China WFOE Maintenance and Compliance Guide (13) – Annual Inspection of a WFOE

1. Introduction

On 12th December 1982, the State Administration for Industry and Commerce (SAIC) of the People’s Republic of China published the “Corporation Management Regulation” which states that from 1983 onwards, SAIC would implement company annual inspection procedures over the whole country. Annual inspection is particularly useful in improving the national control over company’s registration. SAIC makes the carry-out of annual inspection compulsory for all companies in order to ensure their existence and normal operations.

2. Companies subject to Annual Inspection

The companies which receive the business license, including limited liability companies, non-company business legal persons, partnership enterprises, individual sole-source investment enterprises and branch offices, foreign enterprises, as well as other management units.

Accordingly, the Wholly Foreign Owned Enterprises invested and set up by foreign corporations and individuals are also subject to the requirements of Annual Inspection Procedures.

Newly set-up companies are also required to participate in annual inspection. Certain newly set-up companies may be exempted if they are established towards December. However, this needs to be approved by SAIC.

3. Time Period for Annual Inspection

1st March to 30th June every year.

4. Government Authorities Involved in the Annual Inspection

The government agencies involved in annual inspection

~ State Administration for Industry and Commerce
~ Statistics Bureau
~ Foreign Exchange Supervision Bureau
~ Customs Bureau
~ Finance Bureau
~ Foreign Investment Commission
~ Economic Committee

5. General Annual Inspection Procedures

On-line Inspection

Companies download application forms from internet, complete and then upload the soft copies back in the Enterprises Inspection Online System. The companies would still be required to summit hard copies.

Joint Inspection

This means the government agencies mentioned above proceeds the Annual Inspection at the same time and the same place. The companies prepare all necessary materials in hard copies and submit them. All procedures could be completed in the local distractive branch of SAIC.

6. Penalty for Failure to Perform Annual Inspection

In the case of not complying the requirement for annual inspection

Penalty

If the company does not conduct its annual inspection in accordance with the regulations, business registration authority would order the company to complete the inspection on a new deadline. Besides, a company would still face penalty between RMB 10,000 to RMB 100,000. For a branch, non-corporate businesses and their subsidiaries in China engaged in business activities out of China, and other operating units, the penalty should be RMB 30,000 or below. For a partnership, a personal-owned enterprise and their branches, the penalty should be RMB 3,000 or below.

Revocation of business license

If a company cannot complete the annual inspection by the ordered deadline, the business registration authority will issue a public notice. Starting from the date of public announcement, the company would have 60 days to complete the annual inspection, before the business license is