In accordance with the laws and regulations of the People's Republic of China, both domestic and foreign-invested enterprises (FIEs) must adhere to specific annual compliance procedures—including annual audits, tax filings, and annual reporting—to meet legal, financial, and regulatory standards. These activities are not only a legal obligation but also an opportunity for companies to understand their own operational and financial health.

As mentioned above, the three primary steps are:

1. Annual Audit: Every company is required to undergo an annual audit of its financial statements. This audit is conducted by a Chinese Certified Public Accountant (CPA) firm to ensure the company's financial reporting complies with Chinese regulations. While these requirements are stricter for FIEs, it is generally recommended that all companies conduct an annual audit to maintain transparency and sound financial governance. For FIEs, former reserve funds and enterprise development funds are now unified under statutory and discretionary surplus reserves; any related adjustments must be fully disclosed in the annual audit.

2. Annual Tax Filing: Companies must pay Corporate Income Tax (CIT) on a quarterly basis. Additionally, they must complete the annual tax reconciliation by May 31 of the following year. Once this step is completed, foreign companies can proceed with the distribution and repatriation of profits.

3. Annual Reporting: Reports must be completed and submitted to government authorities by June 30. This includes basic company information and updates. Depending on the nature of the business, additional documentation may be required. FIE annual reports and foreign investment information reports are now integrated; they are submitted via a "single window" through the National Enterprise Credit Information Publication System (NECIPS), eliminating the need for duplicate submissions.

Foreign representative offices (ROs) also require these three main compliance steps. Between March 1 and June 30, ROs must submit proof of the legal status of their overseas parent organization to the local State Administration for Market Regulation (SAMR).

Key Differences Between FIEs and Domestic Companies

While the core compliance process is similar, FIEs often face stricter requirements, whereas domestic companies may encounter fewer bureaucratic hurdles. Key differences include:

• Annual Reporting: FIEs are expected to include reports for the Ministry of Commerce (MOFCOM) and the State Administration of Foreign Exchange (SAFE), alongside the NECIPS report. Domestic companies typically only need to submit the NECIPS report.

• SAFE Reporting: FIEs must report on foreign exchange, capital transactions, and profit returns. Domestic companies do not need to submit SAFE reports unless they engage in cross-border transactions. Domestic reinvestment of profits by FIEs can benefit from simplified procedures, provided that relevant cross-border fund flow data is reported accurately and on time.

• Tax Compliance: Both FIEs and domestic companies must file CIT returns. FIEs must also complete an audit report and withhold taxes on repatriated profits. Domestic firms only need to complete this step if they are involved in cross-border transactions.

• Annual Audit: Audits are mandatory for all FIEs. For domestic companies, audits are optional for Small and Medium Enterprises (SMEs) but mandatory for large enterprises.

• Transfer Pricing (TP) Documentation: FIEs face more rigorous requirements, particularly regarding cross-border related-party transactions. While domestic companies face less scrutiny, they must still provide TP documentation if involved in related-party dealings.

• Corporate Governance Reporting: FIEs must report any changes to directors, shareholders, and capital structure. Domestic companies have fewer restrictions in this regard unless they operate in a regulated industry.

• Employee Reporting: Both FIEs and domestic companies must include annual labor, social insurance, and housing fund information in their reports. This is particularly critical for FIEs employing foreign nationals, whereas it is simpler for domestic companies employing only local staff.

Overall, while mandatory annual compliance applies to both, FIEs generally face more stringent oversight. Following these key steps and establishing specific procedures for cross-border activities is essential for ensuring legal compliance and improving financial transparency.

PHC Advisory is a company of  DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients' financial transparency and compliance. 

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The content of this article is provided for informational purposes only, financial advice must be tailored to the specific circumstances on a case-by-case basis, and the contents of this article do not legally bind PHC Advisory with the reader in any way. 

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