Incorporating a WOFE in China is easier now, however, shutting down a WOFE remains complicated as ever. Some foreigners think: if they don’t conduct the annual registration and tax filings, then they can just give up the WOFE. They are wrong, wrong, wrong!
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1. Direct consequence
If any WFOE owner doesn’t conduct the annual registration and tax filings, the direct consequence is the local AIC (Administration of Industry and Commerce) will revoke the business license and the WFOE can’t do business any more, but it doesn’t mean everything related to the WFOE will be eliminated.
Most important, liability to taxes, government fees and employee salaries is still there.
2. Personal liability
Close WFOE properly is very important
First of all, the legal representative, directors and shareholders of the WOFE will be put in a blacklist which will be issued to all SAIC offices in China and PRC border control authority.
Usually, people on the blacklist will not be permitted to do any investment or management of any company for three years, and their entry to PRC will be refused if they want to revisit China someday.
Moreover, if the WFOE owes any taxes, fees, salaries or debts, the legal representative and directors could be prosecuted by the PRC authorities.
3. Best way to do it properly
Technically speaking, anyone who does not have enough funds to maintain the company could file for bankruptcy liquidation with the court based on the PRC bankruptcy laws. However, it seems that no WOFEs are going through this procedure, likely because it is complicated as well as time and fund-consuming.
So let’s de-register it with local AIC.
First, pay all debts, especially all debts to employees (salary) and the government (tax).
Then, go through a long-drawn-out government audit, which is far more complicated and time-consuming than you could ever think of. Considering this, it’s strongly recommended that you do it earlier and have a sound plan for it-in both timing and funds.
Source: Sophie Mao from chinalawhelp.com