Closing a Wholly Foreign-Owned Enterprise (WFOE) in China is not just a bureaucratic formality—it’s a critical legal responsibility with lasting financial and reputational consequences. This guide cuts through the red tape, offering a clear 7-stage roadmap to legally dissolve your WFOE.
Section 1: Why Must You Deregister an Inactive WFOE?
Reason 1: Legal Obligations
Under China’s Company Law (2023 Revision), a WFOE must initiate deregistration if it falls into any of these scenarios:
- Expired business term: The operating period specified in the company’s articles of association has ended;
- Shareholder resolution: All shareholders agree to dissolve the company;
- License revocation: The business license is forcibly revoked due to regulatory violations.
- Court order: The company is dissolved due to shareholder disputes or bankruptcy.
Once any of these conditions apply, shareholders must form a liquidation team within 15 days to handle asset settlement, debt repayment, tax clearance, and other closing procedures. If left unresolved, the company remains “active” in name, exposing shareholders to risks including:
- Personal liability: Shareholders’ personal assets could be seized to repay company debts;
- Administrative penalties: The Market Regulatory Bureau may impose fines or restrict the legal representative’s overseas travel.
Reason 2: Tax Clearance Purposes
Tax deregistration is the most critical step during the company closure process. The company must:
- Settle all taxes (VAT, corporate income tax, stamp duty, etc.);
- Surrender unused invoices and tax control devices (e.g., Golden Tax Disk);
- Submit financial records (ledgers, contracts, bank statements) for the past three years to tax authorities.
Failure to do so will lead to serious financial punishments or even credit issues:
- Snowballing late fees: 0.05% daily interest on unpaid taxes;
- Credit damage: Shareholders and affiliated companies may face blacklisting, harming future investments or financing.
Section 2: How to Deregister a WFOE: A 7-Stage Roadmap
Stage 1: Shareholder Resolution & Liquidation Team Formation
When the shareholders of a company decide to close a WFOE, all shareholders need to reach an agreement and sign a dissolution document, followed by the formation of a liquidation team including the shareholder representatives or directors. It will be responsible for submitting the team’s details to the Market Regulatory Bureau within 15 days and publishing a liquidation notice on the National Enterprise Credit Information Publicity System and a provincial-level newspaper.
Stage 2: Tax Deregistration
The most important step during the company’s closure is to handle tax deregistration, during which process you will need to:
- Settle all taxes: Ensure no overdue payments, including penalties.
- Surrender invoices: Return unused invoices and deactivate tax devices.
- Tax audit: Prepare three years’ financial records for review.
The process usually takes weeks to months. You will obtain a Tax Clearance Certificate from the tax bureau before moving to the next step.
Stage 3: Customs & Foreign Exchange Deregistration (If Applicable)
For businesses engaging in international trade and cross-border transactions, the customs and foreign exchange deregistration is also a must-do, including:
- Customs: Clear all bonded goods, pay outstanding tariffs, and surrender the Customs Registration Certificate.
- Foreign Exchange: Close foreign currency accounts, cancel foreign debt registrations, and return the Foreign Exchange Registration Certificate.
Stage 4: Bank Account Closure
You will then need to present the approval letter to all the banks that you have opened a corporate bank account with to close and deactivate the bank accounts.
Stage 5: Public Notice and Business License Cancellation
After submitting necessary documents to the Market Regulatory Bureau, a public notice for 45 days will be published in the National Credit Publicity System and provincial newspapers. If no disputes arise within this period, the bureau will issue an Approval Notice for Deregistration.
Stage 6: Chop Destruction & Social Security Termination
- Destroy company seals: File with local police to legally destroy all stamps (company chop, financial seal, etc.).
- Cancel social insurance: Settle employee dues and terminate the company’s social security and housing fund accounts.
Stage 7: Final Confirmation
The Market Regulatory Bureau will post a deregistration notice online, officially terminating the WFOE’s legal status.
Conclusion
While closing a WFOE involves layers of bureaucracy, a systematic approach ensures compliance and efficiency. Remember: act promptly, maintain complete documentation, and stay proactive. If the process feels overwhelming, consider hiring professionals like Hongda to release your pressure.
