Rep Office Ceilings and the Month They Start Costing Money
Representative offices incur deemed expense taxes up to 13.2% from inception; cumulative tax drag and dispatch fees make WFOE conversion optimal by month 18.
Deregistration Sequence
Meaning
Administrative procedures for closing a legal entity in China require a specific order of approvals to ensure all tax and social liabilities are cleared. This deregistration sequence begins with the formation of a liquidation committee and the public announcement of the intent to dissolve the company. Only after the tax bureau issues a clearance certificate can the final application be submitted to the market regulator.
Liquidity Settlement
The liquidation committee must first identify all corporate assets and notify all known creditors of the impending closure. A formal announcement on the National Enterprise Credit Information Publicity System must run for forty-five days to allow for any unknown claims to be filed. During this period, the committee prepares a report that details the distribution of assets and the satisfaction of outstanding debts.
Tax Clearance
Obtaining the tax clearance certificate is the most complex stage of the deregistration sequence and often requires an audit of the last three years of operation. The tax bureau reviews all historical filings and vat invoices to confirm no underpayment exists. If the bureau finds discrepancies, the company must pay the back taxes and any associated penalties before the clearance is granted.
The scrutiny ensures that the state recovers all due revenue before the entity vanishes from the tax rolls. This stage also requires the cancellation of the company’s invoice issuance system and the return of any unused official tax receipts to the local bureau.
Final Cancellation
Submitting the tax clearance and the liquidation report to the State Administration for Market Regulation marks the end of the corporate existence. The registration authority cancels the business license and notifies other departments like the customs office and the social security bureau. Once the business license is revoked, the company must destroy its official seals and close its remaining bank accounts.