All legal entities in China, including Wholly Foreign-Owned Enterprises (WFOE), Joint Ventures (JV) and Representative Offices (RO) must perform an annual audit as part of their compliance obligations.

Here we explain the relevance of the annual audit in China and the legal obligations this places on businesses operating there.

What Is the Annual Audit in China?

The audit is an evaluation and review of the financial statements of an entity to ensure all financial records and reporting are accurate. This includes a thorough examination of the income statement, balance sheet and cash flow statement and an assessment of whether they reflect a true and fair view of the business’s financial activities. Failure to submit an annual report may result in your enterprise being added to the Irregular Operations Catalogue as well as a fine.

The annual statutory requirements in China can be separated into 3 categories:

Firstly, foreign-invested entities are required to request and complete a year-end statutory audit which only qualified CPA firms in China are allowed to carry out. The audit must be signed off by two CPAs registered in China.
Secondly, based on the statutory audit report, the entity is then obliged to calculate and process the Annual Corporate Income Tax Filing.
Finally, the entity then needs to publish information relating to the audit report, the CIT filing and other certificates in the Annual Publication Report.

Why is an Annual Audit Important?

First and foremost, the annual audit matters as it is a legal requirement for foreign-invested enterprises under Article 164 of China’s Company Law. Other important reasons to carry this out include:

To reduce risk on a financial, operational, compliance and strategic level.
Ensure that the financials used in your annual CIT filings are correct.
If your entity intends to repatriate funds out of China, the tax bureau and bank will both require your business to furnish audited financial records.
To improve your internal controls. If you are part of international group, your overseas HQ may require an audit for consolidation purposes.

1. Statutory Annual Audit in China

The statutory annual audit report is the general financial report which must be conducted by a Chinese-registered Certified Public Accountant (CPA). Although an accountancy firm or foreign CPA may provide support to foreign enterprises during the audit procedures, the annual audit report must be issued by a CPA firm authorized in China.

The purpose of the annual audit report is to ensure that foreign-invested enterprises meet the Chinese financial accounting standards, commonly referred to as PRC GAAP, and the annual statutory audit report would contain the auditor’s opinion on whether the company’s financial statements reflect a true and fair view of the financial position, operating results and cash flow in all material aspects.

A Chinese audit report will look at all financial statements including the balance sheet, income statement, cash flow statement, statement of changes in equity and supplemental notes. Because certain requirements for this audit report may differ across the regions, it is advised that companies make sure what the local rules dictate and what additional rules the company has to conform to.

It is estimated that under normal circumstances the audit procedure takes around 2 months to conclude. Audit reports presented to the tax authorities must be in Chinese, but can also be prepared in English for foreign companies for group reporting purposes to be used for group reporting. This audit report should best be completed during February – March in the fiscal year.

2. Annual Corporate Income Tax Filing

In China, Corporate Income Tax (CIT) is levied at 25% (with preferential rates for SMEs) and is paid monthly or quarterly. During the Annual CIT filing, an annual reconciliation of Corporate Income Tax must be completed to ensure that all taxes are fully paid.

Because of discrepancies between Chinese accounting standards and tax law, the actual CIT taxable income may differ from total profits under accounting standards. This book-tax difference is highlighted in China Briefing’s guidance on audit and compliance. This means an adjustment to the provisional CIT filing during the year may be required. In case of deficient payment or overpayment, companies can apply for reimbursement or payment of supplementary tax.

Please note that the CIT filing deadline is May 31st, and companies may be asked by authorities to provide additional documents, which may extend the annual compliance process. Please be informed that penalties are imposed on corporations that fail to abide by the deadline schedule as prescribed by the authorities.

3. Annual Publication Report

Once the statutory audit report and annual CIT filing have been completed, foreign-invested enterprises will still need to proceed with publishing information related to the audit report, the CIT filing and other certificates on the Annual Publication Report.

Foreign-invested enterprises are required to submit this information at several government authorities such as the MOFCOM, AIC, SAFE and Finance Authority. This information needs to be provided and updated on an annual basis, normally by 30 June deadline. Depending on the business scope and district of the city in China where the company has been registered, differences may occur or additional documents may be required.

4. Related Party Transactions Report

As part of annual compliance requirements, foreign-invested enterprises also need to provide an Annual Related-Party Transaction Report alongside their corporate income tax returns. This also applies to foreign enterprises that have a permanent establishment or fixed presence in China.

Related parties are defined broadly, covering most forms of affiliation or control. A related party need not be an incorporated entity (such as the parent company), but can include individual shareholders or trustees.

The definition of transaction is broad, and can cover:

Transfer of usage rights or ownership of assets, including financial assets and intangibles.
Fund intermediation, including guarantee fees, accrued interest advances and deferred payables.
Service transactions, such as contracted Research & Development (R&D).

As substantial financial penalties can apply to individuals or businesses that fail to file a Related Parties Transaction Report, we recommend you seek out professional advice before filing this report.

Who Should Do An Annual Audit?

All companies officially in China are required to prepare year-end documentation. This includes foreign companies who have a subsidiary, a WFOE, a JV or a representative office in China. It might also include other businesses that generate revenue, have stakeholders or are financing projects in China.

Failure to Follow Annual Compliance Requirements

If a company fails to correctly submit annual reporting information at the correct time, it will be contacted by the business bureau and ordered to file the annual report. If, after being ordered to perform the filing of the annual report, the company still does not comply, an official from the business bureau will visit the company, whereafter failure to comply will result in the enterprise being added to the Irregular Operations Catalogue and may be subject to a fine.

Key Timelines & Requirements for Annual Audit & Compliance in China

Stage	Description	Deadline / Timing	Responsible Party
Audit Preparation & Year-End Statutory Audit	Engage a PRC-registered CPA firm to audit the balance sheet, income statement, cash flow statement, changes in equity, and notes.	Typically Feb–Mar following the financial year-end (complete before CIT filing).	Company & CPA firm
Annual Corporate Income Tax (CIT) Filing	Reconcile accounting profit to tax profit; submit the annual CIT return and settle any under/over-payments.	By 31 May each year (for the prior calendar year).	Company & tax advisor
Annual Publication Report (Many-in-One)	Publish required company information and audit/CIT status to the relevant authorities (e.g., local market regulation portals).	By end of June (commonly 30 June), subject to local rules.	Company & compliance provider
Related-Party Transactions (RPT) Report	Prepare and submit RPT filings alongside the annual CIT (covering services, financing, intangibles, etc.).	Aligned with annual CIT timelines (generally by 31 May).	Company & transfer pricing advisor

Note: Exact timelines and document packs can vary by locality and industry. Confirm local requirements with your auditor and tax advisor.

Foreign-invested companies face dual reporting requirements—consolidated audits for parent company overseas statements and China statutory audits for local regulatory filing simultaneously. The dual process creates reconciliation demands often underestimated in compliance budgets and resource planning. statutory audit in China and audit coordination ensures both reporting streams align cost-efficiently. MSA Asia manages dual-stream compliance holistically. Contact our team about audit coordination strategy.