By Dezan Shira & Associates
For US-based small and medium companies with representative offices in China, it’s important to think through internal bookkeeping structures and plans. Severe legal implications and financial consequences lie ahead for companies processing payroll and bookkeeping without relevant qualifications.
By outsourcing bookkeeping services to a qualified accounting firm in China with experience, compliance, liabilities, data security and fraud protection, companies also can save time to focus on core competencies, increase efficiency and reduce expenses.
For companies specializing in accounting services, new provisions enable them to engage in agency bookkeeping, which allows them to handle bookkeeping services entrusted by a client. The Measures for the Administration of Agency Bookkeeping issued in February by the Ministry of Finance states that any entity that has not established an internal system or assigned the task of bookkeeping to accounting personnel is required to entrust accounting business to an external bookkeeping agency. Thus, it is in a company’s best interests to know when it is necessary to outsource these services.
Companies should carefully check if the chosen bookkeeping agency meets the following criteria as stipulated by the new provisions.
The new measures assert that any organization, apart from accounting firms engaging in agency bookkeeping, may apply for a bookkeeping qualification after obtaining authorization from the local government finance department, in addition to a bookkeeping licence issued by the relevant finance department. They must also:
- be a legally established enterprise;
- have no less than three full-time employees with professional accounting certificates;
- assign a full-time employee with a professional accounting qualification to oversee bookkeeping; and
- have sound internal rules for bookkeeping business.
Foreign investors are also encouraged to set up a bookkeeping agency if they meet the requirements. Firms looking to apply for the bookkeeping qualification must submit the following materials to the local authorities:
- a copy of a business license;
- accounting qualification credentials of employees;
- written commitment of full time employees’ practice at the firm;
- internal bookkeeping service specifications;
Once the bookkeeping qualification is obtained, agencies can engage in the following:
- conduct business accounting according to the state uniform accounting system on the basis of source documents and other materials provided by the client. This includes examining the source documents, filling out vouchers, registering account books, compiling financial reports;
- provide financial reports externally;
- provide tax materials to the tax authority;
The new provisions for engaging in agency bookkeeping services, effective May 1, reinforce the encouragement of investment into the accounting and audit industry as stated in the 2015 Catalogue of Industries for Guiding Foreign Investment. According to IBISWorld’s Auditing, Accounting & Tax Services Market Research Report, the industry grew 8.5 percent from 2010 to 2015, generating$10 billion last year. It will remain open to investment in the coming years.
About the author: This article was first published on China Briefing. Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at [email protected] Further information about our firm can be found at: www.dezshira.com