We have already introduced the legal basis and general procedures of liquidation for foreign-invested enterprises in “Exit Chinese Market: Guideline on Liquidation for Foreign-invested Enterprises” from the perspective of Chinese lawyers with rich experience in the foreign investment field. In this article we will further discuss the common issues related to voluntary liquidation of foreign-invested enterprises.

1. Resolution on Dissolution

If the shareholders of the foreign-invested enterprise have reached an agreement about the dissolution of the enterprise or there is only one shareholder in the enterprise, the enterprise can be dissolved by passing a shareholder or board resolution to dissolve the enterprise. Under such situation, there are relatively few obstacles to the liquidation process. And the foreign-invested enterprise can simply follow the usual dissolution and liquidation process. In this case, the main difficulties may come from handling tax matters, including tax settlement and tax registration cancellation, dealing with irregularities and the employee-related issues.

If, however, the foreign-invested enterprise has two or more shareholders and they disagree with each other about dissolution of the enterprise. Then it can be foreseen that the dissolution procedures will await many difficulties. Our suggestion is that in case of disagreement between shareholders, you may refer to the shareholders’ agreement, the contract on joint venture or the articles of association of the enterprise to break the deadlock. In addition, the shareholders may file a lawsuit with the court to dissolve the enterprise according to Article 182 of the Company Law.

2. Tax Matters

Generally speaking, the procedures for tax registration cancellation are the most complex and time-consuming among all the liquidation procedures, especially when the company has records of tax irregularities. Before applying for canceling the tax registration, the taxpayer shall settle the payable taxes, underpaid taxes, late fees and fines, cancel the fapiao and other tax certificates. Only then will the tax authority issue the certificate of tax registration cancellation.

Considering the complexity of canceling tax registration, we recommend communicating with the tax authority (the designated tax officer in particular) as soon as possible after forming the liquidation group, so as to ensure early intervention of the tax authority and reduce the time needed to conduct tax verification. At the same time, the enterprise in liquidation may hire tax professionals to conduct tax audits and issue tax audit reports, which will help the tax authority to speed up accounts auditing, and help the enterprise to judge tax risks in advance as well.

If you have any queries about liquidation of foreign-invested enterprises or intend to engage a Chinese lawyer to assist you with exiting Chinese market, please contact us via administrator@legalandwise.com.

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