Chinese accounting standards and compliance requirements.

Chinese Accounting Standards (CAS) set the reporting framework for all businesses operating in China, including foreign-invested enterprises (FIEs). CAS diverges from International Financial Reporting Standards (IFRS) in several practical ways, covering fiscal year structure, expense classification, VAT invoicing and record retention, so understanding where the differences lie matters before you are fully operational.

This guide explains how CAS works, what your compliance obligations look like month to month and where businesses most commonly encounter difficulty.

Accounting standards and regulatory environment in China

Businesses operating in China adhere to the Chinese Accounting Standards (CAS), also known as the Chinese Generally Accepted Accounting Principles (China GAAP). CAS is based on two primary standards:

Accounting Standards for Business Enterprises (ASBEs)

Introduced in 2006, ASBEs are closely aligned with International Financial Reporting Standards (IFRS). All listed companies in China comply with ASBEs for financial statement preparation. Additionally, most foreign-invested entities (FIE) also follow these standards.

Accounting Standards for Small Business Enterprises (ASSBEs)

ASSBEs are specifically designed to assist small businesses in complying with accounting standards and tax laws in accordance with Chinese regulations. Small industrial businesses, defined as those with fewer than 300 employees and annual revenue under CNY 20 million, can benefit from the support provided by ASSBEs.

Entities in China should adopt the accrual basis of accounting in performing recognition, measurement and reporting. These statements will be used to compute the company’s taxable income and distributable profit.

ASSBEs reference ASBEs and offer simplified accounting treatments, allowing small companies to choose between them based on their needs.

Chinese Accounting Standards vs. International Standards (IFRS, GAAP)

While CAS demonstrates significant convergence with IFRS, several notable differences exist:

Fiscal year

In China, the fiscal year always aligns with the calendar year, whereas under IFRS, companies can have different fiscal year-end dates.

Expense classification

CAS allows expenses to be classified by function. These typically include selling and distribution, manufacturing, general and administrative, and financial expenses. In contrast, IFRS suggests classifying expenses by nature. For example, warehouse and administrative employees’ salaries are categorised as personnel expenses, while depreciation of assets like warehouses and administrative buildings is recorded as depreciation expenses.

Fixed assets valuation

CAS mandates the historical cost method for evaluating fixed and intangible assets, while IFRS permits historical cost and revaluation methods.

Presentation currency

The Chinese Yuan (CNY) is the base currency for financial reports. While transactions in foreign currencies are allowed, financial reports are presented in CNY.

Regulatory bodies overseeing China’s accounting practices

Several key bodies oversee the regulatory landscape in China:

• Ministry of Finance (MoF): Develops CAS and regulates accounting standards.
• China Securities Regulatory Commission (CSRC): Oversees financial markets and securities-related regulations.
• State Taxation Administration (STA): Administers tax laws and ensures tax compliance.

These bodies formulate and implement accounting regulations, administer macroeconomic policies and enforce compliance within the business sector.

Determining the financial year-end

In China, fiscal year-end strictly follows the calendar year without exceptions, running from 1 January to 31 December. This standardisation simplifies reporting processes and ensures consistency across businesses.

Accounting compliance requirements

Compliance with CAS covers a wide range of obligations, from day-to-day bookkeeping and monthly reporting to annual tax filings and statutory inspections. The following sections outline the core requirements businesses meet to remain compliant.

Monthly financial statements and reporting

For tax filing purposes, Chinese companies are generally required to prepare financial information on a monthly basis. The submission covers four core financial statements:

• Trial balance, which lists all ledger balances and confirms that debits and credits are in balance
• Income statement, which reports revenue, costs and profit for the period
• Balance sheet, which sets out assets, liabilities and equity at the period end
• Bank reconciliation, which matches the accounting records against actual bank account activity

CAS requires all four because together they demonstrate that the underlying bookkeeping is complete and consistent with the fapiao and banking records reviewed during tax filing.

The STA sets the reporting timeline, typically requiring submissions by the 15th of each month. If the 15th falls on a weekend or public holiday, the deadline shifts automatically to the next working day. During major holiday periods, the STA may grant an extended deadline, announced closer to the time, so businesses can confirm the applicable date.

Reporting currency and language requirements

Financial reports are denominated in CNY, although foreign currencies can be used in business transactions and as the primary currency for bookkeeping purposes.

Accounting records are maintained in Chinese. Foreign-invested enterprises can choose between using Chinese exclusively or combining Chinese and another language.

Zero-filing and pre-revenue obligations

A registered entity with no business activity still submits a monthly zero filing to the STA. This carries no tax liability, but missing a filing period still generates penalties.

Prolonged missed filings damage the company’s tax credit rating under the corporate social credit system and can affect invoicing limits and approvals. Unresolved gaps also complicate the annual statutory audit, since auditors need a complete monthly filing record.

Zero filing applies only where there is no financial activity at all. A company with operating costs, payroll or bank activity, but no sales revenue, does not qualify: it still owes full bookkeeping and monthly submissions.

VAT invoicing and the Golden Tax system

In mainland China, all businesses issue VAT invoices (fapiaos), calculate VAT and comply with tax reporting requirements within China’s Golden Tax System (GTS), where VAT calculation and filing follow prescribed rules. The GTS software system enables authorities to monitor invoices and taxes nationwide. A fapiao, which serves as both a legal receipt and tax invoice, is essential for documenting purchases of goods and services.

Some low-cost providers recognise revenue and expenses based on fapiao issuance or receipt rather than the accrual basis. However, this approach can distort reporting and increase the risk of audits, VAT debts and potential penalties.

Since December 2024, China has expanded the mandatory rollout of fully electronic fapiao (e-fapiao) across most regions and industries. Businesses should confirm whether their invoicing workflows comply with the current GTS digital requirements, as paper-based fapiao issuance is being phased out progressively.

Records retention, digital rules and consequences of non-compliance

Retention periods vary by record type: accounting vouchers and accounting books are retained for 30 years, while financial statements and other supporting documentation used to prepare those records are generally retained for 10 years. China’s accounting regulations draw a clear distinction between paper and digital records. Physical accounting records must be stored securely on the business premises or in an approved offsite location. Digital records are permitted under the Measures for the Administration of Electronic Accounting Archives, which came into effect in 2016, provided the following conditions are met:

• The electronic records are generated, stored and managed in a system that meets MoF technical standards
• An audit trail is maintained showing who created, modified or accessed each record
• Backups are stored in at least two separate locations
• Digital records are reproducible in a readable format for inspection purposes

Where electronic records have a corresponding paper original, businesses may retain the electronic version only if it has been verified as a true and complete copy. Where no original paper exists, the electronic record holds the same legal status as a paper document provided the above conditions are satisfied.

Consequences of missing or incomplete records are significant. The MoF and STA can impose administrative penalties ranging from CNY 3,000 to CNY 50,000 for accounting violations, including the destruction, falsification or concealment of accounting records. More serious cases, such as deliberate destruction ahead of a tax audit, can result in criminal liability. Businesses that cannot produce requested records during an audit may also face deemed assessments, where tax authorities calculate liability based on their own assumptions rather than actual figures, which typically results in a higher tax burden.

Companies using third-party accounting providers remain responsible for compliance. Contracts with service providers should specify who holds the original records and set out clear handover procedures if the relationship ends.

Annual filings

China’s annual filing requirements have two distinct components: the annual tax reconciliation and the annual enterprise inspection. Both must be completed within prescribed deadlines and missing either can affect a company’s standing with tax and market regulators.

Annual tax reconciliation and clearance

Tax authorities are responsible for determining the final amount of taxes to be paid or refunded in the current year, following relevant tax laws, regulations, rules and corporate income tax provisions.

This calculation is based on the monthly or quarterly prepaid amount of income taxes. Subsequently, taxpayers are required to complete annual enterprise income tax return forms, file an annual enterprise income tax return to the competent taxation authority, provide necessary materials as requested by the taxation authority and settle the amount of enterprise income taxes for the entire year.

Annual inspection

All foreign-invested enterprises declare their business activities for the previous year annually by the end of June. This process involves updating company information and submitting a consolidated annual report through the National Enterprise Credit Information Publicity System.

Common accounting compliance challenges in China

Managing accounting compliance in China involves more than following the rules. The interaction between CAS, tax law and group reporting requirements creates practical complexity that many businesses encounter once they are fully operational. The following are the most common areas where issues arise.

Mapping for group reporting

Accountants carefully consider the differences between the accounting standards used in China and those adopted by the headquarters (HQ) when preparing group reports. This involves mapping financial report accounts to the target accounting standard and aligning entry codes for consistency.

Differences between tax law and CAS

While financial records comply with CAS and Chinese accounting and tax regulations, discrepancies between these and PRC tax laws prioritise the latter. This can significantly impact financial operations, especially revenue and cost recognition methodologies. After the conclusion of a calendar period, any additional revenue for that month cannot be recognised without tax filing corrections, and fapiaos related to commercial transactions are accounted for in the month of issuance.

Intercompany transactions

While intercompany transactions in China generally follow OECD guidelines, strict regulations under China’s foreign exchange rules govern fund movements in and out of the country. Those payments should be legitimate claims with related supporting documentation to prove that the service is authentic, beneficial to the recipient and compliant with the arm’s length principle.

Additionally, service fees are subject to both VAT and withholding tax. For outbound payments, if the income is deemed China-sourced (which is often the case), the FIE may have to withhold CIT (usually 5-10%), VAT (usually 6%) and surtaxes on behalf of the parent company to ensure compliance with profit repatriation regulations.

Payments on behalf

Unlike practices common in many countries, companies in China cannot collect revenue or make payments on behalf of other companies. This restriction is especially strict for outbound cross-border transactions. Banks reject these transactions and any amounts involved are included in taxable income during the annual CIT filings.

When a foreign-owned enterprise intends to transfer funds to a related company, it enters into a separate service contract with each company and structures it carefully.

Conclusion

CAS sets the reporting framework for all businesses in China, and the obligations that follow are more detailed than many foreign enterprises expect. Monthly financial statements, VAT invoicing through the Golden Tax System, record retention and annual tax reconciliation each carry specific rules that apply regardless of company size or structure.

The areas that create the most complexity tend to be intercompany: mapping CAS to group reporting standards, managing the gap between CAS and PRC tax law, and structuring outbound payments correctly. Addressing these early reduces the risk of deemed assessments, rejected transactions and audit exposure.

How Acclime can help with accounting compliance in China

Simplify your business operations in China with Acclime. We handle record-keeping and ensure full accounting compliance. Our accounting team will maintain your financial records, provide accurate reports and meet all compliance requirements. Whether you are a local company or expanding into China, rely on our expertise for reliable accounting management.