New legislation in China allows a company to register as “dormant” to allow companies to be maintained if no activity

New legislation in China allows a company to register as “dormant” to allow companies to be maintained if no activity.

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In March 2022, new policies came about, allowing companies to go into dormant mode. This was in response to companies that wanted to remain in China but were struggling during the current economic conditions because of Covid.

Recently, China issued the Administrative Regulations of the People’s Republic of China on the Registration of Market Entities and related implementing rules (collectively, Administrative Regulations), which came into effect on 1 March 2022. It brings a new framework for the “dormant” or “inactive” companies.

If a company suffers business difficulties due to a natural disaster, accident, disaster, public health incident, social security incident, etc., the entity may decide to go into dormancy for a defined period.

Before going into dormancy, the company would need to wind down its operating activities, including terminating its employees properly in accordance with the Labour Law and tax and social welfare regulations.

The company shall go through record-filing with the registration authority before dormancy. The registration authority shall publicise information such as the business closure period and the address where legal documents will be served through the national enterprise credit information publicity system.

The dormant period of the company should not exceed three years. If the company carries on business activities during the dormant period, it shall be deemed to have resumed business and shall publicise the resumption through the national enterprise credit information publicity system.

During the dormant period of the company, the address where legal documents will be served may be used in place of the domicile or main premises, but there is no need to have a formally registered office address, and the address could be a correspondence of for instance the accounting firm that would handle the filings. During the period of dormancy, whilst no annual audit is required, there is still a requirement for tax filing to be maintained as nil filings as evidence of dormancy. Also, according to the latest policy, the dormant company still needs to complete AMR annual report, which is the annual business license update.

According to the law, if the company is dormant for a maximum of three years, it shall either come out of dormancy or apply for the de-registration.

What we can do for the entities who are going into dormancy

  • We can help negotiate with its employees on labour relation treatment and other related matters following the law on behalf of the entities
  • We can help negotiate with the landlord for lease termination before going into the dormancy
  • We can help process the record-filing with the registration authority before going into dormancy
  • We can maintain the filings and compliance of the dormant company during its period of dormancy
  • We can provide the services for company de-registration if in the future it is decided that the company is no longer needed
  • We can find a buyer for the dormant company and handle all of the transfer of ownership

The normal ongoing costs allowable for managing a current low transaction company include

  • Bank charges and government fees
  • Compliance costs such as accounting firm fees
  • Other minor and ad-hoc expenses

Conclusion

Acclime China can help companies through the whole process. Please feel free to reach out to us if you have a company that needs to go into dormancy, is for sale, or if you have questions on how to wind down operations in China.


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About Acclime.

Acclime China helps established multinational companies and startups start and operate their business in China. By seamlessly navigating our clients through the complexities of the Chinese laws and bureaucracy, we allow them to reclaim valuable time and fully focus on growing and developing their business.

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