How to close a Representative Office

WHEN COMPANIES DON'T NEED THEIR REPRESENTATIVE OFFICE (RO) IN CHINA ANYMORE, THEY CAN JUST WALK AWAY - OR DO IT RIGHT.

Manifold reasons

The reasons for no longer needing a RO can be diverse. A company might want to intensify their China operations and therefore use a more versatile business vehicle such as an operating Wholly Foreign-Owned Entity (WFOE). Or the investor chooses to make a "fresh start" if a RO has infringed local regulations, knowingly or not. If a company decides to terminate its business operations in China overall, the RO also has to go.

Simply put, closing a RO is like checking out of a hotel with the authorities inspecting whether all bills have been paid. In real life, it is almost never as easy. The inexperienced will most likely find the process of de-registering a RO cumbersome and full of potential pitfalls. That is why professional service providers offer full support in this area.

Bureaucratic procedure

After a client decides to close its RO in China, Fiducia organises the performance of a Closure Audit Report which has to be presented to the local tax bureau. This closing audit focuses on the Individual Income Taxes of all RO employees. After all tax duties have been cleared and the related certificates and papers (e.g. a written explanation why the RO should be closed) are handed to the local and national tax authorities for approval, Fiducia helps the client to obtain an approval certificate from customs. In order to get this, all outstanding customs duties including any office equipment, car or samples have to be cleared and the required documents to be submitted.

After approval has been granted by both local and state tax bureaus as well as customs, Fiducia helps with the closure of the RO's bank account. This includes the cancellation of the RO's cheque book and other related documents. In the next step, the RO has to be de-registered from the Technical Supervision Bureau and the Statistics Bureau. Finally, the de-registration from the State Administration for Industry and Commerce (SAIC) must be arranged including the return of all company chops. The whole procedure usually takes 8 to 10 weeks, depending on how carefully tax payments have been made in the past.

Easy way out?

Some foreign investors may question the necessity of going through such a lengthy and bureaucratic deregistration process. The option of simply letting the RO's license expire seems tempting - and saves time and paperwork. However, if you fail to properly close your RO on time (30 days before its license expires) you might have to pay a fine of up to RMB 5,000. More threatening is the prospect of being put on a "black list", a penalty that awaits both the foreign investor and the RO's chief representative. This kind of record can seriously jeopardise all potential future business activities of the foreign investor in China. Therefore, the safe way out is a proper de-registration. And with professional support, the time and efforts invested can be kept to a minimum.

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