International Law

Shutting Down A China Rep Office Without Going To Jail.

By Dan

The absolute strangest thing just happened. I was about to write a blog post on what it takes to shut down a China business, but I wanted to read my emails first. In my emails was the following email, which I have not changed even one bit:

I've just been browsing your Chinalawblog which is an invaluable source. I just wish I found it 5 years ago!

I have a slight conundrum which I would respect your opinion on.

We are a UK based LLP with a RO in China (under my girlfriend's name who is Chinese). Unfortunately, due to the recent economic downturn, we have no choice but to liquidate the UK Company.

Naturally, we are choosing not to renew our office contract but have been asked to pay some charges: Service charge (that old classic), annual tax audit and tax on the rent.

What is my position regarding these payments if the UK company ceases to exist? My girlfriend has spoken to a lawyer who has told her she will be responsible for these payments as the RO was in her name.

Any advice is much appreciated.

Please feel free to post this on the blog.

Closing down a China Rep Office is not terribly difficult (it is easier than closing down a WFOE), but it must be handled correctly and a failure to do so can lead to all sorts of issues for the home company and for the person who acts as the designated Chief Representative, including jail.

The first thing we typically do when closing down a Rep Office is notify the local tax bureau, which then performs a closing audit on the office.  This audit will reveal any overdue taxes or other issues needing resolution before the dissolving of the Rep Office can occur. The local tax bureau typically will want to see, at minimum all of the Rep Office tax returns since its inception, all tax vouchers, and all tax registration certificates.  

The home company is responsible for any remaining liabilities (both tax or otherwise) of the Rep Office. In all instances that we have handled for our clients, the home office eventually paid all Rep Office debts. On a couple of occasions we have been contacted by people being held at police stations for unpaid debts of the Rep Office, but we have never been hired in that sort of situation.  I say this because we have never researched whether the police are really entitled to hold someone for the unpaid debts of a Rep Office, but I think the important point here is that they do and unless you want to hire lawyers to try to recite the law chapter and verse in an attempt to get them out, the best thing to do is usually just to pay.  

Again though, because my firm has only worked with those companies that have shut down their Rep Office pursuant to law, I would love to hear from others as to what really can happen when the law is not followed. Stories please!

Full post as published by China Law Blog on October 22, 2010 (boomark / email).