What is a "Shell Company" and How to Identify One?

According to the recommendations of the Dong Nai Provincial Tax Department, there has been a rise in the establishment of "shell companies" aimed at purchasing and selling invoices, using fake or illegal invoices to evade taxes, and more. So, what is a shell company, and how can one identify this type of enterprise?

A shell company is a business that is registered but not operational. These companies typically opt to register as Limited Liability Companies (LLCs) due to the simplicity and ease of the establishment process and the limited legal liability.

Shell companies can be identified by several indicators: type of business, registered business activities, business address, duration of business operations, and payment methods.

Notably, shell companies often register for a wide range of business activities, commonly in general services, commercial trading, or fields that do not require statutory capital or professional certificates (e.g., real estate, tourism). This allows them to bypass inspections from specialized regulatory bodies or tax authorities.

Regarding business addresses, shell companies frequently list their business locations in virtual offices, deep alleys, or even non-existent addresses to evade inspections and disappear when detected.

Shell companies typically engage in illegal activities and therefore avoid using the company's bank account for registration and transactions. Instead, they use personal bank accounts, cash, or circuitous transfers through multiple intermediaries to obscure transactions and conceal invoice trading.

However, the Tax Department points out that, given the requirement for businesses to retain invoices and documents for at least 10 years, coupled with current information technology applications, tax authorities have adequate tools to trace and address corporate violations and strictly handle tax, invoice, and documentation offenses.

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