The opportunities are huge and a trusted partner will help you navigate the risks of doing business in China. Donald Tsang, Executive Director, Greater China, and Jessie Shi, Director, Accounting & Tax Compliance and Deputy General Manager, Shanghai, tell us more
China offers huge opportunities across the commercial spectrum. This is true whether companies are doing business in China for the first time or looking to grow existing operations.
To take advantage, your business will need to be able quickly and effectively to align operations to the country’s fiscal and tax systems, which are evolving rapidly as the authorities improve the transparency and ease of doing business in China.
Intertrust Group has contributed to a recent webinar series hosted by the Hong Kong Chartered Governance Institute to discuss some financial and compliance issues for companies seeking to establish or expand Chinese operations.
Here we look at some topics raised during the webinar and consider the value of expert support in this fast-moving market.
China compliance is different but not difficult
Every country has its own timelines and frameworks for financial compliance, and China is no different.
Its fiscal year runs in tandem with the calendar year from 1 January to 31 December, with set rules governing when financial statements are reported and filed. Financial statements should be prepared to meet PRC GAAP (People’s Republic of China Generally Accepted Accounting Principles) standards.
China’s fiscal system comprises 18 kinds of corporate, personal and indirect taxes, all with their own requirements. For example, enterprises should generally submit VAT returns monthly, before the fifteenth day after each month-end, but smaller entities can submit returns quarterly.
There are penalties for failing to report required financial information in an appropriate and timely fashion. But there are also incentives to encourage sound housekeeping and meeting standards.
Organisations receive one of five possible tax credit ratings based on recurring indicators such as tax declarations, tax payments and tax registrations, as well as non-recurring indicators such as audits and investigations.
This is an important credit asset, offering benefits to those with higher standing, such as improved access to finance or permission to bid for certain business tenders.
Working with local experts will enable companies to stay abreast of changing rules and regulations and to maximise the advantages available for timely and accurate compliance.
Chinese business moves online
China has invested heavily in digitising its tax system, and much information can be submitted online to a cloud-based platform where data is collected, stored and kept confidential. It is shared only with relevant government departments to minimise duplication for companies submitting returns and to improve efficiency.
Companies have a wide choice of accounting software and in many instances will be able to use existing systems which are deployed abroad. But to make sure of support, it is important to check that a local version is available.
If not, Chinese and international alternatives are available. Local experts can offer guidance on the risks of doing business in China.
As companies would expect, the banking system is also moving quickly towards online and digital models, creating significant savings for corporate customers.
Build personal relationships to do business in China
Despite the drive towards digital, developing strong personal relationships is important when considering how to do business in China. For some banking transactions, using in-branch services is required.
This is true for first time payments of unusual or passive income, such as royalties and interest that involve foreign parties and for payments involving State Administration of Foreign Exchange (SAFE) procedures.
At a practical level, one big difference is the need for a ‘chop’– a corporate seal required to validate documents and complete some transactions. These are sometimes required in the same way as a signature is used in other countries, so organisations must know and understand the system.
As well as establishing good personal relationships with your bank, it is important to know tax officers personally. They are usually happy to discuss issues in person, making it easy to form a relationship and talk through any questions.
Forging such relationships is particularly important as there is often local interpretation of national policies. Having someone to speak to at this level will keep you aware of any differences.
From private equity funds and financial organisations to trading companies and environmental specialists, organisations that invest time in planning will find nothing to hinder a successful, sustainable and long-lasting entry into the Chinese market.
Find the right partner for doing business in China
Local service providers work with foreign partners and explain the complexity and the risks of doing business in China.
Intertrust Group has 20 years of experience in mainland China, which sets us apart from many competitors. We understand how local rules, culture and customs are evolving and how they affect cross-border investments and business activities. These important insights can be the difference between thriving in China – and failing.
For organisations seeking guidance on accounting, tax, payroll and company secretarial services, Intertrust Group can provide the information and practical support needed.
Our advice to those considering doing business in China is to prepare thoroughly, just as you would with any other emerging market. Understand that the market may be quite different to what you are accustomed to in the US or the UK. In China, flexibility is key.
How Intertrust Group can help in China
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