China WFOE accounting: why the filings are monthly and what goes into them
Author: Vivi, Company formation and annual compliance, Hong KongPublished: Updated:
Short answer: a Chinese company reports every month because that is how the PRC tax system is built. VAT and its surcharges, individual income tax withheld from employees, and social insurance and housing fund contributions are filed by the 15th of the following month. Corporate income tax is prepaid every quarter. At year end there is a statutory audit and an annual reconciliation by 31 May, and an annual report by 30 June.
This is not optional and not a sign of a complex business. A company with zero turnover files the same set, with zeros, on the same dates.
The calendar
| When | What | To whom |
|---|---|---|
| monthly, by the 15th | VAT and surcharges, individual income tax withheld from staff, social insurance and housing fund | tax bureau, funds |
| quarterly | corporate income tax prepayment on quarter-end figures | tax bureau |
| by 31 May | statutory audit by a Chinese CPA and annual CIT reconciliation | tax bureau |
| by 30 June | annual report and public disclosure | registration authority |
The annual CIT reconciliation is the most sensitive document of the year. It is where the tax bureau assesses back taxes and interest and decides on inspections. A mistake in a monthly filing is usually corrected; a mistake in the annual reconciliation costs money.
Why it cannot wait until year end
In Hong Kong you can keep records calmly and assemble everything for the audit. In China that does not work, for three reasons.
Fapiao. An expense is deductible only against an official tax invoice issued through the state system, and revenue is recognised on the fapiao you issue. Every month the incoming ones have to be collected and the outgoing ones issued, otherwise the numbers in your return will not match what the tax bureau already sees in real time.
Staff. The first employee brings monthly withholding and contributions with hard deadlines and rates that differ by city.
The company record. Every gap is logged. A company with a patchy filing history gets questions at export VAT refund time, on foreign exchange operations through SAFE, and when it tries to close. Deregistering a Chinese company with filing arrears costs more than running it.
What our price covers
| Service | Price | Terms |
|---|---|---|
| Bookkeeping and filings, up to 30 transactions a month | $300/mo | mandatory every month |
| Bookkeeping and filings, up to 100 transactions a month | $450/mo | above that, on request |
That covers monthly bookkeeping from fapiao and statements, all monthly and quarterly filings, preparation for the annual audit and working with the auditor, the annual CIT reconciliation and the annual report. The audit itself is performed by a licensed Chinese CPA whose fee depends on turnover and is billed separately, exactly as in Hong Kong.
A transaction is counted the way it is everywhere: one line on the bank statement or one fapiao.
What we need from you each month
Not much, if the discipline is there from month one:
- Statements for the mainland bank accounts.
- Incoming fapiao from suppliers and contractors, including the registered address rent.
- Details for outgoing fapiao: to whom, for what, how much.
- Staff changes: hires, departures, salaries.
We remind you by the 10th, file by the 15th and send confirmations. If the month was empty we file zeros, and that is work too, because a zero filing goes through the same systems with the same signatures.
How this differs from Hong Kong
A Hong Kong company reports once a year and can be run from any continent. A Chinese company reports twelve times a year plus the annual cycle, through Chinese systems, in Chinese, with the company digital signature, and questions from the tax bureau are settled locally. WFOE accounting is therefore always local work, which is why the choice between a WFOE and a Hong Kong company should weigh not just the setup but the running cost. We laid out that decision in WFOE or a Hong Kong company: a WFOE is for a business that lives inside China, and for everything else Hong Kong is enough.
Why we know this
We have run our own company in Shenzhen since 2014 and went through every one of these filings on ourselves first, including one missed deadline and the conversation with the tax bureau that followed. What we sell as WFOE accounting is exactly the process we use to close our own books on the 15th of every month.
If you have a company in China or are setting one up, send us a rough transaction count per month and whether you have staff. That is enough to name a precise price and tell you what to gather for the first filing.
Questions
The company has no turnover, can it skip filing?
No. Zero returns are filed on the same dates as real ones. A missed month is a penalty and a mark in the company tax record that later gets in the way of inspections, export VAT refunds and deregistration.
Why an audit for a small company?
The annual audit by a Chinese CPA is part of the annual corporate income tax reconciliation, which is the filing the tax bureau scrutinises most: this is where back taxes, interest and follow-up inspections come from. Company size does not change that.
What is a fapiao and why does the accountant keep asking for them?
A fapiao is the official tax invoice issued through the state system. Without an incoming fapiao an expense cannot be deducted, without an outgoing one revenue cannot be recognised. That is why the accountant collects a fapiao for every transaction, and why paying without one in China is a bad idea.
Can the books be kept from Hong Kong or from abroad?
The ledger can live anywhere, but the filings go through Chinese systems, in Chinese, with the company digital signature, and questions from the tax bureau are dealt with in person. In practice that means a local accountant or firm in the same city. We are in Shenzhen and have done this for our own company since 2014.