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Shutting Down a Foreign Owned Entity in China – IncorpChina’s Visit to the Local Tax Bureau

Last week, three Incorp China team members and the CEO, Robert Fisch, headed to the Shenzhen tax bureau to help one of our US clients on shuting down their entity in China. When shutting down a foreign company in China, the tax bureau has to issue a “notice of cancellation of tax registration”’ for the Foreign Trade & Economic Cooperation Bureau. This is a rather difficult and time intensive procedure: The company owner, or a representative thereof, has to physically visit the local tax bureau in order to fill out and hand in the requires paperwork. While some documents are in English, the majority of the procedure will necessarily be dealt with in Mandarin. This highly bureaucratic task involves dozens of different forms that are each tailored to the nature of your business as well as the reason for its closure.

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The counters in the reception hall of the building will help you to get smaller matters dealt with. For larger issues, such as closing down a company, you will be sent to the respective office within the bureau.

Our team had spent the days prior to our visit of the tax bureau preparing the individual documents. Good preparation, however, never actually guarantees that your paperwork will be dealt with quickly. Often, you will be asked to return with special, additional documents. The Incorp China team knows from experience that establishing a good relationship with employees of the bureau will make this procedure as effective and stress free as possible for both ourselves and our clients.

As we arrived at the bureau we headed to one of the front counters in order to find out who in the building would handle a case like ours. We were directed to an office on the 6th floor. After some chatting and having explained the purpose of our visit, it was obvious we had been directed to the wrong office. A few doors down the hall, the government official was willing to process our case. Our CEO, Robert Fisch, didn’t leave it at that.

He found out who the immediate superior of the tax officer was. This allowed us to talk to him personally and show our respect for his work and his country. Due to Robert Fisch’s fluency in not only Mandarin and Cantonese, but his added knowledge about numerous Chinese dialects, allowed him to prove that he was not just any “laowai” – a foreigner. Showing genuine interest and knowledge about China, builds trust, shows respect, and often gets a chuckle or two out of your conversation partner if you happen to be able to introduce yourself in the respective home dialect. Knowing how to sing a couple traditional, Communist songs has never failed to lighten the mood. After all, people are more likely to help if they know you are a friendly, trustworthy and interesting soul.

The team returned to the office of the official who would be processing our paperwork. After some more chatting and giving face to a couple of his colleagues, we finally returned to the head of the department once again. This last visit was just to ensure that everybody was on the same page. Especially knocking on the head tax officer’s door, a second time proved beneficial. Even though we only came to thank him again for his help, saying our goodbyes and paying respect to how well he is running his department, he immediately grabbed the phone to call his co-workers, who we had just seen a minute ago, to ensure them to process his friends’ request as soon as possible.

 

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The file cabinet for the tax bureau forms stretches over an entire wall in the waiting hall. Depending on your issue or request, the right form must be found and filled out in Chinese.

Our work was done, hands were shaken and we headed back down to the crowded ground floor. It took us the entire morning but was well worth it. Our clients are getting their paperwork in a timely manner and our office has formed a good relationship with a new department within the tax office for future collaboration.

Incorp China offers special attention to its clients: we are not just sending your documents off to be processed by government departments which we have never seen from the inside. We try our best to constantly create and enforce our relationship with different bureaus in order to provide the best service possible for our clients.

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The New Fapiao Legislation Explained

Effective 1st July 2017, the State Administration of Taxation extended its requirements for fapiao issuance. All companies need to add their taxpayer identification number on all issued VAT tax invoices (fapiaos) in addition to the original information. The notice was given under the Taxation Notice No. 16 of 2017.. 16 of 2017.

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A sample of a VAT tax rebate receipt (fapiao).

 

What does this mean? Why?

Originally, a fapiao only had to include four components. The paying company’s name, its company address, a description of the good or service being sold as well as its price, and the government issued red stamp. The latest regulation entails that those receiving the receipt have to provide their company’s unique taxpayer identification number in addition to the original requirements. This law, at first, only applied to VAT fapiaos that were intended for tax deducing purposes. Now, however, it includes all normal VAT fapiaos as well. This adjustment in the legislation is supposed to aid the Chinese government in tracking a company’s exact income and expenses in an effort to eliminate tax fraud.

How to find out your taxpayer ID number?

To find out what your company’s taxpayer identification number is, have a look at your business license. Every company receives a unique taxpayer ID number upon registration for tax filing purposes. In case you are the owner of multiple different companies, you will have received a separate taxpayer ID number for each.

 

Are individuals attributed a taxpayer ID number?

No, only companies receive a taxpayer ID number upon their registration.

 

What should you do?

Incorp China advises all its customers to have a physical or digital note on them clearly stating the company’s name as well as the taxpayer identification number. Having this information both in English and pinyin will make fapiao issuance as easy and hassle-free as possible. The new taxpayer number has to be filled into the line located right underneath the company’s name. Every time you ask for the issuance of a fapiao, please double-check whether the taxpayer identification number has been included and whether it is correct. If either isn’t the case you will not be able to record the fapiao in your accounting books. This means you will not be able to deduct the fapiao’s value from your taxes.

 

 

If you have any further questions or concerns, please call us under +1 (561) 729 6508 or write us an email at [email protected]

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In China, Guanxi Can Open Many Doors – And Borders

Some life lessons are best conveyed through a story. This one is about never underestimating what power an extensive guanxi holds in China.
Guanxi is the mandarin term for the network, the connection people form privately and in business relation to one another over a long period of time. Other than in Western cultures, China doesn’t differentiate between personal and professional relationships. Upholding one’s ‘face’, one’s reputation, making new connections and maintaining them becomes an omnipresent necessity.
There hasn’t been a single client for whom we didn’t need to make good use of our extensive guanxi network.
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Offshore oil platforms. Photo: Chad Teer

One particularly interesting case was a logistics project for a multinational oil company we worked on a few years back. Construction parts had to be delivered to an off shore oil platform over night or else the 400 employees working on the platform would have had to be evacuated via helicopter. Six government officials ranging from police over inspection to immigration officers would have to be convinced to keep the border open long past their regular hours to ship the cargo across – and we had only one day to do exactly that.
The negotiations started at the Hong Kong airport with the customs director. He needed to agree to wave the goods through customs clearance prioritizing it to other shipments. While in the Western business world a simple call from an insider might be the correct approach, our CEO personally sat down with the customs director for tea. Slowly guiding the conversation from personal exchange to business affairs our CEO’s excellent knowledge of the Cantonese language helped form common ground and resulted in a successful endeavor.
With the cargo out of the airport ahead of time the next hurdle were the borders. What proved to be problematic were the border’s operating hours between Hong Kong and China preventing the construction parts to be passed through before the deadline. Keeping open a border beyond scheduled times requires, firstly, the border officials of both countries to be in agreement and, secondly, a trail of legal documents permitting such an inconvenience. In wise foresight, Mr. Fisch, our CEO, had already payed the Chinese border commander a visit on his way to Hong Kong. Usually, these types of high-ranking officials would never accept the visit of a foreigner. Mr. Fisch, however, instead of attempting to make an appointment, walked through the government building as if he belonged there, straight into the commander’s office. He immediately started conversing in Mandarin. Stunned by an American speaking fluent Chinese and being this straightforward, the officer invited our CEO to enjoy tea together.
After, again, a very private conversation about their backgrounds, families and commonalities guanxi was established and one could move on to business affairs. The Chinese border commander helped Incorp China not only to acquire the approval of the police, customs and immigration but even agreed to organize a chopper waiting nearby the border to transport the cargo directly from behind the Chinese frontier to the company’s offshore platform.
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Shenzhen FongTin to Hong Kong Bridge. Photo: WiNG

On the Hong Kong side of the border the Hong Kong border commander who made a grand entrance with his two bodyguards greeted our CEO. The initial encounter was rather tense but after tea, good conversation and Mr. Fisch’s ‘renqingwei’ (English interpretation: “human touch/flavor”) he managed to get through to the officer. Since the Hong Kong border commander was seemingly nervous about granting such a great exception, Mr. Fisch called the Chinese border commander to speak to him personally over the phone. With reassuring words the two officers came to an agreement.

It was an achievement comparable to a miracle. Never before had the border been left open without the time consuming effort of preparing the legal documents required. The vital construction parts passed customs, inspection, and the boarder without problems and were delivered on time for the platform to undergo repairs. Our client was able to keep his business in operation and none of the employees had to be evacuated. With no representatives on Chinese ground who could have personally convinced Chinese officials in their native languages to help this company, huge financial losses couldn’t have been prevented. Establishing and maintaining a strong guanxi is vital and simply cannot be done form afar or by someone not in touch with Chinese customs and manners.

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