Company Annual Maintenance
and Statutory Auditing

What Are the Differences between Annual Tax Settlement and Annual Reporting?

Annual tax settlement means that the enterprise summarizes the taxable income of the previous fiscal year and the amount of tax paid to determine they need to pay supplementary tax or apply for tax rebate. After filling out the annual corporate income tax return form, the company can submit to the local tax bureau for corporate income tax declaration and tax payment settlement, by providing the relevant information required. An income tax final settlement report will be completed by a bookkeeping agency, an accounting firm, or a tax accountant firm and will be submitted to tax bureau.

For annual reporting, companies registered before the calendar year end should present its business ability to continue operating in the coming year by providing materials to satisfy the joint inspection requirements with various government authorities. The report is submitted to the Administration of Industry and Commerce, which is another department rather than the tax bureau.

Important Dates to Remember!

According to Article 4 of the "Measures for Annual Inspection of Enterprises", the start and end dates of annual inspection are from March 1 to June 30 each year. The competent registration authority shall inspect the situation of the enterprise in the previous year within the specified time. Enterprises should submit annual inspection materials to their registration authority before March 15.

In addition, there are three important dates that you should always remember when doing business in China, before which you need to finish corporate income tax / individual come tax declaration and submit annual report. Failure to do so may result in the punishment and negative effects on company’s credit.

Annual Compliance Requirements for Foreign Invested Enterprises (WFOE and JV)

The annual compliance requirements start after the end of the fiscal year (December 31 as China follows the calendar year) and usually takes place until the end of June for both WFOE and JV.

Step 1: Prepare an annual audit report

The company yearly maintenance procedure starts with the preparation of annual auditing report, which can be prepared as early as November or December. However, as the data from the previous year needs to be included, it is suggested that the auditing reports should be completed by the end of April before proceeding to the annual tax filing in May.

The company needs to hire a certified public accountant (CPA) to conduct third-party annual auditing, required by the Company Law. The annual auditing report often includes a balance sheet, a statement of cash flow, an income statement, as well as the record of change in equity and a supplementary statement of financial indicators. It is always advisable to carry out an audit of financial statement on a yearly basis to ensure that the company’s financial statements conform to the Chinese Generally Accepted Accounting Principles (Chinese GAAP) standards. This also gives you the opportunity to examine the financial position and health of your company.

The deadline for submitting annual reporting is 30th June. Failure to submit annual report may result in your company being listed into the abnormal operation list of the State Administration for Market Regulation of Industry and Commerce. The business license may be revoked in the worst case then the company does not submit annual reports for three consecutive years. The industry and commerce authority may conduct spot checks on the contents of the company's annual report announcement. If it is found through inspection that the company's annual report conceals the real situation and resorts to fraud, the industry and commerce authority will punish it in accordance with the law, and notify the information and identity of the legal representative and managers to relevant departments and bureaus including the administration of public security, finance, customs, and taxation, leading to a "violation in one place, punishment in every place” situation.

Step 2: Conduct corporate income tax (CIT) reconciliation

After preparation of annual auditing report, the next step is to conduct annual CIT reconciliation, or the annual CIT filing. In China, CIT is paid on a monthly or quarterly basis and companies needs to file CIT returns within 15 days from the end of each month or quarter. 

In addition, the State Taxation Administration requires companies to conduct annual CIT reconciliation within five months after the end of each year if all tax liabilities have been met. In some cases however, the companies need to pay supplementary tax or apply for a tax reimbursement.

The annual CIT reconciliation needs to be completed before 31st May each year. However, the investigation into the tax compliance may continue all year long, and the company should always be prepared to submit additional materials if demanded by the tax bureau.

Step 3: Company annual reporting procedure

Once the first two steps are completed, the next step is to conduct annual reporting to multiple administration departments before the deadline, 30th June. From 2020, the annual reporting can be completed by submitting information through the National Credit Information Publicity System (www. gsxt.gov.cn), so that the company no longer needs to report to different departments separately. A general report should include the following information:

• The implementation and changes of the enterprise’s registration information;
  
• The capital contribution or cooperation conditions provided by shareholders or investors;
  
• The investment condition and background of the enterprises;
  
• The establishment of branch companies or other organizations by the enterprises;
  
• The production and operation situation of the enterprises;
  

Annual Compliance Requirements for Representative Office (RO)

The procedure of annual compliance for RO are very similar to that of WFOE and JV. However, different requirements and focuses can still exist during the process.

Step 1: Prepare an annual audit report

• Costs and expenses report: the history of office renting, transportation, telephone cost reimbursement, employee salary, entertainment, utility bills, and dispatching service fees, should be carefully and accurately recorded, regardless of whether these are paid from the RO itself or directly from its head office. Any expenses belonging to the fiscal year should be properly accrued with contracts or agreements as support. The total salary of the chief representative, whether paid offshore or locally, must be included in the expenses.
• Taxable amount: according to relevant laws and regulations, ROs of foreign enterprises in mainland China must pay corporate income tax on their deemed taxable income. Under the cost-plus method, the taxable income, that is, the deemed revenue is calculated based on the expenses. The deemed profit rate is decided by the tax bureau, and shall be no less than 15 percent;

Step 2: Conduct annual tax reconciliation

Like WFOE and JV, ROs also need to declare annual tax to the local bureau by the end of May each year. If the audited tax amount due are different from the taxes paid by the RO, the RO shall discuss the variation with the tax bureau. In this case, you can book a meeting with Hongda’s tax advisors to discuss the reason for the difference.

Step 3: Company annual reporting procedure

The key point of annual report of ROs is to present the legal status and standing of the overseas headquarter for approval. Information regrading to the business activities should also be added. The checklist for RO reporting is as follows:

• Annual report;
  
• Business registration certificate;
  
• Auditing report; 
  
• Proof the legal status and standing of the overseas headquarters;
  

Why Choose Hongda’s Annual Maintenance and Reporting Package?

By partnering with Hongda, you can enjoy high-quality services to keep your company compliant all-year long, starting from only 5000 RMB per year:

1. Preparing annual auditing report;
2. Calculating annual tax and complementing tax report;
3. Confirming company annual tax return;
4. Submitting annual reporting online;
5. ……

We also provide service tailored to your needs, and propose our prices based on your actual revenue so that you don’t need to worry about exceeding the budget anymore!