When a foreign enterprise ceases the operations of its representative office in China, completing deregistration in accordance with applicable requirements is a fundamental part of fulfilling its market exit obligations. Drawing on our firm’s practical experience, this article outlines the principal procedures and key considerations involved in deregistering a representative office of a foreign enterprise in China.
1. Two Critical Preparatory Tasks Before Deregistration
Contract Review and Appropriate Handling
A representative office of a foreign enterprise does not have independent legal person status and therefore cannot independently bear civil liabilities. Before starting deregistration, the foreign enterprise should conduct a comprehensive review of all outstanding contracts and identify the relevant contracting parties.
Where a contract was signed in the name of the representative office, it is important to determine whether the foreign parent company expressly guaranteed or assumed the relevant obligations. Where the contract was signed directly by the foreign parent company and the representative office merely acted as the implementing party, the contractual rights and obligations generally remain with the parent company.
Outstanding contracts should also be classified and reviewed to determine whether they have been fully performed, whether any default risks remain and whether there are outstanding payments.
For lease agreements, the landlord should be notified in advance of any proposed early termination, termination compensation should be negotiated where necessary, and utility and property management charges should be settled.
For service agreements, service providers should be formally notified of termination and any outstanding fees should be paid in accordance with the contract. Where the contract has not yet expired, the parties may need to negotiate payment for the remaining term or an applicable termination charge.
For supplier agreements, new orders should be stopped and payments for goods or services already delivered should be settled. Particular attention should also be paid to automatic renewal provisions in long-term agreements.
For special contracts, including guarantees and agreements involving foreign law, the foreign parent company may need to confirm in writing the assumption, transfer or release of relevant obligations. Legal review may be necessary where foreign law is involved.
If certain contracts are to be transferred to another affiliate of the foreign parent company, an agreement for the assignment of contractual rights and obligations should be entered into with the relevant counterparty.
Employee Settlement
A representative office generally does not independently employ staff in China. Employees are commonly engaged through designated employment service providers such as FESCO or CIIC, or through third-party human resources service providers.
Accordingly, the representative office should coordinate with the relevant employment service provider to properly arrange employee settlement. Local requirements and practices may differ between cities, so consultation with the local human resources and social security authority or the relevant employment service provider may be necessary.
It is advisable to enter into a written employee settlement arrangement with the relevant service provider, specifying compensation amounts and the responsibilities of each party. Employees should also be asked to acknowledge that wages, social insurance contributions, compensation and other amounts have been fully paid.
The agreement should address the handling of any subsequent employment dispute and clarify the representative office’s obligation to provide supporting documents where required.
Where a significant number of employees are involved, the settlement process should generally be started three to six months before deregistration.
2. Basic Deregistration Procedure
Article 33 of the Regulations on the Administration of Registration of Resident Representative Offices of Foreign Enterprises requires a representative office applying for deregistration to submit specified documents to the registration authority, including a deregistration application, evidence of tax deregistration, customs clearance documentation or confirmation that no relevant customs procedures were undertaken, and other materials required by the competent market regulation authority.
Based on our firm’s practical experience, the deregistration process generally includes the following stages.
Tax Deregistration
For representative offices, deregistration generally begins with tax clearance.
Tax deregistration is often the most time-consuming stage and may directly affect subsequent foreign exchange and market regulation procedures. If tax matters are not properly resolved, the overall deregistration process may be delayed.
Tax disputes, transfer pricing issues and other China tax matters may increase both the time and cost involved. The original practice experience reflected in this article also identifies export tax rebate issues as a potential source of delay during tax clearance. Close communication with the competent tax authority is therefore important throughout the process.
Based on our experience in Nanjing, tax deregistration may be handled online through the Jiangsu Taxation system. Where the process is handled offline, only certain personnel registered with the tax authority, such as the responsible person, accountant or designated tax filer, may be authorised to handle the procedures.
Tax deregistration may take one month or longer. Where the employee responsible for tax matters is expected to leave before deregistration is completed, it may be useful to arrange for that person to continue assisting with the remaining tax procedures for a limited period.
Customs Deregistration
Many representative offices did not complete customs registration when they were established because they did not engage in import or export activities.
However, even where a representative office has never registered with customs or conducted import-export activities, it may still need to obtain confirmation from the competent customs authority that no relevant customs procedures were undertaken. This remains part of the overall deregistration process.
The documents typically required may include:
- the deregistration application;
- the foreign parent company’s resolution to deregister the representative office;
- the representative office registration certificate and copies; and
- relevant organisational registration documents.
According to the practice reflected in the original article, customs clearance documentation may generally be issued within approximately five working days after complete materials are submitted. Customs deregistration may also be pursued concurrently with tax deregistration.
Foreign Exchange Deregistration
Foreign exchange procedures are another area that can easily be overlooked, particularly where the representative office did not complete foreign exchange registration when it was established.
The representative office may still need to obtain confirmation from the State Administration of Foreign Exchange or its local branch that no relevant foreign exchange procedures were undertaken.
The required documents are generally similar to those used for customs clearance. Where the documentation is complete and properly prepared, the relevant authority may be able to complete the review and issue confirmation promptly.
However, local SAFE branches may require additional documents or operate appointment systems. It is therefore advisable to confirm the applicable requirements in advance.
Tax, customs and foreign exchange deregistration should be coordinated wherever possible in order to reduce unnecessary delays.
Market Regulation and Bank Account Deregistration
After the tax, customs and foreign exchange procedures have been completed, the representative office may proceed with closing its bank accounts and applying to the competent market regulation authority for deregistration.
Bank account closure is generally handled in accordance with the requirements of the relevant bank.
For deregistration with the market regulation authority, the required materials may include:
- the representative office registration certificate;
- representative certificates;
- customs and foreign exchange clearance documentation;
- the tax deregistration certificate; and
- the deregistration application.
According to the Regulations as reflected in the original article, the registration authority should decide whether to approve the deregistration application within 10 days after accepting it. If deregistration is approved, a notice of approval should be issued within five days after the decision, and the relevant registration and representative certificates will be collected.
3. Special Considerations
Authentication and Translation of Foreign Documents
Deregistration may involve foreign documents that need to be authenticated and translated.
Common examples include:
- the foreign parent company’s resolution or decision approving the closure of the representative office; and
- authorisations relating to bank account closure.
Because authentication of foreign documents can take considerable time, these materials should be prepared as early as possible to avoid delaying the overall deregistration process.
Attendance of Responsible Persons or Other Key Personnel
Based on our firm’s practical experience, online tax deregistration, customs deregistration, foreign exchange deregistration and market regulation deregistration generally do not require the foreign enterprise’s responsible personnel to appear in person.
Bank procedures may differ. Some banks may allow account closure without the responsible person’s physical attendance where the person’s identity and passport information have remained unchanged since the account was opened. A passport copy may be sufficient in such cases.
However, if the passport details registered with the bank have changed, the bank may require the responsible person to attend in person with the updated passport.
4. Conclusion
Deregistering a representative office of a foreign enterprise in China involves coordination with multiple authorities and careful handling of contracts, employees, tax matters, customs, foreign exchange, bank accounts and market regulation procedures.
Although the overall framework is relatively clear, processing times and documentation requirements may vary, and an omission at one stage can delay the entire process.
Foreign enterprises planning to close a representative office should therefore begin preparations early, coordinate the different workstreams and, where appropriate, engage professional advisers to assist with the process and ensure an efficient and compliant market exit.