Withholding Tax Calculation Rules for Cross Border Capital Account Remittances
Capital account remittances require grossing up net consideration, verifying historical cost basis, and securing online tax recordation before bank settlement.
Foreign Invested Enterprise Liquidation
Meaning
Statutory procedures governed by the Chinese Company Law and foreign investment regulations manage the orderly dissolution, debt settlement, and winding up of a foreign-invested company operating in China. A foreign invested enterprise liquidation requires the formal establishment of a liquidation committee, the settlement of all outstanding debts, and the distribution of remaining assets to the foreign shareholders. This process applies to wholly foreign-owned enterprises, Sino-foreign cooperative joint ventures, and equity joint ventures alike.
It does not apply to companies undergoing court-ordered bankruptcy reorganization or those whose business licenses are revoked for administrative violations.
Tax Clearance
The most prolonged phase of the winding-up process is securing tax clearance from the local tax bureau. During a foreign invested enterprise liquidation, tax authorities audit the company’s financial history for the previous three to five years. Any unpaid taxes, transfer pricing adjustments, or penalties must be settled before the liquidation can proceed.
Asset Distribution
Remaining funds can only be remitted to foreign shareholders after all debts and employee severance packages are paid. The foreign invested enterprise liquidation must be registered with the State Administration of Foreign Exchange to obtain the necessary remittance approvals. Commercial banks will block any attempts to return capital before these clearances are secured.
Company De-Registration
The final step requires the cancellation of the business license and all corporate seals. This de-registration confirms that the foreign invested enterprise liquidation is complete and the corporate entity has ceased to exist in the eyes of the law. This cancels the legal liabilities of the directors.