to an end, thanks to Didi's newly launched Pet Option. ["How much is that doggy in the window..."]   Didi Pet: A Game-Changer for Pet Owners   China’s leading ride-hailing service, Didi Chuxing, has recognized the need for a pet-friendly travel solution and has introduced the "Didi Pet" option on their app. This new feature is incredibly convenient for expats and locals alike, ensuring that both small and large pets can be transported hassle-free.   How It Works   To book a “Didi Pet” ride, follow these simple steps:   1. Open the Didi App: Ensure your app is updated to the latest version. 2. Select the “Pet” Option: Under the service types, you’ll find a new category labeled "Pet." 3. Input Your Destination: Enter your pick-up and drop-off points just as you would for a regular ride. 4. Book Your Ride: Confirm your booking and wait for a pet-friendly driver to arrive.   Benefits of Using Didi Pet   - Comfortable Rides: Vehicles are prepped for pet travel, often including pet seat covers and other accommodations. - Trained Drivers: Drivers opting for pet rides usually receive guidance on how to handle pets safely and respectfully. - Peace of Mind: No more worrying about being rejected by drivers due to your furry buddy; you can now travel with ease.   An Alternative: Hualala for Pet Transportation   While Didi Pet is a suitable solution for urban pet travel, there might be occasions when you require specialized pet transportation, especially for longer distances or specific needs, such as moving homes. In such cases, Hualala, a cargo and logistics service, also provides for pet travel.   How Hualala Works   1. Download the Hualala App: Available on both iOS and Android platforms. 2. Detail Your Requirements: Provide specifics about your pet, travel distances, and any special considerations. 4. Confirm and Book: Confirm the booking and wait for your assigned Hualala vehicle.   Advantages of Using Hualala   - Specialized Services: Tailored for pet transportation, including ventilated trucks or vans, care packages, and even professional pet handlers. - Flexibility: Suitable for long-distance travel, making it ideal for relocations or inter-city travel. - Reliability: Trusted by many for cargo and now pet transport, ensuring your pet’s safety and comfort over longer or more intricate journeys.   The Hualala’s might not be as clean as a Didi car being a cargo transport vehicle, but they do accept larger pets.   Both Didi Pet and Hualala offer incredible ease of movement for pet owners in China. Choose Didi Pet for shorter, urban travels and spontaneous trips around the city. A suitbale backup option is ordering a Hualala.   As an expat living in China, these new transportation options truly enhance the pet ownership experience. Whether you’re off to the vet, exploring new parks, or heading out on a long journey, your pets can now accompany you without the stress of finding accommodating transport. Travel freely and confidently, knowing your furry friends can come along for the ride.