Enterprises will be Allowed to Apply for Dormancy in China
What is dormancy of enterprise? Dormancy of enterprise means that an enterprise is allowed to suspend its operation while still retaining its registration status with the registry office. Dormant companies are quite common in overseas countries or regions. For example, in Hong Kong, a private company may pass and deliver to the Registrar of Companies for registration a special resolution declaring that the company will become dormant from a specified date according to the Companies Ordinance. After becoming an inactive or dormant company, the company may be exempt from holding an annual general meeting of shareholders, preparing and delivery of annual return, and engaging accountants to audit the company’s financial statements.
Learn from the dormant company mechanism in Hong Kong, the revised Business Registration Rules in Shenzhen Special Economic Zone, which has come into force on 1 March 2021, introduces the registration of business suspension for the first time. Shenzhen will pilot the enterprise dormancy system accordingly. Business entities are allowed to apply for dormancy according to the actual needs of production and operation. During the period of business suspension or dormancy, business entities in Shenzhen will not be included in the list of abnormal operations when they cannot be contacted through the registered address. They will be exempted from the obligation of annual reporting to the registration authority during the above period. The registration authority will file the relevant data of annual report based on the registered information in its system on behalf of the business entities. But they are still required to file tax returns during the above period.
On 15 June 2020, the State Administration for Market Regulation of the PRC published the Regulations on the Registration and Administration of Commercial Entities of the PRC (Draft) to seek public comments. The registration of business suspension has also been introduced in the Draft. Business entities are allowed to apply for the registration of business suspension with the registration authority. Later, a draft Regulation on Market Entity Registration and Administration was adopted by the executive meeting of the State Council of the PRC on 14 April 2021. The official document of the regulation has not yet been promulgated. But what can be confirmed is that after the implementation of the regulation all kinds of market entities engaged in business activities in China’s mainland may decide on their own to suspend business or become dormant within a specified period of time, which shall be registered with the registration authority.
The implementation of business suspension or dormancy registration will help to reduce the maintenance cost of the market entities in China’s mainland and help the market entities facing operational difficulties in the short term to survive the period of economic inactivity. However, what kinds of exemption will be available to the market entities during the period of business suspension or dormancy can only be confirmed when the official document of the regulation has been promulgated.
KAIZEN Group is equipped with experienced and highly qualified professional consultants and is therefore well positioned to provide professional advices and services in respect of the formation and registration of company, application for various business licences and permits, company compliance, tax planning, audit and accounting in China. Please call and talk to our professional consultants for details.
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