2012 Annual Legal / Tax Documentation Renewals Due

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Dec. 28 – As the yearend is approaching, foreign-invested businesses in China should begin thinking about preparing for the annual cooperative examination that takes place each year between March 1 and June 30. The procedure can be undertaken by the foreign business itself or by its local agency after the annual audit of the enterprise is completed. The requirement for representative offices (ROs) is different, and is discussed at the end of this article.

Governmental departments involved
“Annual cooperative examination” refers to examination of enterprises jointly conducted by relevant government departments, usually seven of them. The departments involved may vary depending on the location in which the enterprise is located, but in general they are as follows:

  • Ministry of Commerce (MOFCOM)
  • Administration of Industry and Commerce (AIC)
  • Statistics Bureau
  • Finance Bureau
  • Tax Bureau
  • Administration of Foreign Exchange (AFE)
  • Customs

Documents required
The examination is designed to ensure that foreign-invested enterprises (FIEs) conduct business in compliance with legal requirements and involves submitting the documents below to the authorities for checking and renewal. Some of these documents are required by more than one department, and multiple copies should be prepared accordingly (Note: all photocopied documents need to be stamped with the company seal):

  • Annual cooperative examination report
  • Approval certificates of FIEs
  • Business license duplicate
  • Capital verification report
  • Tax registration certificate duplicate
  • Finance registration certificate duplicate
  • Audit report issued by CPA firm
  • Audit report of foreign currency issued by CPA firm
  • Annual financial statement (full set) of the business
  • Annual financial report
  • Statistical registration certificate
  • Customs declaration registration certificate
  • Foreign currency registration certificate of FIEs
  • For enterprises in encouraged industries, photocopy of encouraged project confirmation certificate
  • For advanced technology enterprises and export enterprises, photocopies of certificates for these two kinds of enterprises

Examination procedure
To begin the official procedure, companies should log onto the online annual inspection system website (for many cities/provinces, this website is www.lhnj.gov.cn) and register and fill out the necessary information. After that, a preliminary annual inspection will be conducted online. If the company passes this preliminary inspection, it can print out the relevant materials and submit them together with the above required documentation to a joint inspection location by early June to finalize the procedure. At the end of the inspection, an annual inspection seal will be affixed on the business license duplicate of the enterprise.

The procedures and requirements can vary depending on the region.

In Beijing, after submitting the annual cooperative examination report online, paper filing is not required except for AIC and AFE.

In Shanghai, if companies do not complete the filing online before the end of May, they are required to submit paper materials to each department separately. In addition, the examination conducted by the AIC takes place separately from the cooperative examination.

If you are unsure of the procedure at your locality, please contact us for advice.

It should be noted that if the Chinese administration staff handling this work have no previous experience in handling foreign businesses legal administration, there might be problems concerning incomplete registrations as the procedures for renewing foreign invested business licenses are different from Chinese domestic businesses. As mentioned, operational difficulties or even fines and penalties can be levied if the annual renewal documentation is not filed completely or on time.

Representative Offices
While ROs are exempt from annual cooperative examinations, starting from 2011, ROs are also required to submit an annual report between March 1 and June 30 every year providing information on the legal status and standing information of the headquarters overseas, ongoing business activities of the RO, and an audited expenses report. The registration authorities will issue an RMB10,000 to RMB30,000 penalty if the RO fails to provide such reports on time, and an RMB20,000 to RMB200,000 penalty if the report includes false information. Fraud may also lead to license revocation. The impact of this is to effectively clamp down on the use of RO for quasi trading purposes.

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China. The firm specializes in assisting foreign enterprises with their tax obligations. For further advice and specifics relating to these recent measures, please email china@dezshira.com, visit www.dezshira.com, or download the firm’s brochure here.

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