Navigating the annual company audit in China: Prepare forthese 5 tasks!

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The annual company audit in China

China’s statutory filing requirements for financial and accounting reports are stipulated in a number of laws andrelated regulations. Companies are required to submit these reports to both the tax bureau and the company’s localbranch of the Ministry of Finance. Submission occurs:

Monthly/quarterly

Yearly

Foreign companies may choose to submit monthly/quarterly reports to the tax bureau and should do so within 15days of the end of the month or the quarter-end, and the annual filing report should be submitted within 4 months ofthe year-end.

These reports have to be submitted on time regardless of whether or not the company has any taxable income, or ifthe company is in fact exempt from tax thanks to being part of an incentive period. This being said, the deadlines forsubmission may be extended upon approval of the tax bureau in charge.

It is also important to note that these deadlines may differ due to the region of China that a company finds itself in,and as such companies should consult their local tax authority to clarify the dates.

There are a number of business entities that foreigners can choose to set up in China that include:

The annual filing requirements of a WFOE and JV are similar in practice, but they are more complicated than that ofa RO. It is important that foreign enterprises conduct an annual audit and settle tax liabilities as this is a prerequisite

to being able to repatriate profits back to their home country. This also helps enterprises to improve their financialreports in accordance with Chinese accounting standards and gives auditors the chance to find and fix any issues acompany may have.

Below we will take at the 5 tasks foreign enterprises of a WFOE/JV need to prepare for and leave you with someimportant things you need to look out for when navigating each one...

Prepare to tackle these 5 tasks

1) The annual audit report

The annual audit consists of:

a balance sheet

an income statement

a cash flow statement.

* IMPORTANT

The audit must be conducted by an externally licensed accounting firm and signed by a registered CPA inChina.

The requirements/documents needed for the annual audit may differ depending on the location of yourcompany 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.

Submission deadline - 31 April

2) The corporate income tax (CIT) reconciliation report

The purpose of the submission of this report is for the State Administration of Tax (SAT) to determine whether or not

all tax liabilities have been met, and subsequently whether companies need to pay additional taxes (if there arediscrepancies) or if they are able to apply for tax reimbursement.

*IMPORTANT

The local Tax Bureau usually (depending on region) releases annual guidance on CIT reconciliation in March.

This report should be submitted within 5 months of the previous years year-end.

The requirements needed for the CIT reconciliation report may differ from depending on the location of yourcompany within China, so it is best to consult a local firm prior to preparing for it.

Submission deadline - 31 May

3) Annual reporting to the AIC

All foreign incorporated enterprises are required to submit an annual report for the previous fiscal year to therelevant Administration of Industry and Commerce (AIC).

*IMPORTANT

Submission deadline - From 1 January - 30 June

4) Annual foreign exchange reconciliation

Foreign companies are now required to comply with an Existing Registration Right that has replaced the need forcompanies to complete a Statement of Foreign Investors’ Equity, and submit themselves to the foreign exchangeannual inspection since 1 June 2015.

*IMPORTANT

Failure to comply will result in the Foreign Exchange Bureau taking control over the parties in the capitalaccount information system, and banks will cease to conduct foreign exchange business for non compliantcompanies.

Submission deadline - 30 September

5) Annual combinative reporting to MOFCOM, MOF, SAT and NBS

The annual combinative inspection that was jointly conducted by several government departments since 1998 wasreplaced by an annual combinative reporting system in 2014.

*IMPORTANT

The bureaus take on the role of supervisors, and maintain a capacity whereby they can only suggest foreignenterprises make modifications on the report.

All information can be submitted online and printed materials are no longer necessary, making therequirements much easier to navigate

Submission deadline - Yet to be fixed

Preparing for each of these 5 tasks also involves having to gather certain documents that your company would dowell to get started on sooner rather than later.

"What are the required documents needed for the annual audit in China?"

Download our FREE Annual China Company Accounts Auditing Checklist and discover all of the requireddocuments you need to stay compliant! Simply click the button below to help you get a jump on preparing for ittoday!