There are many complexities to doing business in China, as those with experience of the market will understand. Simply starting up a business can be a cumbersome process, with numerous state and regional bodies involved at all levels, and that is just the start.
It is also of vital importance to keep your company accounts in order if you are to avoid attracting unwanted attention from the tax bureau. To this end, it is essential to have a reliable, experienced accountant to manage your books and tax filings.
So it was surprise when the Standing Committee of the National People’s Congress, the country’s top legislature, voted to remove the Certificate of Accounting Profession, which has been a requirement for accounting professionals since 1999, with effect from 5 November.
The certification regime was controlled by the Ministry of Finance and covered financial rules and regulations, professional ethics, as well as accounting rules and calculations. Those who had attained the accreditation were subject to ongoing training and had to renew their certification periodically. Accountants were found guilty of wrongdoing would be stripped of their certification.
Yuan Shuhong, deputy director of the Legislative Affairs Office of the State Council, said aspiring accountants could take other tests to prove their ability and could also acquire the necessary skills from educational or professional training classes.
Accreditation provided a way to ensure accountants were properly qualified and its elimination will make hiring competent accountants more difficult for businesses. Given the importance and sensitivity attached to accounting practices, this does cause concerns in respect of:
- Mistakes with tax filings;
- Misuse of Fapiaos or receipts;
- Inability to adhere to strict governmental filing requirements and deadlines;
- Understanding group reporting standards.
Sovereign China has witnessed many cases where Foreign Invested Enterprises (FIEs) have run into major trouble due to basic errors in bookkeeping and tax filings. Tax bureaus treat these issues very seriously and companies in contravention of the rules can face penalties or, ultimately, the revocation of their business licence.
It should also be noted that when it comes to closing a company in China (i.e. de-registration), companies have to present their previous three years of accounts. If problems are discovered during the de-registration process the company could face fines or lose the ability to repatriate profits.
If you are currently using (or plan to use) an outsourced accounting service provider, we would strongly advise that you ensure that they employ licensed accountants. It is also advisable to check whether your provider has suitable Professional Indemnity (PI) Insurance. Mistakes can happen and it important to know that if something does go wrong, your service provider is covered.
Please contact Sovereign if you have any concerns about the new regulations or if you have questions about your own company’s accounting and corporate services needs.
