Enterprise liquidation is mainly carried out around three parts: the treatment of enterprise assets and liabilities, the placement of enterprise employees, and the distribution of enterprise surplus assets. Each of these links will involve tax issues. So, what taxes will be involved in the liquidation process of foreign-funded enterprises?

1、 Taxes involved in liquidating the enterprise itself

(1) Liquidated income tax

According to the current tax policy, whether an enterprise is dissolved and liquidated in accordance with the provisions of the Company Law or undergoes bankruptcy liquidation in accordance with the provisions of the Enterprise Bankruptcy Law, it should undergo income tax treatment for liquidation and pay liquidation income tax in accordance with the law, applying a 25% tax rate. For the calculation of the payable income tax for enterprise liquidation, please refer to Annex 1 and Annex 2 of the Notice on Several Issues Concerning the Treatment of Enterprise Income Tax in Enterprise Liquidation Business (CS [2009] No. 60) jointly issued by the Ministry of Finance and the State Administration of Taxation, as well as the Notice on the Issuance of the "Declaration Form of Enterprise Liquidation Income Tax of the People's Republic of China" issued by the State Administration of Taxation.

(2) VAT

During the liquidation process, the liquidation enterprise shall pay value-added tax in accordance with the law when disposing of fixed assets, inventory, real estate, intangible assets, etc. (including the deemed sales behavior of distributing such assets to shareholders).

(3) Land value-added tax

A liquidation enterprise that obtains income from disposing of its houses, buildings, structures, and ground attachments and transferring land use rights shall pay land value-added tax in accordance with the law.
In addition, during enterprise liquidation, the liquidation enterprise transfers the ownership of land and housing, and bears the tax liability of deed tax incurred by the units and individuals that dispose of the land and housing by the liquidation enterprise.

2、 Taxes involved in liquidating foreign shareholders of the enterprise

If a foreign-funded enterprise has surplus assets after liquidation, it needs to distribute them to foreign shareholders. The amount of remaining assets distributed by the foreign shareholder of the liquidated enterprise, which is equivalent to the portion of the accumulated undistributed profits and accumulated surplus reserves of the liquidated enterprise calculated based on the proportion of the shareholder's shares, shall be recognized as dividend income; The balance of remaining assets after deducting dividend income, which exceeds or is lower than the shareholder's investment cost, shall be recognized as the shareholder's investment transfer income or loss. Therefore, to distinguish whether foreign shareholders are individuals or enterprises, the taxes that foreign shareholders need to pay are also different, as follows:

（3） Taxes involved in liquidation of enterprise employees

Article 46 of the Labor Contract Law stipulates that if the dissolution and liquidation of an enterprise results in the termination of the labor contract with the employee, economic compensation shall be paid to the employee according to law. According to the "Notice on Issues Related to the Connection of Preferential Policies after the Modification of the Individual Income Tax Law" (CS [2018] No. 164), individuals who terminate their labor relationship with the employer and obtain one-time compensation income (including economic compensation, living subsidies, and other subsidies issued by the employer) are exempt from individual income tax for the portion that is less than three times the average salary of local employees in the previous year; The portion exceeding three times the amount shall not be included in the comprehensive income of the current year, but shall be separately calculated and taxed using the comprehensive income tax rate table.