We met today with a long time client who had just had its Business License revoked six months ago. The client was super confused that the company was still receiving notices from the local taxation bureau requiring monthly tax declarations. As far as the client could see, the company was
kaput
six months ago… how could it still be required to pay taxes?
The client was clearly confused regarding the Chinese concept of “revocation of Business License” compared to a formal “company deregistration.” Our China lawyers were happy to clear up the confusion.
First, we must understand what a Business License is. This is an official document of the company, stating that the company is a valid company and authorized to do business in China. The Business License contains a specified “Business Scope” listing all the types of business activities the company is permitted to perform.
According to Chinese laws and regulations, regulators have the power to revoke a company’s Business License in certain situations. This simply means the company is not permitted to do business. Any business it performs while its license is revoked will be illegal. However, the company’s tax obligations and other liabilities still remain. It would be similar to having your personal driver’s license revoked. You still owe your best friend $20, but you can’t legally drive.
In contrast, company de-registration is the complete closure of the company and cessation of its legal existence. Due to the time consuming and complicated process for company de-registration, , some companies intentionally have their Business License revoked, and figure
done is done
. This of course is incorrect and can result in substantial tax requirements or in some cases regulatory penalties.