Accounting and tax
Healy Consultants’ Compliance Department guides our Clients through the legal and tax obligations for China business registration.
China tax system
- China’s corporate income tax (CIT) is a flat 25% on all corporate profits;
- A special CIT of 15% applies if the enterprise is classified under high technology status or if enterprise is incorporated in certain regions of China such as i) Guangdong ii) Fujian and iii) Hainan;
- Capital gains are also taxed at CIT of 25% although losses can be carried forward for 5 years;
- China levies a withholding tax of 10% on i) dividends, ii) interest, iii) royalties;
- The standard value added tax (VAT) rate in China is 17%. A reduced rate of 13% applies to certain foods, goods, books and utilities.
- Companies in China must prepare financial statements for annual statutory audit under Chinese GAAP framework following company setup;
- VAT returns must be filed monthly and submitted before the 15th day of the following month;
- All enterprises must file their tax returns with the local authorities within 15 days of the end of each quarter, while annual tax returns and settlement must be submitted within 5 months from the end of the tax year;
- A late fee of 0.05% on unpaid taxes will be charged daily, if settlement is not made in full.
Miscellaneous tax matters
- China has signed 97 double taxation avoidance treaties with countries around the world, including i) Germany, ii) United States iii) Russia, and iv) Singapore;
- China has joined international organisations such as the World Trade Organization (WTO) and the Asia pacific economic cooperation (APEC).
Healy Consultants’ Services
- It is important our Clients’ are aware of their personal and corporate tax obligations in their country of residence and domicile; and they will fulfill those obligations annually. Let us know if you need Healy Consultants’ help to clarify your annual reporting obligations;
- Healy Consultants Compliance Department assists our Clients to efficiently and completely discharge the annual accounting and auditing obligations of their China company through the following: i) documenting and implementing accounting procedures ii) implementing financial accounting software iii) preparation of financial accounting records and iv) preparing forecasts, budgets, and sensitivity analysis to better manage financial obligations and ease the process of reporting to the China accounting authorities.
|1.||Update the books in accordance with the Chinese accounting standards||Monthly|
|2.||Prepare monthly financial statements for tax filing purpose||Monthly|
|3.||File monthly business tax return||Monthly|
|4.||File corporate income tax return||Quarterly|
|5.||Submit annual employee tax returns||Annual|
Legal and compliance
- Before China company incorporation, a lease agreement for office premises must be pre-approved by local government and municipal authorities;
- Although there is no minimum paid up capital requirement for a LLC in China, Healy Consultants recommends paid-up capital of US$15,000 and US$140,000 depending on the industry and the province of registration;
- The paid-up capital must be audited by a certified public accounting firm in China to verify that this capital is contributed in accordance to Companies Law of the People’s Republic of China;
- Following China company setup, each China company must appoint i) at least one shareholder and one director ii) a Chinese legal representative and a Chinese board of supervisors;
- Foreign investors are required to register the controlling person of the WFOE through China’s foreign invested enterprise online filing;
- According to article 38 of the Companies Law of the People’s Republic of China, A Chinese legal representative must be appointed. A Chinese legal representative can act on behalf of a firm to conclude contracts and submit reports to regulators. A Chinese legal representative has the authority of a director and shares in corporate liability;
- The Companies Law of the People’s Republic of China requires limited liability companies to have ‘the board of supervisors’ (made up by shareholders and employees) to serve as a government reporting body. Should there be a breach of the articles of association, the board of supervisors are legally obliged to report directors, supervisors, or senior officers to the relevant authorities.
- Employers are required to contribute to their employee’s i) retirement scheme, ii) medical insurance and iii) unemployment insurance amongst other. Total contribution may add up to 40% of employee’s basic salary;
- Termination within the employment term must be supported by a justified reason. Chinese law only stipulates certain justifications that allow for cause of termination;
- The minimum monthly wage in China is US$300.
Other legal matters
- The activities of China companies are restricted to the business license issued by the provincial government. Consequently, it is critical for a foreign investor registering a company in China to carefully prepare incorporation documents;
- In 2014, the US and Chinese Governments signed a treaty whereby all Chinese financial institutions will legally disclose the holdings of all their American Clients to the authorities from 2015;
- Consequently, American citizens are required to file the details of all their Chinese holdings with the Internal Revenue Service. Failure to do so will result in penalties of up to i) 10 years of imprisonment and ii) US$500,000 fine.
Frequently asked questions
Do I need a license to do business in China?Yes. All foreign-owned businesses registered in China must obtain a license for their chosen business activity or activities. These companies may not enter new business lines without increasing the scope of their license.