Set up a Business in China: Corporate Reporting

Doing business with China is not only about opportunities but also about following specific rules. One of the key aspects of operating in China is corporate reporting. It is important to keep accurate financial records to comply with local requirements and remain transparent to partners and clients. In this article, we will discuss how corporate reporting works in China, what companies need to consider when doing business in this market, and how to avoid common mistakes.

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Annual Shareholders' Meeting

Unless the company’s charter requires it, an annual shareholders' meeting is not required for LLCs (including WFOE and JV).

Annual Board of Directors' Meeting

This is also not required unless specified in the charter. However, if the company’s charter establishes the creation of a Board of Directors, such meetings are held fairly regularly in practice.

Audit Requirements

Companies are required to conduct internal and external audits annually. These audits are performed by auditing firms that are licensed in China, and they must comply with Chinese auditing standards (CAS). CAS are based on International Standards on Auditing. The audit report is issued before the annual tax declaration is submitted. Although not legally required, many accounting firms automatically include this service in their fees to ensure that their clients are operating legally.

The goal of the audit is:

• To confirm the accuracy and completeness of the company’s financial statements.

• To ensure compliance with accounting standards and laws.

• To detect any potential fraud or misinformation.

Audit reports may be requested by local authorities.

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Accounting Reporting

Companies in China are required to follow Chinese Accounting Standards (CAS).

Companies must keep three types of accounting books:

• Journals

• Main and subsidiary ledgers

• Additional memorandum records

All books, records, and financial reports must be in Chinese and kept for 30 years.

The official currency for keeping accounting records and financial reports is the yuan (RMB).

There are two standards within CAS:

• Accounting standards for enterprises

• Accounting standards for small enterprises

Most LLCs prefer to apply the first set of standards as it is closer to the International Financial Reporting Standards (IFRS).

The financial year for companies in China coincides with the Western calendar year, from January 1 to December 31.

Companies must file tax returns and pay income tax monthly or quarterly within 15 days of the following month or quarter. Annual income tax returns must be filed within five months after the end of the fiscal year.

Companies must submit accounting reports:

• Monthly

• Quarterly

• Semi-annual

• Annual

The reports include:

• VAT declaration

• Personal income tax declaration (PIT)

• Additional tax declarations

• VAT refund declaration

• Balance sheet

• Profit and loss statement

• Cash flow statement

• Annual income tax calculation and payment declaration

• Declaration to the statistics bureau (for companies with assets over 20 million yuan)

• Consolidated annual report on foreign capital

• Tax inspection report

• Financial inspection report

Reports must be submitted to the following authorities:

• Local Administration for Industry and Commerce

• Tax Inspection

• Statistics Bureau

• State Administration of Foreign Exchange

Annual Report to the Administration for Industry and Commerce

This report must be submitted by June 30 each year and should include the following information:

• Information about the company and its status

• Financial and tax details and information about assets

• Investments in registered capital

• Changes in registered capital or shareholder contributions

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Tax Inspections

In addition to submitting reports, companies may be subject to the following types of inspections:

• Bank inspection when opening an account. Bank employees visit the office and verify the company’s existence and operations. This process is repeated each time a new account is opened or when there are changes in the company’s main documents (e.g., change of shareholder or director).

• Bank inspection during Foreign Direct Investment (FDI) registration and capital transfer approval. This may happen multiple times.

• Tax inspection during the first VAT refund. A tax inspector checks documents at the company’s office to confirm whether the company is truly operating and engaging in foreign trade.

• From March to June each year, there may be tax and industry inspections. These are rare but check whether the reports mentioned above have been submitted to the relevant authorities.

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In conclusion, corporate reporting in China is a complex process involving many mandatory procedures and documents that are required to comply with local laws and standards. Companies must be ready for regular reports, audits, and tax declarations, as well as possible inspections by various government authorities. Proper accounting and adherence to all requirements will not only help avoid penalties but also build trust with partners and clients, which is a crucial element of successful business operations in China.

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