China Annual Auditing Services
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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.
Step 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.
Step 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.
Step 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
The relevant documents required for the annual inspection are: Annual inspection report Audit report issued by external accounting firm Financial statements of the previous year Certificate of approval for FIEs Business license Capital verification report Industry-specific license or permit Financial registration certificate Tax registration certificate Other forms or documentation required by relevant government departments.
Step 4: Profit Repatriation
Companies distributing profits should complete the reconciliation procedure in advance to leave sufficient time for shareholder companies to prepare for CIT compliance before the May 31 deadline. The submission of additional documents may also be required. In Shanghai, for example, a company should apply for a Letter of Notice for Profit Distribution of Domestic Enterprise issued by the local tax bureau after finalizing its CIT reconciliation. The company receiving the profits will need to attach this letter to its own CIT reconciliation report.
Contact Us
If you have further queries, don’t hesitate to contact ATAHK anytime, anywhere by simply visiting ATAHK’s website www.3737580.net , or calling Hong Kong hotline at 852-27826888 or China hotline at 86-755-82148419, or emailing to info@citilinkia.com