What Do Finance & Accounting Services Cover in China?

Introduction

The accounting framework for a Chinese entity runs differently from what most regional finance teams are set up for. The reporting standard is different from IFRS, the VAT invoice system requires local infrastructure, the annual audit must be signed by a China-registered firm, and moving money out of China involves a separate regulatory process.

The finance function for a Chinese entity needs local knowledge embedded in it. That means either an in-country hire or finance and accounting services in China from a specialist who already has the local infrastructure in place.

Why Chinese Accounting Standards (CAS) Differ From IFRS

Every company with a Chinese entity reports under Chinese Accounting Standards (CAS), issued by China’s Ministry of Finance. CAS and IFRS have converged significantly since 2007 (roughly 90-95% aligned), but the remaining differences matter practically.

The key practical differences for an overseas team:

• Reporting currency and fiscal year: CAS requires RMB as the functional currency and mandates a January-to-December accounting year. Both are fixed.
• Income statement format: CAS classifies items by function; IFRS allows classification by function or nature. This creates format differences when consolidating.
• Fixed asset revaluation: CAS uses historical cost only. IFRS also permits a revaluation model.
• Other divergences: Government grant treatment, related party disclosures, and certain other items may be handled differently between the two frameworks.

Before a Chinese subsidiary’s CAS accounts can be incorporated into group IFRS reporting, they go through a reconciliation process (often called “mapping”). This needs to be accurate and documented, particularly for audit purposes.

A Chinese subsidiary produces CAS accounts for local statutory purposes. The IFRS translation for group reporting happens separately, and if the mapping process isn’t set up correctly from the start, group reporting becomes unreliable.

The Fapiao System: China’s VAT Invoice Infrastructure

China’s VAT invoice system (the fapiao) has no real equivalent in most other markets. Every sale or service transaction in China requires an official fapiao, which must be issued and validated through the State Taxation Administration’s (STA) Golden Tax System before it carries any legal or tax effect.

From December 2024, fully digital e-fapiao became available nationwide, and paper fapiao started being phased out. Each e-fapiao goes out electronically, clears through the STA system, and carries a QR code, digital signature, and invoice number. For buyers, a Special VAT fapiao enables input VAT deduction. A general VAT fapiao does not.

What this means for overseas finance teams:

• Every purchase the China entity makes should be backed by a valid fapiao. Without one, input VAT recovery is not available, and expense deductibility may be affected.
• Every sale or service the China entity provides requires a correctly issued fapiao, generated through the STA-approved platform.
• Fapiao must be archived for a minimum of 10 years (with some accounting vouchers requiring up to 30 years)
• The fapiao quota (how many invoices the entity can issue per period) is applied for at the local tax bureau.

An overseas finance team that doesn’t have staff or systems connected to the STA Golden Tax System cannot issue or verify fapiao. Without local infrastructure, this part of the finance function simply can’t be handled remotely.

Why Every China Entity Needs a Local Statutory Audit

Every foreign-invested enterprise (FIE) in China, including wholly foreign-owned enterprises and joint ventures, must complete a statutory annual audit under the PRC Company Law. This applies regardless of size, revenue level, or whether the entity was active during the year.

Two things make this different from annual audits in most other jurisdictions:

This creates a hard dependency: a local firm does the audit, on a set schedule, working from complete and organised financial records maintained throughout the year. An overseas team that hasn’t maintained clean monthly records throughout the year faces a difficult and expensive reconciliation exercise in audit season.

Monthly Filing Obligations in China

China runs on a monthly compliance calendar. From the month after a WFOE or FIE is established, filings begin, even at zero revenue.

Missing even a minor filing can affect the company’s tax credit rating with local authorities, which in turn complicates banking relationships and the annual audit process.

Profit Repatriation and SAFE Compliance

Moving money from a Chinese entity to an overseas parent is not a simple bank transfer. China’s State Administration of Foreign Exchange (SAFE) regulates cross-border capital flows, and dividend distributions require a specific sequence of steps before the bank will process the transfer.

The sequence:

1. Complete the statutory annual audit
2. Settle all outstanding CIT and other tax liabilities
3. Obtain a tax clearance certificate from the tax authority
4. Pay the 10% withholding tax on dividends (potentially reduced under a tax treaty between China and the parent company’s country)
5. Process the bank transfer with SAFE documentation

Skipping the annual audit blocks repatriation entirely. A parent company expecting dividends from its Chinese subsidiary needs the audit completed, not just started.

Getting money out of China isn’t blocked by law. It follows a process that requires audited financials, tax clearance, and correct SAFE documentation at the bank. Each step depends on the one before it.

What Finance and Accounting Services in China Cover

For a foreign company managing this from overseas, finance and accounting services in China handle the obligations that require local presence and system access:

• Monthly bookkeeping under CAS, maintaining records in RMB
• VAT and fapiao management through the Golden Tax System
• Monthly tax filings: VAT, IIT withholding, CIT prepayments
• Preparation of year-end financial statements under CAS, ready for statutory audit
• Coordination with the statutory auditor (a China-registered CPA firm)
• CIT annual settlement preparation (due 31 May)
• Annual report filing support (due 30 June)
• Profit repatriation documentation and SAFE compliance support

The overseas finance team handles group consolidation: taking the CAS accounts produced locally, running the IFRS mapping, and incorporating the Chinese entity into group reporting. This division keeps the China-side work compliant while the HQ finance team maintains visibility over the consolidated position.

Frequently Asked Questions

1. Why do overseas finance teams need dedicated finance and accounting services in China?

Three specific obligations require either local system access or local professional registration. Fapiao go through the STA’s Golden Tax System, which needs in-country setup. The statutory annual audit requires a CPA firm registered in China to sign off. Monthly tax filings run through local tax authority portals. Without direct access to any of these, an overseas team can’t fulfil these obligations independently.

2. What is the fapiao, and why does it matter for finance teams?

A fapiao is China’s official tax invoice. The State Taxation Administration’s Golden Tax System issues and validates each one. For buyers, receiving a valid Special VAT fapiao enables input VAT recovery. For sellers, issuing a correctly formatted fapiao is a tax compliance obligation. From December 2024, the system moved to fully digital e-fapiao nationwide. Without valid fapiao, the tax authority disallows VAT deductions and may reject expense records.

3. Does a Chinese entity need an annual audit even if it has little activity?

Yes. The statutory annual audit applies to all foreign-invested enterprises in China under the PRC Company Law, regardless of revenue level or activity. Even a dormant WFOE must complete it. The audit must be performed by a CPA firm registered in China and covers the full set of CAS financial statements, accounting vouchers, and supporting documents for the year.

4. How does profit repatriation from China work?

Dividends from a Chinese entity to an overseas parent follow a set sequence: the annual statutory audit must be completed, all tax liabilities must be settled, a tax clearance certificate obtained, and the required withholding tax paid (10% standard rate, potentially reduced under an applicable tax treaty). The bank then processes the transfer with SAFE documentation. Missing any step, particularly the audit, blocks the transfer until the sequence is complete.

5. What is the difference between CAS and IFRS for a foreign company?

Chinese Accounting Standards (CAS) and IFRS are broadly aligned but not identical. Key differences include the mandatory use of RMB as the reporting currency under CAS, a fixed January-to-December fiscal year, income statement classification by function, and the use of historical cost only for fixed asset valuation (IFRS also allows revaluation). For a foreign parent consolidating under IFRS, the Chinese subsidiary’s CAS accounts need to be reconciled and mapped to IFRS before group consolidation, a process requiring careful documentation on both sides.

Managing a Chinese entity’s finances from overseas works when there’s a clear split: finance and accounting services in China handle what needs local system access and professional registration, while the overseas team handles group consolidation and parent-level reporting. Galaxy APAC’s China accounting and finance team works with foreign companies that need the China-side function covered without having to staff it locally.