By Dezan Shira & Associates
Editor: Jake Liddle
For foreign small and medium-sized companies and representative offices operating in China, it is important to be aware of the pros and cons of internal bookkeeping. A company may not actually have the relevant qualifications to legally process payroll and bookkeeping, and if found in this circumstance, the company may meet severe legal implications and financial consequences. There are therefore many good reasons to outsource bookkeeping services to a fully qualified accounting firm in China, as they can at once provide experience, compliance, certain liabilities, data security and fraud protection. Outsourcing can also offer a company the time to focus on its core competencies, increasing efficiency and ultimately reducing expenses.
For companies that specialize in accounting services, new provisions have been put in place to enable such entities to engage in agency bookkeeping, allowing them to handle bookkeeping services entrusted by a client. Issued on February 16, 2016 by the Ministry of Finance, the “Measures for the Administration of Agency Bookkeeping” states that any entity that has not established an internal system or assigned the task of bookkeeping to accounting personnel is required to entrust accounting business to an external bookkeeping agency. Thus, it is in a company’s best interests to know when it is necessary to outsource these services or not.
Companies are also suggested to carefully check if the bookkeeping agency that they entrust meet the following criteria as stipulated by the new provisions.
The new measures assert that any organization, apart from accounting firms engaging in agency bookkeeping, may apply for a bookkeeping qualification after obtaining authorization from the local government finance department, in addition to a bookkeeping licence issued by the relevant finance department. They must also meet the following conditions:
- Are a legally established enterprise;
- Have no less than three full-time employees holding a professional accounting certificate;
- The person in charge of bookkeeping holds a professional accounting qualification and is a full time employee;
- Have sound internal rules for bookkeeping business.
Foreign investors are also encouraged to set up a bookkeeping agency if they meet the above-mentioned requirements. Firms looking to apply for the bookkeeping qualification must submit the following materials to the local authorities:
- A copy of a business license;
- Accounting qualification credentials of employees;
- Written commitment of full time employees’ practice at the firm;
- Internal bookkeeping service specifications;
Once the bookkeeping qualification is obtained, agencies are permitted to engage in the following business entrusted by a client:
- Conducting business accounting according to the state uniform accounting system and on the basis of the source documents and other materials provided by the client, including examining the source documents, filling out vouchers for keeping accounts, registering account books, compiling financial reports, etc.;
- Providing financial reports externally;
- Providing taxation materials to the tax authority;
The new provisions for engaging in agency bookkeeping services, which will come into effect on May 1, reinforces the encouragement of investment into the accounting and audit industry as stated in the 2015 Catalogue of Industries for Guiding Foreign Investment. According to IBISWorld’s Auditing, Accounting & Tax Services Market Research Report, the industry grew at 8.5 percent from 2010 to 2015, generating US$10 billion last year. It will remain open to investment in the coming years, and with the new measures coming into effect in May, this is an opportunity for accounting firms to expand their services.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.
Tax, Accounting, and Audit in China 2016
This edition of Tax, Accounting, and Audit in China, updated for 2016, offers a comprehensive overview of the major taxes that foreign investors are likely to encounter when establishing or operating a business in China, as well as other tax-relevant obligations. This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who must navigate the complex tax and accounting landscape in China in order to effectively manage and strategically plan their China-based operations.
Annual Audit and Compliance in China 2016
In this issue of China Briefing, we provide a comprehensive analysis of the various annual compliance procedures that foreign invested enterprises in China will have to follow, including wholly-foreign owned enterprises, joint ventures, foreign-invested commercial enterprises, and representative offices. We include a step-by-step guide to these procedures, list out the annual compliance timeline, detail the latest changes to China’s standards, and finally explain why China’s audit should be started as early as possible.
Managing Your Accounting and Bookkeeping in China
In this issue of China Briefing, we discuss the difference between the International Financial Reporting Standards, and the accounting standards mandated by China’s Ministry of Finance. We also pay special attention to the role of foreign currency in accounting, both in remitting funds, and conversion. In an interview with Jenny Liao, Dezan Shira & Associates’ Senior Manager of Corporate Accounting Services in Shanghai, we outline some of the pros and cons of outsourcing one’s accounting function.