China is becoming the hub of manufacturing globally. There has been unprecedented growth of the Chinese economy. More companies are setting up their operations in China to benefit from their manufacturing infrastructure and cost-effective production systems. As more foreign companies are establishing their operations in China, they need to comply with the accounting and tax regulations in the country. The accounting and tax services market has been growing steadily in China and is estimated at $26 billion in 2020.
The industry has grown at a CAGR of 11.47% during the period 2012-2020. By the end of 2020, a total of 1,040,480 foreign companies were registered in Mainland China, the Official data was provided by the Ministry of Commerce (MOFCOM). For all the Foreign Invested Enterprises (FIEs), in China including Wholly Owned Foreign Enterprises (WOFE), accounting has to be done to comply with the “Accounting Standards for Business Enterprises” (ASBEs) which is normally also known as the “China GAAP (General accepted accounting principle).
China GAAP is similar to the International Financial Reporting Standards (IFRS) as there is a convergence of 90-95% between them. However, there are many differences between the US GAAP and the China GAAP. Hence, US companies that are new to China may face some difficulties in coming to terms with the accounting and tax standards and their treatment. This is where they will benefit immensely by hiring the services of a credible and experienced accounting and tax firm in China.
The Chinese market is dominated by large accounting firms. PWC continues to be the largest accounting and tax firm in the country. It is followed by Ruihua and BDO in the second and third positions respectively. Deloitte occupies the fourth spot while E&Y and KPMG are placed at fifth and sixth positions respectively among the largest accounting firms in China. The growth in accounting firms is more than the GDP growth in China, highlighting its importance in the economy of the country.
Who needs the Accounting and Tax Firms in China?
Wholly Owned Foreign Enterprises (WOFE or WFOE) are limited liability companies operating in China and owned by foreign investors. The registered capital of a WOFE should be subscribed to and contributed entirely by foreign investors. It is important to note that a WOFE does not include branches set up in China by foreign enterprises.
WOFE in China can only do business in those domains which are included in its scope. The scope of business of WOFE is mentioned on the business license. If it wants to do business in domains other than its approved scope of business, then the WOFE has to apply for amendment in the scope and get approval from the relevant authorities. These WOFE need to maintain their accounting and financial reporting in compliance with Chinese laws and regulations. Non-compliance to the existing laws may lead to severe consequences on these companies which is not desired at all.
In order to ensure proper compliance with the regulations, the WOFE can hire the services of accounting and tax firms in China. These firms have good experience of providing similar services to a number of clients and can provide the necessary compliance at a reasonable fee to the clients. The fee of these agencies is lesser than hiring qualified manpower on the company rolls and ensuring compliance on their own.
Benefits of Hiring Accounting and Tax Firms
Companies working in China have to confirm and adhere to many accounting and tax-related compliances. The compliances in China are generally more stringent compared to western countries. It is important for them to either have subject matter experts on their roles or hire the services of professional accounting and tax firms for ensuring the necessary compliances.
In the current business scenario, companies are preferring to hire the services of agencies for meeting the compliances instead of hiring manpower on their rolls. There are many benefits that companies have while hiring a reputed and reliable accounting and tax firm. Some of the most important benefits are discussed below:
Specialized Skill Sets
The accounting and tax firms have rich experience in their domain. They have multiple clients and handle the matters related to accounting and tax on a daily basis.
They have highly qualified and experienced manpower in their roles for meeting the specific requirements of the clients and providing them quality service.
As these firms have accounting and tax services as their core business, they are updated on the recent development and changes in the sector and are better equipped to meet the client’s needs.
They are well placed to provide the best service to the WOFE on accounting and tax-related matters.
Businesses are involved in many different activities on a daily basis. Accounting and finance are only one of the many domains which businesses have to manage regularly.
Due to tight deadlines and being highly occupied in core areas of their business, the companies may not be in a position to handle their accounting and tax-related matters. This is where the importance of professional accounting and tax firms comes in. They have qualified staff and bring in a fresh perspective. They are not biased towards the companies in their opinion and thought process.
This neutral and fresh perspective enables them to provide innovative and optimal solutions to the accounting and tax aspects of the business.
One of the biggest advantages of hiring a professional agency is the flexibility it offers to the companies.
Businesses can hire accounting and tax firms based on their needs and the quantum of work. These agencies have adequate resources in terms of manpower, expertise, knowledge, etc. at their disposal.
The clients can avail of the services of these agencies for the time period they deem necessary and can enter into short-term and flexible work agreements with them.
If the work is more or in case of new projects coming up, they can also get additional resources deployed from the agencies to meet the deadlines.
This flexibility is not available when a company hires their own staff as there are other statutory compliances associated with it which increases the liabilities and the cost.
Hiring a professional accounting and tax firm not only results in the clients getting the best services, but it also reduces the cost for them considerably.
Accounting and tax firms maintain highly qualified and trained manpower on their rolls who provide their services for multiple clients. When the clients seek the services of the agency, then they get the expertise of this specialized manpower without having to pay their salaries and another statutory cost.
The hiring of qualified staff is a cumbersome and time-consuming exercise. It is also costly as the companies have to pay a monthly salary and statutory benefits to the staff which is not the case when taking the services of professional agencies.
This saves significant cost as the fee of these agencies is generally lower than the salaries and other benefits of the hired staff.
Even after hiring of manpower, there are other costs related to training and replacement of manpower in case of them leaving.
Thus, the hiring of accounting and tax firms is a better alternative than recruiting in-house staff.
Accounting and tax firms have vast experience of working in their sector. They have the know-how and understanding of getting things done when working on tight deadlines.
They have strong networking and liaison with different key stakeholders like government bodies and other relevant stakeholders.
This helps them to get the work done quicker and more efficiently. They may come up with better solutions for accounting and tax matters compared to companies doing the same on their own.
The better and more efficient nature of working and delivery of results by the agencies is a major factor for companies preferring to hire their services.
Key accounting and tax services – GWBMA
GWBMA is a one-stop solution for companies in China. We provide a wide variety of services to our clients consisting of company registration, helping to find suitable offices, Visa and working permit, accounting, and tax services, etc.
Our accounting and tax services aim at ensuring the compliance of our clients according to the Chinese laws and regulations.
As discussed, the China GAAP is a little different from the US GAAP and the accounting standards of some other countries too.
Hence, we provide complete end-to-end accounting and tax services to our clients working in China to ensure the compliance of their accounting according to the Chinese regulations.
GWBMA has skilled manpower on its rolls to help our valued clients with services like account initialization, monthly bookkeeping, monthly tax filing, VAT filing, and annual corporate income tax filing.
Our certified accounting professionals take care of the minutest requirements of the clients. The details of the key accounting and tax services provided by us are discussed below:
The companies working in China need to have robust accounting processes and systems in conformity to the China GAAP, without which they will be unable to meet the statutory requirements. We help our clients with setting up accounting systems that meet the China GAAP regulations.
We use the latest UFIDA ERP software and assist our clients in setting up Charts of Accounts (COA) as per the China GAAP regulations.
Our software allows the clients the flexibility to set up accounting units like a cost center, profit center or any other analysis unit which the management may require for internal analysis and reporting.
We assist the clients in setting up prudent and robust internal accounting policies which help them to effectively review and control the accounting systems.
The clients are also helped in setting up systems for generating regular reports as per the requirements of their management.
GWBMA provides monthly bookkeeping services to its clients. We help to develop different template forms like expense application forms, payment application forms, invoicing forms, etc. for the clients. Our clients are provided support in generating accounting documents and recording the same in the UFIDA software system.
We generate all the basic books of accounts for the clients like sub-ledgers, general ledgers, monthly books of accounts, etc. We aim towards maintenance and updating the books of accounts regularly and in compliance with the China GAAP. GWBMA prepares financial statements like profit and loss accounts, balance sheets, cash flow statements, etc. for the clients and helps them to understand their financial situation.
We also provide advice to our clients on tax optimization and avoiding paying unnecessary taxes.
Monthly/Quarterly Tax Filing
GWBMA provides services for monthly, quarterly tax returns to all our clients to whom we provide monthly bookkeeping services. The different tax filings handled by us include corporate income tax, individual income tax, business tax, value-added tax, etc.
We provide comprehensive services for tax filings. We prepare the estimated tax returns for various categories and deliver them to our clients for their reference and approval.
Once the estimates are confirmed by the clients, the returns are finalized at our end and then submitted to the relevant authorities to complete the filing of returns for any tax liabilities of our clients.
We deliver the tax payment request to our clients which is deducted after the submission of returns.
VAT Taxpayer Application
Taxpayers in China are broadly classified into two categories- small taxpayer and general taxpayer.
The small taxpayer is any person or entity who obtains a tax license. They need to pay VAT at 3% which is not deductible when they get a VAT invoice from the supplier.
It is ideal for a consulting company. General taxpayers pay VAT at 17% and deduct it when they get VAT Invoice (Fapiao) from the supplier.
Most of the trading companies in China need to submit a 17% VAT invoice to their customers.
Annual Corporate Income Tax Filing
All companies operating in China are required to file the Annual Corporate Income Tax (CIT) consisting of approximately 30 reports for the last year till the end of May next year.
The CIT annual filing requires a lot of experience and understanding of the systems as it is generally a complicated process.
We assist our clients in the collection of all original accounting and tax documents like trial balance, profit and loss account, balance sheet, tax payment notices, etc. from their management.
On the basis of documents collected, we prepare the details of tax adjustments, explanation reports of annual filing and share the same with the clients for their approval.
If required, GWBMA also arranges a face-to-face meeting with the client’s representatives to help them out in a better manner.
Once the clients approve the estimated returns, a print of all the annual filing documents is sent to them for their signature and seal. Subsequent to this, the returns are filed with the appropriate authorities, completing the process of filing the annual CIT.