Closing a company in China is not always easy and the reasons for the closure are often different. A crucial factor for swift deregistration is ensuring the compliance of one’s entity during the deregistration process. Although tempting, it not advised to ‘walk away’ from an entity in China. Leaving an entity unclosed will surely lead to future restrictions for both shareholders and potentially for individuals involved in the company, such as the legal representative.
When it comes to the company deregistration, one of the most frequently asked questions is the time the deregistration process takes from start to finish. The timeline is dependent on several aspects of the deregistration process. It depends on the efficiency and communication of the service provider, the status of the company, and the speed of the client and the Chinese authorities. Based on our past experiences assisting clients with company deregistration’s, the fastest deregistration took 6 months and the slowest deregistration took 3 years.
Can a company deregistration be shorter and simpler?
The answer to this question is yes, however not for every company. In 2017, the Chinese State Administration for Industry and Commerce’s published the Guide on Comprehensively Promoting the Reform of Simple Deregistration of Registration of Enterprises which came into effect in March of that year. As the name of the legislation implies the Chinese government introduced a reform in the company deregistration process. Since March 2017 there are two approaches to cancel a company: a simple deregistration or normal deregistration. The simple company deregistration process was introduced to further promote enterprise deregistration facilitation and optimise the business environment.
What makes it simple?
In a nutshell, the company deregistration is composed of 5 major steps including liquidation committee organising, public announcement, tax deregistration, business license deregistration, and bank account deregistration. The simple company deregistration process affects 4 of these major steps. To provide a more detailed understanding of the company deregistration process, we will elaborate on the differences based on each operational step:
Normal deregistration: The Liquidation Committee needs to be organised and put on record in the Industrial and Commercial Bureau
Simple deregistration: The liquidation committee does not need to be put on the record.
Normal deregistration: After the establishment of the liquidation committee, at least three liquidation notices shall be published in civic or provincial newspapers approved by the Industrial and Commercial Bureau. Meanwhile, the length of the announcement’s time in print is usually around 45 days.
Simple deregistration: The announcement can be done through the national enterprise credit information system, and the announcement time is compressed from 45 days to 20 days.
Normal deregistration: Tax deregistration is often the most tedious step in the whole deregistration process. There are a whole set of documents to be prepared and submitted to Tax Bureau, meanwhile, the Tax Bureau will check whether the company has paid the tax based on submitted financial statements, tax returns, etc.
Simple deregistration: During the period of public announcement, the tax deregistration can be carried out, and the documents and procedures are simplified. For instance, the enterprise does not need to submit the clearance certificate to the Tax Bureau.
Normal deregistration: During the liquidation period, the liquidation committee needs to prepare a liquidation report and submit to the Industrial and Commercial Bureau for the business license deregistration.
Simple deregistration: The liquidation report is no longer required. The deregistration of the business license can directly be submitted to the Industrial and Commercial Bureau
Other considerations you must not forget
Despite the fact that simple deregistration saves a lot of time, the following factors also affect the deregistration time in general, regardless of the type of deregistration process.
- Taxpayer category: The overall efficiency highly depends on the taxpayer category. Less deregistration time is required for small-scale taxpayers compared to general taxpayers
- Import & Export registration: If the company is engaged in the import and export business, and additional step in the deregistration process is required. The company must also go through a customs deregistration procedure with their local customs administration department
- Social insurance and housing fund account: During the deregistration process, the social insurance and housing fund account deregistration is easily overlooked. If the company does not operate anymore, the account must be cancelled through the Social Security Bureau. It is worth noting that before the account deregistration the company needs to make sure there are no outstanding insurance and housing fund payments to their employees.
Feasibility of a simple deregistration
Compared to a normal deregistration, a simple deregistration saves a lot of time, however it is not always possible for every company. According to the Guide, the simple deregistration is only applicable to both domestic and foreign invested companies, including limited liability companies, non-corporate enterprise legal persons, individual proprietorship enterprises and joint ventures who have not carried out any business operations after obtaining the business license, or have no outstanding creditor’s rights and debts before applying for deregistration of registration.
However, if your company is in one the following situations, then the simple deregistration will also not be feasible. The situations include:
- Foreign-invested enterprises that are involved in the implementation of special access control measures stipulated by the state
- Enterprise listed in the abnormal operation or seriously illegal and dishonest behaviours
- Enterprises with their assets frozen, or that have a pledge or chattel mortgage
- Enterprise which is under investigation or administrative coercion, judicial assistance, or administrative punishment
- The unincorporated branch of the enterprise does not cancel its registration
- The enterprise with termination history in the simple deregistration process
For companies with the above-mentioned abnormalities, it is only possible to apply for the simple deregistration after these abnormalities have been resolved. Furthermore, it is not always clear how a deregistration will be carried out differently for the companies that operate in the fields in the negative list. The only solution is to check with the local government before a deregistration project gets started.
Based on our explanation on the process of company deregistration’s, we hope you have obtained a better understanding on the process of company deregistration and the difference between a normal and simple deregistration. It is worth nothing that the simple deregistration can only apply for companies which meet certain requirements. If you would like to learn whether your business is eligible to undergo a simple deregistration, please feel free to reach out to us. We can make an analysis of your company to see if you are eligible, and also support you throughout the deregistration process!