Under the influence of the seemingly everlasting pandemic, companies in China that suffer business difficulties may consider seeking suspension of business operations so as to save costs for an interim period, rather than entering a liquidation procedure. In order to support business activities in such sensitive periods of time, the Chinese government has issued regulations and guidelines effective since March 1st, 2022, which enable companies to register their dormant status.
In order to better understand dormant company status in China, we shall provide certain brief guidelines on the application process for dormant company status.
- What is dormant status?
Dormant status refers to the circumstances where a company voluntarily decides to suspend its business operations within a limited period of time in consideration of temporary business shortages.
- When may a company transfer to dormant status?
If a company suffers business difficulties due to a natural disasters, accidents, public health incidents, social security incidents, etc., it may apply for dormant status for no more than 3 years.
- How to apply for dormant status?
Companies shall submit a dormant registration application to the competent local authority. The application is not subject to approval, and the relevant authority shall publish the company’s dormant status through the National Enterprise Credit Information Publicity System.
- Will a dormant status company need to be reported to the tax authorities?
According to the competent tax authorities’ announcement related to this matter, effective from July 14th, 2022, being in dormant status is an autonomous act of an enterprise, which only needs to be filed with the registration authority as required and need not be reported to the tax authorities separately.
- Is a simplified cancellation possible?
Companies that fulfil one of the following conditions can directly apply for their registration’s cancellation without going to the tax authorities for a tax clearance certificate:
1) Companies which have never handled tax-related matters
2) Companies which have handled tax-related matters, but have not applied or issued invoices and have no pending tax or other outstanding matters.
In conclusion, as a newly implemented policy, the dormant mechanism could be a considerable option for companies experiencing difficulties. A transfer to dormant status is quite feasible and may enjoy consequential benefits for the company’s further endeavors. In our next articles, we shall illustrate the main advantages and compliance matters available for dormant companies. If you are interested in dormant companies, feel free to contact us at info@dpgroup.biz.
