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Five reasons for outsourcing bookkeeping in China

(July 29th, 2015)

Outsourcing your bookkeeping can help running your business more effectively and enables you to focus on the core competencies of your company. In addition, subcontracting a professional accounting firm for providing bookkeeping or payroll processing can increase your profitability, reduce legal risks and solve compliance problems with overseas connected companies. This article explains five reasons why outsourcing your bookkeeping in China can be an advantage:

 

Five reasons to outsource your bookkeeping

 

Experience & Liability

Accounting firms with many years of practical experience work with various clients regardless of their industry or size. They are able to apply the latest knowledge of compliance and regulatory guidelines and are not only up-to-date with the latest accounting practices, but also experienced in optimizing taxes and filing all relevant documents on time. You may find that you get better financial advice with outsourcing this area and in return could save large amounts of money later. Furthermore, an accounting firm is liable for its work, whereas a local employee who leaves can hardly be held responsible.

Expenses

All relevant management activities including the manager’s time for directing, negotiating, firing and hiring have to be considered when deciding whether to outsource the accounting work. An in-house accountant may relieve this workload but in return demand salary, allowance and social insurance which have to be paid regularly. Additionally, a working desk has to be provided and a Chinese bookkeeping software has to be purchased at a high price. In the long run, outsourcing your bookkeeping can end up saving you money by eliminating some of the above mentioned expenses as well as amounts arising from insufficient accounting. The expenses for the outsourced services may likely turn out to be less than the savings you get with the better financial reporting and advice by a specialized accounting company.  Some companies may think of having an administrative person filling the job. However there is the big risk that deadlines are missed and penalties have to be paid or that the annual audit fails. The own staff can instead concentrate on work that is revenue generating, essential to business operations and in accordance with experiences.

Salary & Pricing

One of the most outsourced financial practices is payroll processing. Payrolling can be complicated and many firms do not want to share salary details with internal stakeholders. This mistrust mainly arises from the high turnover of Chinese employees. When an in-house accountant leaves the company there is the risk that competitors may get access to information such as the salary of employees or the price of supplies. In the case of salaries, employees in China could be easily convinced to join a competitor if they pay a higher salary. Many Foreign-Invested Enterprises in China use the services of a FESCO (Foreign Enterprise Service Company) for labor dispatch and payroll. The danger here is that some FESCOs are also engaged in headhunting. In this case, the FESCO which also finds employees for its headhunting clients has all the confidential personal and salary information of the payroll clients and can use them as advantage for their headhunting activities. Headhunting clients might then use this information in order to approach the employees and negotiate lucrative employment deals.

In addition, the laws in China change frequently, so it is often difficult for an individual bookkeeper or payroll employee to adequately keep the books while at the same time be up to date with the recent changes in the legal landscape. This of course does not apply when hiring a specialized legal & tax firm.

Moreover, for a single individual it requires the knowledge of the Chinese payroll laws as well as the expat´s payroll laws. For example, Chinese nationals are required to pay a tax deductible deposit to the Chinese social security plan and housing fund, while an expat has to pay neither of these deposits but is eligible for tax deductions on business travel expenses and housing expenses. To maximize available tax deductions for expats and minimize tax for employers, payroll employees must be extremely knowledgeable.

Conclusively speaking there is potential to optimize a company´s payroll package in China and it might be helpful to seek some professional help to do so. Furthermore, outsourcing eliminates most of the uncomfortable situations and helps to maintain a more efficient payroll system and therefore should always be kept in mind.

International Reporting

There are differences in accounting regulations between countries. Professional accounting firms such as ECOVIS Beijing are familiar with the most up-to-date reporting standards and experienced in applying the different guidelines and rules, for instance of the IFRS (International Financial Reporting Standards), the PRC GAAP (Chinese Generally Accepted Accounting Principles) or the HGB (Handelsgesetzbuch) of Germany and the HGB of Austria. In addition, the cooperation with the company’s headquarter can be improved since the accounting firm understands the differences in the company’s main language.

Quality and Compliance

Finding a qualified in-house accountant in China can be a hard task. Companies must work with the international headquarters. The accountant must therefore have good language skills and understand the overall company well. Additionally, it may be hard to control whether everything is done in accordance with the laws and regulations and within the deadlines. Last but not least, the four-eyes-principle should be implemented throughout the whole process. An accounting firm like ECOVIS Beijing has always two experts being responsible for one client – this ensures high quality control.



Author:
Richard Hoffmann
richard.hoffmann@ecovis.com
Office website

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