Annual audit, tax reconciliation and inspection in China.

All registered companies in China are legally required to prepare certain year-end processes. These are not only important to stay compliant in China, but they also do need to be completed so that dividends can be paid out to shareholders.

This guide covers the four key steps: the annual statutory audit, the Corporate Income Tax reconciliation and clearance, the annual inspection and subsequent profit repatriation.

Annual statutory audit

The annual statutory audit is performed by a certified accounting firm (CPA) and normally is a basis in preparation for the Annual Tax Reconciliation & Clearance and the Annual Inspection.

It starts by preparing the financial statements:

• Balance sheet
• Profit and loss statement
• Cash flow statements
• Statement of changes in equity
• Notes to the financial statements

These documents must be checked by the CPA firm, which will provide the final clearance to the audited accounts. Please note that this financial information is prepared according to PRC GAAP. If an entity wants to (also) prepare its financial information according to IFRS, a separate audit must be performed. As companies usually file their documents on a monthly or quarterly basis, the preparation of these documents should not take too long.

The audit report is also the gating document for dividend remittance. Banks will not release a dividend payment to the foreign parent company without the current year audit report on file, which makes completing this step on time particularly important for companies planning to repatriate profits. The statutory audit should generally be completed no later than 30 April after the closing of the financial year.

Annual tax reconciliation and clearance

The reconciliation and clearance are required by the tax authorities and refer to the activities for which the taxpayer calculates the taxable income and the payable amount of Corporate Income Tax (CIT). This is done within four to five months after the end of the financial year.

This calculation is made based on the monthly or quarterly prepaid amount of income taxes. The taxpayer should subsequently fill out the annual corporate income tax return forms, file an annual corporate income tax return to the competent taxation authority, provide relevant materials as required by the taxation authority and finally settle the amount of corporate income taxes for the whole year.

Companies should be aware that China’s Golden Tax System Phase IV, which is now fully operational, uses AI-driven monitoring to cross-reference data across the tax bureau, the People’s Bank of China and SAMR databases. Inconsistencies between filings, such as discrepancies between VAT invoices and declared revenue, are flagged automatically, making accurate and consistent record-keeping throughout the year essential to a smooth tax reconciliation.

In addition to the CIT reconciliation, companies with employees should be aware of the Individual Income Tax (IIT) annual reconciliation window, which runs from 1 March to 30 June. Foreign employees and Chinese employees with comprehensive income above the relevant threshold are required to reconcile within this window, so both processes typically run in parallel during this period. The CIT reconciliation should be completed before 31 May.

Annual inspection of the business

Foreign-invested enterprises (FIEs) in China are required to submit an annual report covering their business activities for the preceding year. This obligation is administered through the National Enterprise Credit Information Publicity System (NECIPS), a unified online platform through which the State Administration for Market Regulation (SAMR), the Ministry of Commerce (MOFCOM) and the State Administration of Foreign Exchange (SAFE) each review the sections relevant to their authority. Under this “many-in-one” reporting structure, companies are no longer required to file separately with each department, though the information submitted is assessed independently by each body.

The annual report covers the company’s basic operational profile, group structure, related-party transactions, capital flows and major changes during the year. Because the data is drawn from finance, legal, HR and treasury functions, assigning clear internal ownership of the filing well in advance of the deadline is advisable.

This means:

• Register and log into the annual inspection online system
• Complete the basic company information and submit a united annual report relating to business, finance, tax and foreign exchange information of the company, subject to the requirements of each of the five authorities and then submit this online.
• The authorities will check and request modifications (if any)
• Meanwhile, the company will also need to prepare the relevant information and data in hardcopy.
• After the authorities approve the online information and report, the company should visit the annual inspection office and submit the hardcopy documents as required by the authorities for final check and approval.

Understanding audit categories and roles can help clarify which internal teams should own each part of this process.

Late or missing filings result in the company being placed on the SAMR abnormal enterprise list, which restricts the ability to change business registrations, open bank accounts and conduct foreign exchange transactions. A flag on the SAFE side of the system can also delay subsequent outbound payments, including dividend remittances. After three consecutive years of non-filing, a company’s business licence may be revoked. This step should be completed before 30 June.

Repatriation of profits

Only when all of the above steps have been completed, the company can repatriate its profits for the past year. To begin remitting profits towards the parent company, subsidiaries comply with prerequisites and file the required paperwork.

The required paperwork will at least include the following:

• Business License
• A recent audit report of paid-in capital
• External auditor’s report
• Certificate of tax filing
• Tax payable receipt
• Relevant board resolution on profit distribution
• The entire procedure may take two to four weeks, though it can take longer for complex cases.

The entire procedure may take two to four weeks, though it can take longer for complex cases. Several legal requirements must also be fulfilled before a dividend distribution is approved, and the specifics of each are covered in our profit repatriation guide.

Conclusion

Annual compliance in China follows a fixed sequence: the statutory audit feeds into the CIT reconciliation, which in turn feeds into the annual inspection, and only then can profits be repatriated. Each step has a firm deadline and missing any one of them creates cascading consequences, from administrative fines through to blocked dividend payments.

With digital monitoring systems now cross-referencing data across multiple government databases, the accuracy and consistency of filings throughout the year matter as much as meeting the deadlines themselves. Companies that plan ahead, assign clear ownership of each process and work with experienced local advisers are well-positioned to complete the full compliance cycle without disruption.

How Acclime can help with annual compliance in China

At Acclime China, our team specialises in guiding companies through each stage of the annual compliance cycle. For our corporate service clients, we liaise directly with auditors, coordinate with the relevant tax and regulatory authorities and prepare the documentation required at each step. We keep track of requirement changes, monitor filing obligations across SAMR, MOFCOM and SAFE and help ensure that filings are consistent across all authorities. For questions, support or to discuss your compliance requirements, please reach out to our team.