How to Close a Business in China: Foreign Company Guide

Closing a business in China is often more difficult than starting one. The deregistration process involves multiple government agencies and can take 6-12 months or longer. Here's what you need to know.

Why Proper Closure Matters

Simply abandoning a China entity creates serious problems:

• Ongoing tax obligations accumulate
• Legal representative can be blacklisted
• Parent company remains liable
• Future China business becomes difficult

Closure Options

Voluntary Liquidation

Standard process when company decides to close:

• Shareholder resolution to dissolve
• Form liquidation committee
• Settle debts and distribute assets
• Deregister with all authorities

Simplified Deregistration

Available for companies with:

• No debts or all debts settled
• No pending litigation
• Tax affairs in order
• Faster process (2-3 months)

The Liquidation Process

Step 1: Internal Approval

• Board resolution to dissolve
• Shareholder approval
• Appoint liquidation committee

Step 2: Public Announcement

• Publish dissolution notice
• Creditors have 45 days to file claims
• Notify known creditors directly

Step 3: Tax Clearance

• Final tax filings
• Tax audit (often required)
• Settle any outstanding taxes
• Obtain tax clearance certificate

Step 4: Employee Settlement

• Terminate employment contracts
• Pay severance (N or N+1)
• Settle social insurance
• Handle housing fund

Step 5: Settle Debts

Pay in order of priority:

1. Liquidation expenses
2. Employee wages and benefits
3. Social insurance and taxes
4. Other creditors

Step 6: Deregistration

Cancel registrations with:

• Market Supervision Administration (business license)
• Tax bureau
• Customs (if applicable)
• Foreign exchange
• Bank accounts
• Social insurance bureau

Common Challenges

Tax Issues

• Outstanding tax liabilities discovered
• Transfer pricing adjustments
• Lengthy tax audits

Employee Disputes

• Severance disagreements
• Labor arbitration claims
• Social insurance arrears

Creditor Claims

• Disputed debts
• Unknown creditors appearing
• Litigation during liquidation

Timeline and Costs

• Standard liquidation: 6-12 months
• Simplified deregistration: 2-4 months
• Complex cases: 1-2 years
• Costs: Legal fees, tax settlements, severance, professional fees

Alternatives to Closure

• Sell the company: Transfer equity to buyer
• Dormancy: Maintain minimal operations (still has costs)
• Restructure: Change business scope or structure