Foreign invested enterprises(FIEs) in China, whether it is a Wholly Foreign Owned Enterprise (WFOE), Joint venture (JV), or a Representative office (RO) must by PRC Company Law and regulations by requirement comply with the annual statutory audit and compliance processes.
What to focus on in an annual audit?
When you start your annual audit, it is key to remember that you should focus on the vulnerable areas such as WFOEs and JVs and allocate enough time reviewing these types of accounts. The reason for this is to ensure that the collected data for the audit is fully accurate and to eliminate potential errors. By comparing transactions coinciding with invoices, orders and inventory you can ensure that the books add up to ensure compliance with the Chinese tax bureau. Note that for an RO more attention will be on financial statements and expense accounts because of the nature of an RO is much simpler compared to other companies.
Why a China company annual audit is crucial ?
Your China company or FIE can only send back profits to their respective main office or foreign country if they complete the statutory annual audits of tax liabilities. If the tax audit is non-compliant to set regulations, you might have to:
- Pay penalties,
- Extra expenses or may even lead to the
- Annulment of your business license, which is a major setback to be avoided at all cost.
The filing of the annual auditing report is a long and involved process that needs to be prepared, corrected (should any discrepancies be found) and submitted within 4 months of the year-end.
This may all seem a little overwhelming, but with a change of perspective this can actually be advantageous to your company, think of it as a “check up” - treat your business like your body, and make sure it stays healthy.
Let us take you through the procedures, requirements and everything necessary for completing a compliant annual audit in this Checklist.
What we can provide for you:
- The tasks involved in obtaining annual compliance for WFOEs, JVs and ROs
- The documents/information required completing each task
- Their submission deadlines
Main reasons that you should always be prepared for the annual audit?
The Chinese Tax Bureau does not make exceptions. The deadline for the Tax audit for your company in China is as strict as it gets, and there will be fines in your company is non-compliant.
The second main concern to remember is that the process involving the preparing of documents is time consuming and should be planned accordingly.
- 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 audit usually takes around 2 months.
If you have any questions about the annual audit for your Chinese company let us know below!
Be sure to also download our FREE Annual China Accounts Audit Infographic by hitting the button below: