By Rainy Yao
For foreign companies looking to expand into the Chinese market, a representative office (RO) is the easiest type of entity to set up, as it entails no requirements in terms of registered capital. However, investors should be warned that in China, deregistering a representative office can be even more time-consuming and complex than setting up a new one. In this two-part article, we detail the full process of deregistering an RO and provide strategic guidance for doing so.
According to the “Administrative Regulations on the Registration of Permanent Representative Offices of Foreign Enterprises” revised in 2013 by the State Council, a foreign enterprise shall apply to the relevant registration authorities for deregistration within 60 days from the date of any of the following:
- The foreign enterprise terminates its RO;
- The RO no longer engages in business activities upon the expiry of its licensed duration;
- The foreign enterprise terminates its business; or
- The RO is required to shut down in accordance with the law.
In practice, however, it is typically impossible to apply within this window of time, as tax deregistration (outlined below) can take more than two months to complete.
The main deregistration procedure is as follows:
Step 1 — Prior to applying to deregister the RO, the enterprise must apply to both its local tax bureau and the State Administration of Taxation for tax audit and deregistration. To do so, the RO must first undergo an audit by a local Chinese CTA firm for taxes owing from the past three years.
Once the audit is completed, the enterprise should submit to the tax bureau a board resolution affixed with the signature and seal of the chairman of the board of directors, as well as a cancellation application signed by the chief representative of the RO. This requires the following:
- An application form
- Business registration
- The original tax registration certificates issued by the taxation authorities (e.g., original copy and duplicate of the tax registration certificate and tax registration form)
- Other relevant documents (including the audit report obtained above)
Should any unpaid taxes or other irregularities be found by tax authorities at any point during this process, the RO may be required to submit additional documentation, pay penalties, or settle any unpaid taxes with the authorities.
Step 2 — The enterprise should close its bank account. Unissued checks and deposit slips will need to be returned to the bank and money in the account should be transferred out. If the RO intends to transfer the account to its parent company, it will be required to provide reasoning for such actions and seek approval from the bank.
Step 3 — The enterprise must deregister with other government departments and authorities including the State Administration of Foreign Exchange (SAFE), Customs, State Administration of Industry and Commerce (AIC), Quality and Technical Supervision Bureau, Public Security Bureau and Statistics Bureau, where applicable.
Here, AIC deregistration represents the core deregistration step, and requires the following:
- A written application for the cancellation of the RO’s registration
- The cancellation certificate from the tax bureau, as obtained in Step 1
- A certificate issued by Customs and SAFE proving that all the relevant matters have been completed
- Other relevant materials required by the AIC
According to the AIC, the cancellation application will be processed within 10 workdays of receipt. If successful, the enterprise will be issued a “Notice of Deregistration” and all the registration certificates will be cancelled, as well as the chief representative’s working card. Announcement of the RO’s deregistration must be listed in a media outlet designated by the AIC, typically being the “China Industry and Commerce Administration Newspaper”.
It is important to note that RO’s business registration and office lease must be valid up until the official notification of deregistration has been issued by the AIC. Following AIC deregistration, the enterprise should apply to deregister with all other relevant government bodies, as listed above.
The total time required for deregistration is typically three to six months (depending on region), but can take over a year in cases containing irregularities, particularly in the tax deregistration phase.
For a consultation on deregistering your representative office (or changing over to a wholly foreign-owned enterprise), please contact the legal professionals of Dezan Shira & Associates at firstname.lastname@example.org.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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