Being compliant to the audit is crucial because the foreign investors can only see profits if the Chinese Tax Bureau is satisfied and your company is tax compliant.
Do you have a foreign invested enterprise (FIE) ?
Are you compliant to the annual accounting audit for your FIE in China?
The key in your FIE annual audit is timing, the time it takes to get all the necessary documents and relevant procedures ready is something to consider because failure in meeting deadlines may result in penalties or your business license could get revoked.
It’s important to not think of this as another tedious task, but as an opportunity to evaluate the financial status of your company. The annual audit should help optimise your efficiency in paying taxes, gain structure and prevention of repeating mistakes for the future.
Let’s take a look at the basic structure for preparing an audit report
The audit usually takes about two months to complete and should be started in January to allow for enough time to get all procedures and documents done in time. All foreign companies including wholly foreign owned enterprises (WFOE), representative offices (RO), and joint ventures (JV) are by law required to submit an annual audit for the company’s financial reports and this must be done by an external accounting firm and must be signed of by a qualified Chinese public accountant. This is to ensure the quality and objectivity is guaranteed.
Some regions like Shenzhen, Beijing or Hangzhou are not required to submit a taxable income adjustment sheet in the report.
Corporate Income Tax (CIT) preparations
A CIT must be paid 15 days after the end of the month or quater. This is calculated in compliance with the China’s tax laws and not accounting standards. The annual CIT report should be submitted within five months of the previous year-end, this determined if all tax liabilities have been met and includes adjustment sheets if necessary.
The government conducts an inspection once a year which your China foreign company must comply with, this inspection is to ensure that all the legal requirements are in order. The inspection begins from early March to the end of June.
The relevant documents required for the annual inspection are:
- Business license
- Annual inspection report
- Financial statements of the previous year
- Certificate of approval for FIEs
- Audit report issued by external accounting firm
- Capital verification report
- Industry-specific license or permit
- Financial registration certificate
- Tax registration certificate
Registration of profits
Your foreign company operating in China that makes any kind of profit should allow for enough time to complete the reconciliation procedure to avoid penalties and allow shareholder companies to prepare for CIT compliance which deadline is the 31th of May. Any additional documents should also be prepared in time.
Companies will also need to fill out a filing form of contracts and any relevant transaction documents to the State Tax Bureau (STB), which will grant a seal to the filing form that will allow companies to remit funds outbound through submitting the form and other relevant documents.
These documents include:
- the annual financial audit report that is issued out by a CPA firm,
- Board resolution of profit distribution
- Applicant’s most recent capital verification reports
After the STB receive documents and tax assessment, the verification process will take less than 15 days, if your foreign company in China does not comply with the tax or filing and registration requirements will have to pay fines that could be up to 500% of the unpaid tax.
After the inspection has been done and approval has been granted by the bank, the money can be converted into foreign currency at the daily conversion rate against the RMB issued by the People’s Bank of China and then transferred directly to your foreign country from the FIE’s bank account.
Are you prepared for your annual China company accounts audit?
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