China is the largest economy in the world, the largest state in terms of territory, population and GDP. The state presents ample opportunities for any business. The favorable investment climate, skilled workforce, stable economic growth and technological infrastructure attract a huge number of companies from all over the world. Financial and tax reporting is strictly regulated by local laws, but recent revisions of accounting standards are increasingly similar to international standards. There are a number of tax incentives for small businesses, for high-tech businesses, and for some regions of mainland China.
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According to the Companies Law of China, all companies must prepare annual financial statements and be audited.
All companies in mainland China must apply for a business license to the Administration for Industry and Commerce (AIC). Companies in China can officially operate only if they have this license.
Accounting in China is regulated by the Accounting Law of China (2017) and the Certified Public Accountants Law of China (2014).
Chinese companies must comply with the Chinese Accounting Standards (CAS), also known as the Generally Accepted Accounting Principles of China. The structure of CAS is based on the following standards:
ASBE are similar to the International Financial Reporting Standards (IFRS), except for only a few insignificant discrepancies.
Financial year starts on 1 January and ends on 31 December.
Accounting records shall be kept in Chinese. A local script can be used concurrently in autonomous national regions.
Enterprises with foreign investments, foreign companies and other overseas entities within the PRC can also concurrently use any foreign language.
Accounts must be signed by an authorized person, the company’s manager and the company’s responsible accountant and sealed.
Accounting books and records must be kept for at least 10 years.
All companies incorporated in mainland China must file annual financial statements with the Ministry of Finance and the Administration for Industry and Commerce (AIC), and an annual tax return with the State Administration of Taxation (SAT).
A standard annual report includes:
Since there are discrepancies between accounting standards and tax legislation, corporate tax must be calculated in accordance with tax legislation but not with accounting standards.
Every March, depending on the location, the local tax authority issues annual instructions for collation of accounting and tax standards. Therefore, an annual report must also contain collation and must include correction sheets to eliminate discrepancies between tax legislation and accounting standards.
Companies that make transactions with affiliated persons must also enclose with the annual report and collation an affiliated party transaction report.
Chinese companies must be audited according to the Audit Law 1994 (2006 amendment).
The purpose of compulsory audit is to insure that companies comply with the Chinese financial and accounting standards ASBE and ASSBE and comply with the Audit Law.
Compulsory audit must be done by the deadline set by law for filing documents, i.e. by the end of May annually.
Companies with foreign capital can distribute their profit or dividends back to their country only after the end of annual audit and fulfilment of all relevant tax obligations. Furthermore, companies with foreign investments in China must undergo an annual check carried out by government departments of the State Council.
Requirements regarding an auditor’s report also depend on the region.
Some regions require a separate auditor’s report on corporate tax.
In Beijing, this requirement applies to companies that meet the following conditions:
In Shanghai, this requirement applies to companies that meet the following conditions:
A company must file a tax return and financial statements for a reporting quarter within 15 days after the end of the quarter.
Companies must file an annual report and corporate tax return within 5 months after the end of the financial year.
A late payment fee of 0.05% of the amount of unpaid tax will be charged daily for delay in payment of profit tax.
In addition to the fee for late payment of company profit tax, penalties can be imposed.
Companies of mainland China are not required to file a consolidated report; each enterprise files separate accounts.
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