All registered companies in China are legally obligated to complete certain year-end processes. These processes are not only critical for maintaining compliance with Chinese regulations but also a prerequisite for distributing dividends to shareholders. This article elaborates on the key steps involved, namely the annual statutory audit, tax reconciliation & clearance, annual business inspection, and subsequent profit repatriation. 

Annual Statutory Audit 

The annual statutory audit is conducted by a certified public accounting (CPA) firm and typically serves as the foundation for the Annual Tax Reconciliation & Clearance and the Annual Business Inspection. 

The process commences with the preparation of financial statements, including: 

• Balance Sheet 

• Profit & Loss Statement 

• Cash Flow Statement 

• Statement of Changes in Equity 

• Notes to the Financial Statements 

These documents must be reviewed and verified by the CPA firm, which will issue final clearance for the audited accounts. It is important to note that this financial information must be prepared in accordance with PRC GAAP. If an entity intends to also prepare its financial information in line with IFRS, a separate audit must be conducted. As companies generally file their financial documents on a monthly or quarterly basis, the preparation of these year-end financial statements should not be overly time-consuming. 

This step should generally be completed no later than 30 April following the closure of the financial year. 

Annual Tax Reconciliation & Clearance

The Annual Tax Reconciliation & Clearance is a requirement imposed by Chinese tax authorities, referring to the process by which taxpayers calculate their taxable income and the corresponding amount of Corporate Income Tax (CIT) payable. This process must be completed within four to five months after the end of the financial year. 

The calculation is based on the monthly or quarterly prepaid income tax amounts. Subsequently, the taxpayer must complete the annual corporate income tax return forms, submit the return to the competent taxation authority, provide relevant materials as required by the tax authority, and finally settle the full amount of corporate income tax for the entire year. 

Additionally, if the company underwent any major restructuring or organisational changes in the previous year, a per-invoice, per-entity form covering all interparty transactions must be prepared. This form will be filed together with the other required documents in this step. Following up with the tax bureau to obtain the Annual Tax Reconciliation Completion Receipt is also a key part of this process. 

All these steps must be completed before 31 May. 

Annual Inspection of the Business 

Pursuant to a joint notice issued on 16 December 2019 by three governmental authorities, including the Administration for Market Regulation, the Ministry of Commerce, and the State Administration of Foreign Exchange, all foreign-invested enterprises are required to declare their business status for the previous year by the end of June each year. 

This process involves the following steps: 

• Registering and logging into the annual inspection online system 

• Completing the company’s basic information and submitting a unified annual report covering the company’s business, financial, tax, and foreign exchange information, in accordance with the requirements of each of the five relevant authorities, and submitting this report online 

• Allowing the authorities to review the report and request modifications if necessary 

• Preparing hard copies of all relevant information and data 

• After the authorities approve the online information and report, visiting the annual inspection office to submit the required hardcopy documents for final review and approval 

This step must be completed before 30 June. 

Repatriation of Profits 

A company may only repatriate its profits from the previous year after completing all the above-mentioned steps. To remit profits to its parent company, the subsidiary must comply with all prerequisites and submit the required paperwork. 

The required paperwork will include at minimum the following: 

• Business License 

• A recent audit report on paid-in capital 

• External auditor’s report 

• Certificate of tax filing 

• Tax payable receipt 

• Relevant board resolution on profit distribution 

The entire procedure typically takes two to four weeks, though it may take longer for more complex cases. 

In Summary

China’s year‑end compliance cycle is structured, time‑bound, and essential for every registered company. Completing the annual statutory audit, tax reconciliation and clearance, business inspection, and final profit repatriation is not only a legal obligation but also a prerequisite for distributing dividends and maintaining smooth business operations. Each step requires accurate financial records, close coordination with authorities, and timely submission of the required documentation.

How LehmanBrown Help?

We supports companies in managing the entire year‑end compliance cycle in China with precision and clarity. Our team provides end‑to‑end assistance, from preparing PRC‑GAAP‑compliant financial statements for statutory audit, to coordinating the Annual Tax Reconciliation & Clearance, to managing the online and offline submissions required for the Annual Business Inspection.

LehmanBrown international accountants have decades of helping businesses from in and out of China keep operations running through all kinds of market situations. Furthermore, LehmanBrown as a Partner of Acclime, can provide such review services in many other countries across Asia. Get in touch today for a free consultation with our experts by sending an email to enquiries@lehmanbrown.com.