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Tax & Accounting in China

Outsource your tax and accounting to local experts, ensuring compliance with Chinese tax laws, organized bookkeeping, and financial reporting.

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tax and accounting in china annual corporate tax return

Tax compliance is Important

Once a representative office or Wholly Foreign-Owned Enterprise (WFOE) is established and registered in China, it is essential to maintain accurate financial records and comply with Chinese accounting laws and standards. Periodic reporting of financial statements and tax filings to the relevant authorities is required to ensure legal compliance. Additionally, every company registered in China must undergo a comprehensive annual audit, which is a critical component of operating within the country.

For foreign-owned companies, this annual audit holds particular significance, as it serves as a prerequisite for initiating the repatriation of profits. Without a successful audit, foreign businesses cannot legally transfer profits out of China, making it an essential step for companies looking to remit earnings back to their home countries.

While these accounting and reporting requirements are similar to those in many other countries, adapting to China’s specific tax regulations and accounting standards can be challenging. The rules governing tax filings, financial reporting, and compliance are often complex and subject to change. Understanding and aligning with Chinese Generally Accepted Accounting Principles (GAAP) or Chinese Accounting Standards (CAS) requires careful attention to detail and a solid understanding of local regulations.

Navigating the intricacies of China’s tax and accounting framework demands specialized expertise, making it advisable for foreign companies to work closely with local accountants or compliance professionals. These experts can help ensure that financial records are accurate, audits are completed efficiently, and all legal obligations are met, thereby avoiding potential delays or penalties.

Monthly bookkeeping

Full Tax Compliance

Invoicing service

Bilingual Accountants

Tax and Accounting Procedure

1. Systems setup

setup accounts and ledgers in accordance with PRC GAAP requirements.

2. Mandatory filing

The must-have reporting work for government compliance.

  • Filing VAT
  • Filing surtax
  • Filing corporate income
  • Filing stamp tax

3. Bookkeepping

Conduct of regular bookkeeping activities in English and Chinese.

  • Transactions and invoicing
  • Profit & loss statement
  • Balance sheet
  • Audit & Coordination

Tax and accounting with FDI China

Maintaining an in-house tax and accounting service can be a costly burden for any company, particularly for smaller enterprises. Many Wholly Foreign-Owned Enterprises (WFOEs) and representative offices opt to outsource these functions to a professional accounting services firm for greater efficiency and cost-effectiveness.

At FDI China, we offer a comprehensive range of accounting, tax, and audit services tailored to meet the specific needs of businesses operating in China. Whether you require a fully outsourced solution or partial support in collaboration with your internal teams, we provide flexible services to ensure compliance and financial accuracy.

tax and accounting in china
China company registered address: China WFOE registration

Our tax & accounting includes:

  • Setting up initial accounting systems and methodologies for WFOEs or representative offices
  • Monthly preparation of company financial records in accordance with Chinese accounting standards
  • Monthly and annual tax filings with the Chinese tax authorities
  • Filing for Business Tax, Individual Income Tax, and Corporate Tax
  • Annual audits of financial statements to ensure accuracy and compliance
  • Expertise in navigating applicable double taxation treaties to optimize tax obligations

By partnering with FDI China, you can streamline your accounting and tax processes, ensuring full compliance with Chinese regulations while focusing on your core business.

Chinese Accounting Standards

The Chinese accounting system operates under the framework of Generally Accepted Accounting Principles (GAAP), also known as Chinese Accounting Standards (CAS). Over time, these standards have evolved to closely align with globally recognized frameworks such as the International Financial Reporting Standards (IFRS) and U.S. GAAP. However, significant differences remain, which can present challenges for businesses operating in China.

One key distinction lies in the valuation of fixed assets. While IFRS permits valuation using either historical cost or asset revaluation, CAS strictly adheres to the historical cost principle. Additionally, discrepancies between CAS and international standards often arise, not due to differing interpretations, but because of delays in the adoption of changes. Updates made in one system can take considerable time to be reflected in the other, adding complexity for businesses managing accounting across multiple standards.

Tax and accounting in China
DALL·E 2024 09 12 17.14.11 A stylish illustration in Black and Beige BB style of a Chinese man standing confidently as a tax agent in front of the Bund in Shanghai. The man

The benefits of outsourcing tax

There are several advantages to outsourcing tax and accounting services:

  • The complex areas of Chinese accounting standards and tax reporting are entrusted to a company which deeply understand them.
  • Less internal company time taken up on administration and reporting, resources are free to focus on real business tasks.
  • Our accountants are always up to date with rules and regulations, and are well informed of current or future changes.
  • Regular and accurate submissions to Chinese authorities are very important. There can be strict penalties for late or incorrect submission.
  • We can advise on tax structures and planning, which can drastically reduce your taxes.

China Corporate Tax Filing

Our corporate tax filing service offers comprehensive support in calculating and optimizing Corporate Income Tax liabilities. We ensure that your tax obligations are met efficiently and in full compliance with Chinese tax regulations on a monthly, quarterly, and annual basis. By carefully optimizing your tax liabilities, we help minimize costs while ensuring adherence to the latest tax laws.

Additionally, we manage the preparation and timely submission of all tax returns, handling the entire process to ensure payments are processed without delays. Our team communicates directly with local Chinese tax authorities on your behalf, managing any negotiations that may arise. We also provide regular advisory services, keeping clients informed of the latest legislative changes to ensure ongoing compliance with China’s evolving tax policies.

VAT tax

Chinese entities involved in export activities are eligible to apply for a VAT refund with the relevant tax authorities. This process allows businesses to reclaim the input VAT paid on materials and other inputs used in the production of goods for export.

To successfully apply for an export VAT refund, several key documents must be submitted to the Chinese tax authority, including special VAT invoices (fapiao) and customs declaration forms. However, the process of claiming an export VAT refund can be complex and time-consuming, requiring a deep understanding of both tax regulations and the specific procedural steps.

To alleviate the administrative burden for our clients, we streamline and optimize the VAT refund application process. By handling the documentation and submission on their behalf, we ensure compliance while minimizing delays, allowing our clients to focus on their core business activities.

Withholding Tax in China

In China, withholding tax applies to foreign enterprises earning China-sourced income. The tax is imposed on specific types of income, including:

  1. Dividends, Bonuses, and Other Equity Proceeds: This refers to income from shares or investments in Chinese companies.
  2. Interest, Rents, and Royalties: This includes payments for the use of property, interest on loans, and royalties from intellectual property rights in China.
  3. Income from the Transfer of Property: This covers capital gains from selling property or assets within China.
  4. Other Corporate Income: Any additional income earned by non-resident enterprises that is subject to corporate income tax.

The standard withholding tax rate is 10%.

withholding tax in China

More information on Accounting & Taxation in China

Our Working Process

1. Consultation & Proposal

We (can) advise you on the best solution for your business model and send you our comprehensive proposal.

2. Signing & Payment

After reviewing the proposal, we sign the service contract and receive your payment.

3. Preparing Documents

We send you an application form as well as the list of documents we need from your side.

FAQs

As a foreign company operating in China, you will be subject to several types of taxes, including but not limited to:

  1. Corporate Income Tax (CIT):
    • Standard rate: 25% of taxable income.
    • Small and low-profit enterprises may qualify for reduced rates, depending on eligibility.
  2. Value-Added Tax (VAT):
    • Ranges from 6% to 13%, depending on the type of goods or services provided.
    • Exported goods are generally subject to a zero rate or refund system, but conditions apply.
  3. Withholding Tax (WHT):
    • Applies to income repatriated abroad, such as dividends, royalties, or interest payments.
    • The standard WHT rate is 10%, but it can be reduced under applicable tax treaties.
  4. Personal Income Tax (PIT):
    • You are responsible for withholding and paying employees’ personal income tax based on progressive tax brackets.
  5. Social Insurance Contributions:
    • As an employer, you are required to contribute to employee social insurance and housing funds. The rates vary by region.
  6. Other Taxes:
    • This may include property tax, stamp duty, and consumption tax, depending on your business activities.

 

The final step in the registration process of a company, after the bank account is issued, is to obtain a tax registration number at the local tax bureau. The company must begin filing for taxes asap after the tax registration number is issued, even if no transactions are occuring.

No! Only accountants or accounting firms certified by the Chinese Institute of Certified Public Accountants (CICPA), can perform tax filing in China.

Yes, even though representative offices are not permitted to generate profit, they are required to submit monthly tax and accounting reports with salaries and expenses.

Yes, even if the company is new and has no transactions, the tax and accounting report must be submitted to the government.

Yes, there are restrictions and procedures to follow when repatriating profits:

Profit Repatriation Rules:

    • Only profits earned and declared after paying Corporate Income Tax (CIT) and other local taxes can be repatriated.
    • Proof of tax payment and an audit report are typically required.

 

Withholding Tax (WHT):

      • A 10% withholding tax applies to dividends distributed to foreign shareholders. This rate may be reduced under a Double Taxation Avoidance Agreement (DTA).
      •  

Restrictions on Capital Repatriation:

    • Funds from registered capital or unpaid share capital cannot typically be repatriated. They must remain within the company for operational purposes.

Yes, the type of legal entity you establish in China affects your tax obligations. Here’s an overview of the differences:

Wholly Foreign-Owned Enterprise (WFOE)

Corporate Income Tax (CIT):

  • Standard rate: 25% of taxable income.

Value-Added Tax (VAT):

  • Rates vary from 6% (services) to 13% (goods).

Joint Venture (JV)

Same taxes as a WFOE

Representative Office

Deemed Corporate Income Tax (CIT):

  • ROs are taxed on a deemed profit basis since they cannot generate revenue.
  • The tax rate is calculated as 25% of the deemed profit, which is often set as a percentage (typically 15%-30%) of total expenses.

Value-Added Tax (VAT):

    • ROs are exempt from VAT as they do not engage in commercial activities.