Does China follow international
accounting practice?
China
does not follow international accounting policies and guidelines,
although it is moving in this direction for a while and with its accession
to the World Trade Organization will be fully compliant within a few
years. Many of the accounting regulations are the same or similar
to international practice, however it is important for organizations
in China to understand the differences.
Tax
deductibility for instance is different and a lack of understanding
of this could lead to significant tax charges on such items as intercompany
transactions. China treats transfer pricing with high importance and
as with many other countries it wants its fair share of the international
tax pie. Meanwhile proper planning and compliance can reduce an organizations
tax burden.
Another
area where differences lie is in depreciation of capitalized assets.
China specifies that companies must use the straight line method unless
they obtain approval from the Ministry of Finance for use of an accelerated
method. The period over
which a company may depreciate its assets also can vary to that of
the holding companies own countries accounting practice. The depreciation
rates per China¡¯s income tax law are:
(1)
For houses and buildings: 20 years;
(2)
For railway rolling stock, ships, machinery, mechanical apparatus,
and other production equipment: 10 years;
(3)
For electronic equipment and means of transport other than railway
rolling stock and ships, as well as such fixtures, tools and furnishings
related to production and business operations: 5 years.
Companies
therefore on the one hand need to comply with HQ¡¯s requirements,
being usually their countries GAAP, whilst on the other hand maintain
compliance with China¡¯s rules and regulations. LehmanBrown
provides assistance in setting up accounting procedures and systems
to bridge this gap and keep.
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Can a foreign holding company charge to the China subsidiary for services
rendered and what supporting documentation is required by the Chinese
authorities?
China allows reasonable administrative expenses paid by a foreign enterprise
in connection with its subsidiary in China to be charged to its subsidiary.
Agreement is required by the local tax authorities after an examination
and verification of supporting documents as proof. The head office
is required to provide details of the basis and methods of allocation
together with an accompanying verification report of a certified public
accountant.
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