Tax & Accounting

Internal Control for Day-to-Day Operations in China

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By Dezan Shira & Associates
Editor: Alexander Chipman Koty

The core principles of internal control do not vary significantly between countries. Indeed, China’s legislative framework for internal control largely mirrors the corresponding legislation in the US. In practice, however, the issues that arise in day-to-day business in China present a unique business environment for implementing internal control.

Specific legal features particular to China, such as company chops, require internal control systems that might not be needed in most Western countries. Meanwhile, other issues requiring internal control encountered when doing business in China – including corruption, labor disputes, language barriers, and cultural misunderstandings may be more common than in many foreign investors’ home countries.

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China Deepens VAT Reform to Combat Financial Complexity

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By Moliang Jiang 

China announced plans to deepen its value-added-tax (VAT) reform again on August 18 this year at a State Council executive meeting chaired by Premier Li Keqiang. The government’s newest move sets out to enhance the non-standardized tax rate structure, simplify the tax compliance system, and push forward VAT legislation.

China’s VAT reform has been a continuous development that resolved to replace Business Tax (BT) with VAT, reduce corporate tax burdens, and increase the weight of the service sector in China’s economy. China first piloted the VAT reform in Shanghai in 2012, and later expanded it to other municipalities and various industries.

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Export Tax Rebates in China

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By Gidon Gautel

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Any exporting enterprise in China should be well versed in its tax rebate policy. The government began to implement the policy in April 1985 as a way to enhance the country’s competitiveness in foreign markets by eliminating double taxation on exported goods. Export tax rebates refer to refunds of indirect taxes paid by exporting enterprises in the production and distribution process.

China underwent significant VAT reform in 2016 when it initiated the national changeover from Business Tax (BT) to VAT. The VAT tax reform mainly covered services; Intangible assets and immovable properties, meaning that VAT tax refunds for exports have not experienced significant upheaval. However, this is still an area exporters should familiarize themselves with.

Whilst a useful channel for recovering the costs of input taxes paid, not all goods are subject to tax refunds upon being exported. Additionally, businesses must register for, and keep tax authorities updated on their exports eligible for VAT tax refunds.

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Internal Control Review: Audit and Evaluation in China

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By Dezan Shira & Associates
Editor: Zhou Qian

Whenever foreign investors want to figure out whether internal control exists and is sufficient in their Chinese subsidiaries, an internal control review (ICR) might be the best and very first step to achieve that. In contrast to an annual statutory audit, which mainly focuses on maintaining reliable financial reporting, the ICR cares more about the specific management process.

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New FASB Lease Accounting Standards Impact US Businesses in China

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By Steve Austin, Firm Managing Partner of Swenson Advisors

US-based businesses with subsidiaries in China need to prepare financial statements that are consistent with US Generally Accepted Accounting Principles (GAAP) and the new Financial Accounting Standards Board (FASB) lease accounting standards.

While Chinese subsidiaries need to file financial statements consistent with China GAAP, often these financial statements need to be translated to US GAAP. Recent International Accounting Standards Board (IASB) standards have also changed the way leases are recorded in the financial statements in line with the new US GAAP standards.

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Internal Control in China – New Issue of China Briefing Magazine

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IC magazine frontcover 250x350The latest issue of China Briefing Magazine, titled “Internal Control in China“, is out now and currently available to subscribers as a complimentary download in the Asia Briefing Publication Store.

In this Issue:

  • Internal Control for Business in China
  • Internal Control Review: Audit and Evaluation
  • Internal Control for Day-to-Day Operations
  • Using ERP Systems to Improve the Internal Control of Your Business

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New VAT Rates in China Simplify Tax Administration

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By Jake Liddle

China has simplified its value-added tax (VAT) regime as part of its efforts to cut US$55.2 billion in taxes. As of July 1, 2017, China’s State Administration of Taxation (SAT) simplified its four tiered VAT system to three tiers. Previously, four brackets of 17 percent, 13 percent, 11 percent, and six percent existed. Under the new system, the 13 percent bracket has been removed. Continue reading…

Tax Considerations for Legal Representative Offices in China

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By Dezan Shira & Associates
Editors: Lorena Miera and Thibaut Minot

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In Part 1, we explored establishment and operational issues of an LRO.

The legal representative office (LRO) is one of the handful of special representative offices with unique characteristics in China. These special ROs are usually established in China’s restricted industries, within which foreign investors are not allowed to set up a wholly foreign-owned enterprise (WFOE) and sometimes not even a Sino-foreign joint venture (JV), as is the case of the legal services industry.

Effectively, the LRO structure allows foreign law firms to perform their legal services in China while the parent company overseas assumes civil liabilities for the activities of its LRO in China. Key differences set the LRO structure apart from traditional ROs, differences that range from the traditional RO registration process to the entity’s business scope, and from the different accounting and tax practices they must follow to the funding mechanisms available to grow their operations.
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