By Sina Gygax
manager, International Business Advisory and Development
CSC Global Financial Markets

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Preface

You finally made the decision to launch your Chinese subsidiary. You have likely done extensive market research and have learned a thing or two about Chinese culture. But don’t forget the last, and maybe most important steps­—addressing China’s accounting standards (CAS), its mandatory labor laws, and tax and report-filing requirements to remain fully compliant while operating in China.

This article outlines the six basic compliance requirements necessary to ensure a successful operation in China.

China compliance basics

With increased foreign direct investment into China and the country’s desire to become the biggest global economy, China has made significant changes to its accounting standards and tax- filing requirements over the past years. The main goal of developing the CAS has been to reduce financial fraud, optimize the country’s tax strategy, and assess more stakeholders.

The following are basic requirements that companies must adhere to in order to remain compliant with local law:

  • File employee individual income tax filings, VAT, and surtax filings as well as monthly financial statements in Chinese.

  • File Enterprise Income Tax (EIT) quarterly and annually (before the end of May of the following year).

  • Prepare balance sheet and profit and loss statements in Chinese. Note: English is not a hard legal requirement but it is recommended to compile the statements in both languages.

  • Have a written, signed, and stamped contract for every employee in Chinese.

  • Request an annual China accounting audit, where a certified public accountant will assess your account’s compliance for WFOE in accordance with the Corporation Law, article 62. File the audit reports with the local Ministry of Finance (MOF) authorities for an even higher level of trust.

  • Pay all fees in full related to annual accounting audit and EIT returns to repatriate any profits.

How CSC can help

When companies decide to expand into China, they face major challenges, especially with the interpretation of Chinese accounts. In this final step, you will work out how to consolidate your Chinese company’s accounts with your parent company’s books. We recommend you seek the support and advice of a professional international accounting firm to help with your consolidation efforts.

CSC is one of the world’s largest privately held businesses to offer corporate administration and international expansion services. Within the APAC region, we’ve been serving clients with a full suite of tax and accounting solutions for more than 40 years—including management accounting and bookkeeping, tax compliance, cost and expense management, cash management and payment processing, and more. To learn more, visit us at cscgfmapac.com or contact us at apacbusinessadvisory@cscgfm.com.

Your Company is Set Up in China—Now What?