Representative Office annual audits
If you are a Representative office (RO), in China, what will the auditors will check and focus on ? The following article provides some tips on this subject.
The information below is limited to RO who are expenses-based taxpayers (the major category for ROs).
- cash – are your bank statement and bank reconciliation correct ?
- foreign currency issues - is the transaction rate entered correctly ?
- fixed assets purchasing – has it been recorded into expenses ? If not, has it been approved by the tax authority ?
- fixed asset disposal gain/loss – is it recorded into expenses ?
- funds from the parent company - are these consistent with the parent company’s records ?
- interest income/expenses - have they been identified in the expenses report correctly ?
- expatriate Individual Income Tax ¨C for high level management, such as the Chief Representative, has the IIT calculation and pertinent rate been correctly assessed ?
- audit fees - have the audit fees been accrued and separately entered ? Are they listed in the expenses report ?
- rental expenses - have the rental expenses been accrued and separately entered ? Are they listed in the expenses report ?
- employer contributions to overseas social security plans - If employees are involved in overseas social security plans, has this payment has been included into the expenses report ?
- expenses paid on behalf of the head office - the local tax bureau may require such expenses to be recorded into the expenses report.
- BT and FEIT payments - these tax payments should be excluded from expenses report.
- stamp duty - is the RO subject to stamp duty ?
- unofficial Invoices (fapiao) - has the RO received unofficial invoices (non VAT) as part of its expenses ? If so this can be subject to tax penalties.
- business licenses and related administrative matters - the annual renewal of all of your licenses such as registration certificate, tax licenses and so on (see also separate article in this issue)
- local employees registered with FESCO and valid work permits for expatriate staff - has all this been completed in accordance with the pertinent regulations ?
To know more, the whole issue is available (after a free subscription) on China Briefing website with others archives
