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Annual Audit for Foreign Invested Enterprises (FIEs)
All FIEs (whether Representative Office or Limited Company) in China are required to prepare annual financial statements, including balance sheets and income statements for their annual Chinese audit. Such accounts must be in accordance with the Chinese accounting standards for business enterprises.
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FIEs, including their legally responsible persons, must take full responsibility for the truthfulness, legitimacy and completeness of these financial statements. The financial statements must be completed each month for each financial calendar year from January 1st to December 31st. These documents must be completed and audited before end of April of the following year. The audited accounts will then have to be consolidated and submitted for tax purposes by the end of April every year. These statements will be used for computing the FIEs taxable and distributable profit. Accordingly, an annual audit by a firm of certified public accountants registered in the PRC is required under Chinese law.
Annual Tax Declaration for FIEs
FIEs will also need to submit to both the national tax bureau and local tax bureau the Annual Taxation Consolidation Reporting Package, authorized by a CPA firm by the end of April each year. In this reporting package, a CPA firm shall verify all the taxes including VAT, Business Tax, Consumption Tax, Foreign Enterprise Income Tax (FEIT), and other taxes on the basis of the audit result.
The FEIT is obviously the most important issue to be disclosed in this report. The related taxable elements, and in particular items involved in FEIT such as income, cost and expenses, are specified in detail, while the auditing firm shall make the FEIT reconciliation between financial profit and taxable profit in accordance with PRC FEIT regulations.
If the audited taxes are different from the taxes paid by the FIE, the FIE shall discuss the variation with the tax bureau. For example, should the audited tax figure be lower than the figure paid, the FIE will need to apply for a tax rebate or tax reduction for the fiscal year in question. Accordingly; should the audited tax figure be higher than the paid FEIT, once the FIE submits the report, it would have to pay the balance due to the tax bureau.
Annual Inspection for Limited Companies
Limited Companies need to apply for and obtain the annual inspection documents from the same office of the State Administration for Industry and Commerce (SAIC) from which they have obtained their original business license. They must also complete the annual inspection report form from the relevant provincial or municipal SAIC website.
Annual Individual Income Tax (IIT) Application for Expatriates and Mainland Chinese
Apart from the monthly income tax filing, employees in China with annual income in excess of RMB 120,000 (about US$16,200) should complete an annual self-declaration to be submitted by the end of March each year - at the latest - for their income earned in the previous tax year. This annual self-declaration means such expatriates should complete and submit an Individual Income Tax Declaration Form to the local tax authority in addition to their regular routine monthly tax filings.
In accordance with The Implementing Rules of the Individual Income Tax Law of the People's Republic of China and The Self-declaration Rules Concerning Individual Income Tax, taxpayers who meet any one of the following five conditions should file self-declarations of individual income taxes:
Dividend Distribution
The accounting year (fiscal year) runs from January to December in China. It is therefore important in November/December to start planning for declaration of dividends for repatriation and/or re-investment of profits. Repatriation of profits from China is of course preferable if your organization requires the funds for re-investment abroad, or to return to the shareholders.
Contact us
For further queries, please do not hesitate to contact ATAHK at anytime, anywhere by simply calling China hotline at 86-755-82143348, or emailing to susiehu@citilinkia.com.