All foreign-invested enterprises (FIEs) in China are required to carry out annual compliance procedures as mandated by various governmental departments. It is crucial to be aware of the relevant deadlines as failure to carry out these procedures on time may result in extra expenses, penalties, or even revocation of business licenses. Tax compliance is especially important because an FIE can only repatriate profits to foreign investors after the Chinese tax bureaus are satisfied that all applicable taxes have been paid up.
Steps for completing the annual compliance requirements in China:
1. Prepare Audit Report
All FIEs (including wholly-foreign owned enterprises (WFOE), joint ventures (JV) and foreign-invested commercial enterprises (FICE)) are required to hire external accounting firms to conduct an annual audit of the company’s financial reports. The audit report must be signed by a China-qualified Certified Public Accountant. The objective of a statutory audit is to ensure that companies meet Chinese financial and accounting standards, including proper use of Chinese GAAP.
The requirements for the audit report vary by region. For instance, in Shanghai, companies must include a taxable income adjustment sheet in the audit report, which is not a necessary supplement in Hangzhou, Beijing, or Shenzhen.
2. Prepare Corporate Income Tax (CIT) Reconciliation
In China, CIT is paid on a monthly or quarterly basis in accordance with the figures shown in the accounting books of the company; companies are required to file CIT returns within 15 days from the end of the month or quarter. However, due to discrepancies between the accounting standards and tax laws in China, the actual CIT taxable income is usually different from the total profits shown in the accounting books.
Meanwhile, CIT calculation should be in compliance with tax law, not the accounting standards. As such, the State Administration of Taxation (SAT) requires companies to submit an Annual CIT Reconciliation Report within five months from the previous year’s year-end to determine if all tax liabilities have been met, and whether the company needs to pay supplementary tax, or apply for a tax reimbursement. Generally, the Annual CIT Reconciliation Report must include adjustment sheets to bridge the discrepancies between tax laws and accounting standards.
3. Annual Inspection
FIEs in China are required to undergo an annual cooperative inspection jointly conducted by several governmental departments of the State Council. These inspections are designed to ensure that FIEs conducting businesses in China are fulfilling the legal commitments they make to each of the departments. Each year from March to the end of June, the annual inspection is jointly hosted by the following governmental departments:
Ministry of Commerce (MOFCOM);
Ministry of Finance (MoF);
Administration of Industry and Commerce (AIC);
State Administration of Taxation (SAT);
State Administration of Foreign Exchange (SAFE);
Statistical Bureau.
Contact Us
If you have further inquires, please do not hesitate to contact Tannet at anytime, anywhere by simply visiting Tannet’s website english.tannet-group.com, or calling Hong Kong hotline at 852-27826888 or China hotline at 86-755-82143422, or emailing to tannet-solution@hotmail.com. You are also welcome to visit our office situated in 16/F, Taiyangdao Bldg 2020, Dongmen Rd South, Luohu, Shenzhen, China.
Previous：China Working Visa Application
Next：China Domestic-funded Company Deregistration