Annual Compliance Review in China

By Richard Hoffmann, ECOVIS Beijing China

There have been several changes in 2013 for foreign companies, which are active in China due to the various newly introduced laws and regulations. For instance, the VAT reform has a big impact and positive effect on the tax burden of many companies as well as has also aroused a lot of practical implications and foreign employees are now liable for social insurance. Therefore, every active business in China needs to draw more attention to the new regulations and be more in compliance with the relevant Chinese laws and regulations

However, it is not only about being in compliance. It is also equally important to be tax efficient. For many international companies it is easy to be tax efficient in their home country but it is not the same in China. One of the reasons is the continuously changing laws, that need to be adopted and the other reason is the lack of Chinese language skills and global thinking. We have seen many cases where companies are totally inefficient, have paid far too many taxes or have faced penalties for not being in compliance and have therefore struggled to operate their business in China. It is really key to have a smooth operation in place to make sure you are in compliance and tax efficient so that you can concentrate on what you do best: developing your business.

As for the annual compliance review: it is not hard work but it needs to be done right. Do not see it only as an additional burden for your company. It is a great chance to do a small “health check” of your operations, to evaluate the tax burdens, the compliance status, the financial structure, the control mechanism etc. After a sophisticated annual audit you are in the position to optimize your structure in China. You can get ready for 2014 by implementing a better structure with better internal controls, tax optimizations, and financial transfer optimizations which will allow your business at the end to be more profitable.

Below we will list down some of the key elements for foreign companies which help to facilitate the annual compliance review in China. We need to point out that there is one element that is of specific importance and that is TIME. It is very important to be aware of deadlines for the annual compliance review. Missing the deadline has serious consequences such as additional money which will be spent, additional work and even more harsh penalties that arise when not processing the documents in time.

Apart from the statutory requirements of doing an annual audit in China, it is also a good chance to review the company’s financial processes. Are you doing it correctly? Are you paying taxes? Is your structure tax efficient? Do you make use of your international corporate structure to reduce costs? Do you have a control mechanism in place to avoid fraud? We can support you to provide more value added advices regarding your tax status, internal control system, your corporation governance, your legal structure, etc.

For an overview of the important deadlines and the required documents regarding the annual audit in China as well as a detailed annual compliance review for the WFOE/JV/FICE/RO please download the complete ECOVIS Beijing Compliance Special Edition.

Hier gelangen Sie zur deutschen Ausgabe des ECOVIS Beijing Compliance Spezialausgabe.