Accounting Requirements for Business Registration in China

1. Overview

Accounting is a fundamental legal requirement for all registered companies operating in China. Proper accounting practices ensure accurate financial reporting, tax compliance, and transparent business operations as mandated by Chinese law. The accounting system must adhere to the Accounting Law of the People's Republic of China and the Chinese Accounting Standards (CAS), which align with international norms for most enterprises. Establishing a compliant accounting system is not optional; it is a core component of obtaining and maintaining a valid business license and is monitored by multiple government agencies, including the Ministry of Finance and the State Taxation Administration.

2. Applicable Objects & Scenarios

These requirements apply to:

• All types of registered companies in China, including Wholly Foreign-Owned Enterprises (WFOEs), Joint Ventures, and Representative Offices.
• From the moment of company establishment. A company must designate a person responsible for accounting (such as a Legal Representative or a Chief Financial Officer) upon registration.
• Ongoing operations. Companies must maintain continuous and accurate accounting records for monthly, quarterly, and annual reporting.
• Specific scenarios such as applying for certain business licenses, securing loans, undergoing audits, or during annual compliance inspections.

3. Core Conclusions

• Mandatory Compliance: Maintaining accounting books and issuing financial reports in accordance with Chinese standards is a legal obligation.
• Designated Responsibility: A company must appoint a person in charge of accounting affairs. Companies above a certain scale are required to hire licensed professional accountants.
• Ongoing Reporting: Companies must fulfill regular tax filing and financial reporting duties, including monthly/quarterly declarations and an annual corporate income tax reconciliation.
• Audit Requirements: Most companies are required to undergo an annual audit by a Chinese-certified public accounting firm. The audit report is used for annual reporting to the Administration for Market Regulation (AMR), tax reconciliation, and other purposes.
• Digital Compliance: Major processes, including invoicing (via the Golden Tax System) and tax filing, are conducted through designated online platforms.

4. Procedures & Steps

Step 1: Preparation (Post-License)

After obtaining the business license, a company must complete the following foundational accounting setup:

• Open a Corporate Bank Account at a licensed bank in China for capital injection and daily transactions.
• Register with the Tax Authority. Complete tax registration at the local State Taxation Administration and Local Taxation Authority bureau to obtain a digital tax certificate and activate tax filing accounts.
• Apply for Tax Invoicing Privileges. Apply for and purchase a tax control device (Golden Tax Disk) to issue official fapiao (invoices).
• Designate Accounting Personnel. Appoint a person responsible for accounting. For many SMEs, this function is outsourced to a qualified agency.

Step 2: Application & Submission (Ongoing Operations)

• Bookkeeping: Record all financial transactions daily using compliant accounting software.
• Calculate Taxes: Accurately calculate VAT, Corporate Income Tax (CIT), and other applicable taxes like surcharges and Individual Income Tax (IOT) for employees.
• Monthly/Quarterly Declarations: Submit VAT, CIT (prepayments), and other tax declarations electronically via the tax bureau's online system before the stipulated deadlines.
• Issue and Manage Invoices: Issue official fapiao to customers using the Golden Tax System and properly account for all received invoices.

Step 3: Review & Confirmation (Periodic Compliance)

• Annual Audit: Engage a Chinese CPA firm to conduct the statutory annual audit of the financial statements.
• Annual Report Submission: Submit the audited financial report, along with other documents, to the Administration for Market Regulation (AMR) via the National Enterprise Credit Information Publicity System during the annual reporting period (Jan 1 - June 30).
• CIT Reconciliation: Complete the annual Corporate Income Tax reconciliation by May 31st, submitting the required forms and the audit report to the tax authority.
• Archive Accounting Records: Securely store accounting vouchers, ledgers, and reports for the legally required retention period (generally at least 15 years).

5. Frequently Asked Questions (FAQ)

Q1: Can I use international accounting standards (like IFRS) for my company in China? A: For domestic reporting and tax purposes, you must comply with Chinese Accounting Standards (CAS). While some holding companies may prepare consolidated reports under IFRS for internal use, the official books and statutory reports submitted to Chinese authorities must follow CAS.

Q2: Is it mandatory to hire a full-time accountant? A: Not necessarily. The law requires a person to be responsible for accounting. Many small and medium-sized enterprises (SMEs) and representative offices outsource their accounting and tax filing to licensed and reputable financial agencies. This is a common and compliant practice.

Q3: What are the key deadlines for accounting and tax filing? A: Key deadlines include monthly or quarterly VAT declarations (usually by the 15th of the following month), quarterly CIT prepayments, the annual CIT reconciliation (by May 31st), and the annual business report to the AMR (by June 30th). Specific dates can vary; please verify with official sources and your local tax bureau.

Q4: What is the "Golden Tax System"? A: The Golden Tax System is a nationwide, unified digital tax administration platform. It monitors company invoicing and tax data in real-time. All official fapiao must be issued through this system, making accurate bookkeeping and reporting critical to avoid discrepancies that trigger audits.

Q5: What happens if I don't maintain proper accounting records? A: Non-compliance can result in severe penalties, including fines, back taxes with late payment surcharges, loss of invoicing privileges, inclusion on a tax blacklist, legal liability for the legal representative, and in severe cases, revocation of the business license.

6. Risks & Compliance

• Disclaimer: This article provides general guidance and is not a substitute for professional accounting or legal advice. Regulations and local implementation can change. Always consult with qualified professionals and official sources for your specific situation.
• Compliance is Critical: The Chinese tax and financial regulatory environment is sophisticated and strictly enforced. Even unintentional errors due to misunderstanding rules can lead to significant penalties.
• Data Integrity: Ensure all financial data reported to different agencies (Tax, AMR, Customs, etc.) is consistent. The "Big Data" systems used by authorities cross-check information.
• Professional Engagement: It is highly advisable to engage a reputable accounting firm or agency familiar with CAS and local tax practices to ensure full compliance from day one of operations.

7. References & Sources

• Accounting Law of the People's Republic of China (中华人民共和国会计法): http://www.mof.gov.cn/zhengwuxinxi/caizhengbuling/201907/t20190725_3322915.htm
• State Taxation Administration (国家税务总局): http://www.chinatax.gov.cn - For tax registration, filing, and policies.
• Ministry of Finance of China (中华人民共和国财政部): http://www.mof.gov.cn - For Chinese Accounting Standards (CAS) and accounting regulations.
• National Enterprise Credit Information Publicity System (国家企业信用信息公示系统): http://www.gsxt.gov.cn - For annual report submission and compliance.

8. Related Topics

• Company Registration Process in China
• Corporate Tax Compliance in China
• Annual Inspection and Reporting for Chinese Companies
• China's Golden Tax System and Invoicing
• Opening a Corporate Bank Account in China