When doing business and living in China, there are some important affairs to be handled properly before a given deadline. Missing and skipping those matters may lead to serious punishments from administration management departments or tax bureaus. Make sure that you have a clear understanding of the things and keep the dates in mind!
In today's business environment, Chinese companies are required to fulfill a series of legal obligations and reporting requirements on a monthly and quarterly basis. These tasks include Value Added Tax (VAT) filing, Corporate Income Tax (CIT) declaration, social insurance information updating, and stamp duty filing. This article delves into the key tasks that you may need to accomplish each month and quarter, providing valuable insights and practical tips to assist businesses in efficiently managing these obligations, ensuring smooth operations in compliance with regulations and financial management.
And also, in our previous blog, we introduced some important annually matters and deadlines for your company and yourself in a timely manner. Missing these deadlines could cause unnecessary trouble for your company or yourself, possibly affecting your social credit and leading to fines or other penalties. To know more about the yearly matters, please read our blog: The important annual affairs when doing business and working in China!
Monthly Affairs
1. Before 15th of each month: individual income tax reporting (For All Companies)
One of the key components to ensuring a company's compliance with financial and tax regulations is the timely declaration of employees' individual income tax. Each month, the company must complete the declaration of the individual income tax for employees' earnings from the previous month before the 15th. This process involves accurately calculating each employee's taxable income, including all forms of income such as basic salary, bonuses, allowances, etc., and determining the tax payable for each employee based on the tax rates and allowable deductions stipulated by Chinese tax laws. By strictly adhering to the monthly deadline for the declaration of individual income tax, a company can not only protect itself from potential fines and legal liabilities but also demonstrate its image as a responsible employer, enhancing employee trust and satisfaction. This action is crucial for maintaining the company's good reputation and long-term success.
2. Before 15th of each month: value-added tax (VAT) reporting (For General Taxpayers)
For general taxpayers, the monthly declaration of Value-Added Tax (VAT) is a critical compliance requirement that must be completed before the 15th of each month. This process involves the meticulous calculation of VAT due on all taxable sales and purchases made during the previous month. General taxpayers must accurately account for VAT on goods, services, and other relevant transactions, considering applicable tax rates, exemptions, and deductions. The declaration encompasses a detailed report of all VAT-inclusive transactions, ensuring that the correct amount of tax is remitted to the tax authorities. By diligently adhering to this deadline, businesses not only stay compliant with tax regulations but also manage their financial obligations efficiently, minimizing the risk of penalties and interest for late submissions. This regular VAT declaration is essential for maintaining transparency in financial dealings and contributing to the integrity of the tax system.
3. Before 15th of each month: corporate income tax (CIT) reporting (For General Taxpayers)
For general taxpayers, apart from the VAT reporting, the declaration of Corporate Income Tax (CIT) is also a vital fiscal duty that needs to be addressed before the 15th of each month. This obligation requires companies to accurately assess their taxable income, which encompasses all revenue minus allowable expenses, losses, and deductions for the preceding month. The process involves a thorough analysis of the company's financial activities, ensuring that all income, regardless of its source, is accounted for and that all permissible deductions are applied. By meticulously calculating the CIT due, businesses can determine the exact amount of tax they owe to the authorities.
Adhering to this monthly deadline is crucial for maintaining compliance with tax laws and regulations. It not only helps in avoiding potential penalties and interest for late submissions but also demonstrates the company's commitment to upholding fiscal responsibility. This proactive approach to tax declaration reinforces the credibility of the business with tax authorities, investors, and other stakeholders, facilitating a transparent and trustworthy financial environment. Engaging in timely CIT declarations is fundamental for managing a company's tax liabilities effectively and ensuring its ongoing financial health and stability.
4. Before 15th of each month: stamp duty reporting (For Companies As Required)
Stamp duty is a tax levied on documents generated during specific economic activities by a company, mainly involving contracts, property transfer documents, and business books. Companies required to pay stamp duty include those engaged in the buying and selling of goods, providing services, property leasing, property insurance, technology contracts, and the transfer of property rights. These companies need to complete the declaration and payment of stamp duty before the 15th of each month.
However, it's important to note that not all companies are required to pay stamp duty by the 15th of each month. The payment cycle for stamp duty depends on the specific circumstances of the enterprise and the regulations of the local tax authorities. Typically, the declaration and payment of stamp duty can be done monthly, quarterly, or on a one-time basis when a specific economic contract action occurs. Some enterprises may have a large number of contracts and other taxable documents every month, requiring monthly declaration and payment; whereas others with less frequent activities may opt for quarterly declarations or payments after each taxable event. This regulation may vary depending on the region your company is located in. We strongly advise consulting with the Hongda team to introduce you to the specific declaration requirements and payment deadlines to ensure compliance with local tax laws.
5. Before 20th of each month: information update for employees’ social insurance (When Required)
According to China's regulations, enterprises are required to update their employees' social security information and pay the social security contributions before the 20th of each month, to ensure employees' rights in medical insurance, pension insurance, unemployment insurance, work-related injury insurance, and maternity insurance, etc. If there are any changes in employees' salary base or reports on new hires or resignations, companies need to complete these updates before the 20th of each month, so that employees can correctly enjoy the benefits brought by paying social security. Failure to timely update employees' social security information may result in fines or late fees during random inspections by relevant departments. In some cases, this may also lead to unnecessary disputes with employees.
Dividend distribution refers to the process by which a company allocates a portion of its profits to its shareholders in the form of cash or stock. Dividends are typically distributed according to the proportion of shares held, meaning shareholders with more shares receive a larger dividend. This is the most common and direct method for foreign investment enterprises to repatriate profits from China to overseas stakeholders. Through cash dividends, the company pays a part of its profits in cash to shareholders, thereby achieving the goal of transferring profits earned in China to overseas shareholders.
Quarterly Affairs
1. Before 15th of each quarter: value-added tax (VAT) reporting (For Small-Scale Taxpayers)
For small-scale taxpayers, the process of declaring VAT operates on a quarterly basis, presenting a distinct set of considerations and obligations. Typically, the statutory deadline for these declarations falls on the 15th of the first month following the end of a quarter. This means that small-scale taxpayers must compile their VAT-related transactions for the entire quarter and submit their VAT declarations to the relevant tax authorities by this date. The process involves calculating the VAT due on taxable sales and services provided during the quarter.
Given the quarterly nature of VAT declaration for small-scale taxpayers, it's advisable to regularly review financial records throughout the quarter. This practice helps in ensuring that all taxable transactions are accurately captured and that the business is prepared for the declaration process well in advance of the deadline. It's always beneficial to seek assistance from tax professionals to clarify any uncertainties, or it’s even better to choose Hongda’s financial services and let us help you with your quarterly VAT reporting!
2. Before 15th of each quarter: corporate income tax (CIT) reporting (For Small-Scale Taxpayers)
Before the 15th of the first month of each quarter, small-scale taxpayers are required to submit their corporate income tax declaration for the previous quarter. This includes summarizing the business's income, expenses, and calculating the tax payable. Small-scale taxpayers in China benefit from relatively lower tax rates, but they must still comply with the regulations and deadlines for tax declarations. During the declaration process, businesses need to provide accurate financial data, including but not limited to sales revenue, cost of goods sold, and administrative expenses, to correctly calculate the tax base and tax amount.
To avoid potential fines and tax risks, we recommend small-scale taxpayers use Hongda's bookkeeping services, which offer high-quality services including tax declaration and financial record-keeping at a lower cost. Hongda's professional accountants will assist you with all the necessary declaration tasks, saving you the higher cost of employing an in-house accountant.
Conclusion
Operating a company in China is no easy feat, especially when dealing with complex tax and regulatory matters. However, by understanding and strictly adhering to monthly and quarterly legal obligations, companies can stay on the right track and ensure sound financial health. Whether it's VAT filing, CIT declaration, or other statutory requirements, these tasks are crucial to ensuring the long-term growth of the company. Therefore, investing time and resources to understand and manage these matters is essential. With expertise and proper methods, companies can effectively handle these obligations, laying a solid foundation for future success. Striving to comply with regulations and maintaining good financial standing will enhance the company's competitiveness and promote its sustainable development.
Hongda, who has been providing high quality administrative, financial, and tax services for foreign investors and business owners in China for over 17 years, is always here to support you with the important affairs. If you are interested in any of our services, please do not hesitate to book a free meeting with Hongda’s consultant to discuss your needs and see how we can help you!
