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The Impact of Failing to Close WFOE in China

Updated:2019-9-25 11:02:20    Source:www.tannet-group.comViews:195

As will be fully described below, the Chinese government has already revoked the business license of WFOE. As the legal representative of the WFOE, you are required to carry out a proper liquidation of the company. Such liquidation requires payment of taxes, payment of salary to employees and payment of all major debts of the company. This has not been done. In this situation, you will be held personally liable for damages caused by nonpayment. This means that your entry into the PRC may be barred. More seriously, it could mean that you could be arrested after entry into the PRC. For this reason, you should not enter the PRC until after a proper liquidation of the WFOE is completed. If such liquidation is not possible or if the shareholders choose not to liquidate, you should not enter into the PRC for at least the next three years, if ever.

When a license is revoked, the following is required:

1.The company must immediately cease doing business. This means, for example, that all websites and other public announcements where the company offers to do business in China must be taken down.
2.The official company seals must be collected and deposited with the licensing authority.
3.All taxes and fees owed to the national and local governments must be paid.
4.All salary owed to employees must be paid.
5.The legal representative (you) and the directors of the company must immediately liquidate the company in accordance with the China Company Law and local procedure. All company assets must be used to pay creditors in accordance with the liquidation procedure. Use of the company assets for any other purpose is a crime.

You as the legal representative and the other directors are personally liable for any damages caused to creditors for failing to strictly comply with the above requirements. In this case, since the amount of tax owed is significant, the risk for failure to follow these rules is high.

When a proper liquidation is not completed, the names of the legal representative and the company directors (and sometimes others tied to the company) are placed on a black list. Failure to pay taxes, failure to pay employees and failure to pay a major creditor are normally noted on the black list. The black list is shared with the PRC border control authority and those on the list are usually denied entry into China. This is particularly common in Shenzhen for persons entering the PRC from Hong Kong. Though not common, persons named on this list are sometimes allowed to enter China and then immediately arrested. Entrance and arrest is more likely if the monetary amounts are large or if a government agency is involved (taxes and fees). For this reason, you should not to enter into the PRC until after a proper liquidation of WFOE has been completed.

The following are the major legal consequences resulting from the revocation of the WFOE business license:

1.As legal representative, you will not be permitted to act as a director, manager or supervisor of a Chinese company for at least three years from the date of revocation.
2.The shareholders of WFOE will not be permitted to invest in another Chinese company for at least three years from the date of revocation.
3.The name of the company cannot be used for at least three years from the date of revocation.

4.The name of the company, the representative director, the shareholder and the directors (and perhaps others tied to the company) will be placed on a national “black list” maintained by the Chinese police, border control authorities and State Administration for Industry and Commerce (SAIC). The black list period is normally for three years. However, some local authorities will maintain the black list for five years. During the black list period, it is difficult or impossible for any person or entity named on the list to engage in investment or company management in China. Though not common, such persons may also be denied entry into China. Normally, however, if proper liquidation is completed there is no risk that such persons will be arrested after entry into China. Note though that unless and until your company pays its taxes, employees and major creditors in full, the consequences for you could be much worse and the time frames much longer.

Contact

For more WFOE deregistration, please visit the official website of Tannet Group Limited at www.tannet-group.com or contact us through the following and talk to our professionals:
Email: 2355725105@qq.com
Tel: +86-755-82143410/86-13823131503
Wechat:13823131503

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