The annual China accounts audit
China’s statutory filing requirements for financial and accounting reports are stipulated in a number of laws and related regulations. Companies are required to submit these reports to both the tax bureau and the company’s local branch of the Ministry of Finance. Submission occurs:
Foreign companies may choose to submit monthly/quarterly reports to the tax bureau and should do so within 15 days of the end of the month or the quarter-end, and the annual filing report should be submitted within 4 months of the year-end.
These reports have to be submitted on time regardless of whether or not the company has any taxable income, or if the company is in fact exempt from tax thanks to being part of an incentive period. This being said, the deadlines for submission may be extended upon approval of the tax bureau in charge.
It is also important to note that these deadlines may differ due to the region of China that a company finds itself in, and as such companies should consult their local tax authority to clarify the dates.
There are a number of business entities that foreigners can choose to set up in China that include:
The annual filing requirements of a WFOE and JV are similar in practice, but they are more complicated than that of a RO. It is important that foreign enterprises conduct an annual audit and settle tax liabilities as this is a prerequisite to being able to repatriate profits back to their home country. This also helps enterprises to improve their financial reports in accordance with China accounting standards and gives auditors the chance to find and fix any issues a company may have.
Below we will take at the 5 tasks foreign enterprises of a WFOE/JV need to prepare for and leave you with some important things you need to look out for when navigating each one...
Prepare to tackle these 5 tasks
1) The annual audit report
The annual audit consists of:
- a balance sheet
- an income statement
- a cash flow statement.
- The audit must be conducted by an externally licensed accounting firm and signed by a registered CPA in China.
- The requirements/documents needed for the annual audit may differ depending on the location of your company within China, so it is best to consult a local firm prior to preparing for it.
- Preparing for the annual China accounts audit usually takes around 2 months.
- Submission deadline - 31 April
2) The corporate income tax (CIT) reconciliation report
The purpose of the submission of this report is for the State Administration of Tax (SAT) to determine whether or not all tax liabilities have been met, and subsequently whether companies need to pay additional taxes (if there are discrepancies) or if they are able to apply for tax reimbursement.
- The local Tax Bureau usually (depending on region) releases annual guidance on CIT reconciliation in March.
- This report should be submitted within 5 months of the previous years year-end.
- The requirements needed for the CIT reconciliation report may differ from depending on the location of your company within China, so it is best to consult a local firm prior to preparing for it.
- Submission deadline - 31 May
3) Annual reporting to the AIC
All foreign incorporated enterprises are required to submit an annual report for the previous fiscal year to the relevant Administration of Industry and Commerce (AIC).
- Submission deadline - From 1 January - 30 June
4) Annual foreign exchange reconciliation
Foreign companies are now required to comply with an Existing Registration Right that has replaced the need for companies to complete a Statement of Foreign Investors’ Equity, and submit themselves to the foreign exchange annual inspection since 1 June 2015.
- Failure to comply will result in the Foreign Exchange Bureau taking control over the parties in the capital account information system, and banks will cease to conduct foreign exchange business for non compliant companies.
- Submission deadline - 30 September
5) Annual combinative reporting to MOFCOM, MOF, SAT and NBS
The annual combinative inspection that was jointly conducted by several government departments since 1998 was replaced by an annual combinative reporting system in 2014.
- The bureaus take on the role of supervisors, and maintain a capacity whereby they can only suggest foreign enterprises make modifications on the report.
- All information can be submitted online and printed materials are no longer necessary, making the requirements much easier to navigate
- Submission deadline - Yet to be fixed
Preparing for each of these 5 tasks also involves having to gather certain documents that your company would do well to get started on sooner rather than later.
Is the annual China accounts audit something your company is facing this year? How do you plan to deal with it?
Have you passed your audit before? What were some of the challenges you faced, and do you have any China accounting tips to pass on to our community?
Please share your comments below the blog post, thanks!