Accounting in China is not simply bookkeeping for a local subsidiary. For foreign businesses, it affects statutory accounts, tax filing, RMB reporting, payroll records, annual reporting, audit readiness, bank communication, and the reliability of China financial data used by overseas headquarters.
What does accounting in China mean for a foreign business?
For a foreign business operating through a China entity, accounting means recording real business transactions, maintaining accounting books, preparing financial statements, supporting tax filings, keeping accounting archives, and ensuring that finance records match contracts, invoices, bank payments, payroll, and business activity.
Under the Accounting Law of the PRC, companies and other organizations must set up accounting books and ensure that those books are true and complete. Accounting must be based on actual economic transactions, and accounting vouchers, books, financial accounting reports, and other accounting materials must comply with China’s unified accounting system.
For a foreign-invested company, this means accounting should be built into daily operations. If the company receives capital, hires employees, pays salaries, signs service contracts, reimburses expenses, sells goods, imports products, or pays overseas related parties, those transactions need to be reflected properly in the China accounting system.
What is Chinese GAAP?
Chinese GAAP is a common English phrase used to describe China’s domestic accounting framework. More precise terms include Chinese Accounting Standards, CAS, Accounting Standards for Business Enterprises, and Accounting Standards for Small Business Enterprises.
Foreign companies should not rely only on the informal term “Chinese GAAP.” The real question is which China accounting framework applies to the specific entity, industry, size, and reporting situation.
| Term | Meaning | Practical relevance for foreign businesses |
|---|---|---|
| Chinese GAAP | Informal English shorthand for China’s accounting rules and standards | Useful in business conversation, but companies should confirm the exact applicable accounting framework. |
| CAS | Chinese Accounting Standards | A broad reference to China’s accounting standards and rules. |
| ASBE | Accounting Standards for Business Enterprises | Commonly relevant for larger companies and many foreign-invested enterprises. |
| ASSBE | Accounting Standards for Small Business Enterprises | May apply to certain smaller enterprises where conditions are met. |
| Group reporting standard | IFRS, US GAAP, or another parent-company reporting standard | Used for consolidation, but it does not replace China statutory accounting records. |
Chinese GAAP vs IFRS: are they the same?
Chinese Accounting Standards and IFRS have moved closer over time, but they are not identical for every accounting issue. The Ministry of Finance’s accounting-standards convergence update states that Mainland Accounting Standards for Business Enterprises and Hong Kong Financial Reporting Standards, which adopt IFRS, have maintained continuous convergence.
For foreign businesses, “converged” does not mean “interchangeable.” A China entity usually needs China statutory books under China accounting rules. The overseas parent may then map or reconcile those books into the parent company’s consolidation framework.
| Question | China statutory accounting view | Group-reporting view |
|---|---|---|
| Which standard applies? | China accounting rules and applicable CAS framework | IFRS, US GAAP, or parent-company accounting policy |
| Who uses the records? | Local finance, tax bureau, auditors, banks, regulators, and local management | Parent company, group auditors, investors, and overseas management |
| What is the main purpose? | Statutory accounting, tax support, local reporting, and compliance | Consolidation, comparability, budgeting, and group-level reporting |
| Can one replace the other? | No. China statutory records remain required. | No. Group reporting should be reconciled to local statutory records. |
| Common risk | Books do not match contracts, payroll, invoices, or tax filings | Headquarters receives numbers that cannot be reconciled to China statutory books |
What are the core legal requirements for accounting in China?
China’s Accounting Law sets several practical requirements that foreign companies should understand before operations begin. These rules affect how books are kept, how reports are prepared, what language is used, and how internal controls are designed.
| Requirement | What it means | Why foreign companies should care |
|---|---|---|
| True and complete accounting books | The entity must set up accounting books and ensure their truthfulness and completeness. | Weak books can affect tax filings, audits, bank reviews, due diligence, and profit distribution. |
| Accounting based on real transactions | Accounting must be based on actual economic business activities, not false transactions or unsupported documents. | Headquarters management adjustments should not distort statutory records. |
| Accounting year | The accounting year runs from January 1 to December 31. | China statutory reporting may not match the parent company’s fiscal year. |
| RMB bookkeeping and reporting | Accounting generally uses RMB as the bookkeeping currency. If another currency is selected due to business income and expenditure, financial accounting reports must still be converted into RMB. | Foreign-currency operations require documented conversion and reconciliation. |
| Chinese-language accounting records | Accounting records must use Chinese. Foreign-invested enterprises may use a foreign language at the same time. | English reporting can support headquarters, but Chinese records remain necessary for local compliance. |
| Internal accounting supervision | Companies should establish internal accounting supervision and internal control procedures. | Approval, execution, custody, and bookkeeping duties should be separated where possible. |
Can a China subsidiary keep books only in English?
No. China accounting records must use Chinese. A foreign-invested enterprise may use a foreign language at the same time, but English-only accounting records are not a substitute for Chinese records.
This is not just a translation issue. Chinese legal names, RMB amounts, tax classifications, invoice data, payroll records, bank documents, and statutory filings often need to be reviewed in Chinese. If headquarters only sees English management reports, it may miss issues in the local statutory records.
A practical approach is to maintain China statutory books in Chinese and RMB, while preparing a bilingual management pack for headquarters. The bilingual management pack should be mapped to the statutory books, not treated as a separate unofficial version of the company’s financial position.
What currency is used for accounting in China?
China accounting generally uses RMB as the bookkeeping currency. If a company’s business income and expenditure are mainly in another currency, it may select that currency as its bookkeeping currency, but its financial accounting reports must be converted into RMB.
For foreign businesses, this affects:
- capital injection records;
- foreign-currency bank accounts;
- intercompany service fees;
- royalties, interest, and management fees;
- exchange gains and losses;
- group reporting conversion;
- profit repatriation and dividend planning.
Headquarters should not assume that the China finance team can simply report in USD, EUR, GBP, or another group currency without a documented RMB statutory accounting layer.
How does accounting connect with taxation in China?
Accounting and tax are closely connected in China. The quality of accounting records affects VAT filing, corporate income tax, employee individual income tax withholding, deductible expenses, cross-border payments, transfer pricing support, and annual tax reconciliation.
Under the Enterprise Income Tax Law of the PRC, an enterprise must file its annual enterprise income tax return within five months after the end of the tax year and settle tax payable or refundable. The law also states that financial statements and other relevant materials should be attached when filing the enterprise income tax return.
For a broader view of how accounting records connect with VAT, CIT, IIT, payroll, cross-border payments, and tax audits, see HROne’s guide to taxation in China.
| Tax area | Accounting connection | Common risk |
|---|---|---|
| Corporate income tax | Accounting profit, deductible expenses, depreciation, tax adjustments, and annual reconciliation | Expenses are disallowed because supporting records are weak or inconsistent. |
| VAT | Sales, purchases, tax invoice support, output tax, and input tax records | Invoice records do not match contracts, revenue recognition, or payment records. |
| Individual income tax | Payroll records, salary expense, bonuses, allowances, benefits, and withholding records | Payroll tax records do not match accounting entries or employee payslips. |
| Withholding tax | Cross-border royalties, service fees, dividends, interest, and intercompany payments | Overseas payments lack contract, service evidence, or tax review. |
| Transfer pricing | Related-party charges, allocation methods, service evidence, and documentation | Headquarters charges are booked locally without supportable business substance. |
How does payroll connect with accounting in China?
Payroll is one of the most important recurring accounting inputs for any China employer. A complete monthly accounting process should connect gross salary, employee deductions, employer contributions, individual income tax, social insurance, housing fund, bank payment records, and accounting entries.
Companies using China payroll outsourcing should still make sure payroll outputs are reconciled with finance records. Payroll outsourcing can support calculation and reporting, but the company’s accounting books must still correctly reflect salary expenses, statutory benefit costs, tax payable, and employee deductions.
| Payroll item | Accounting treatment to control | Why it matters |
|---|---|---|
| Gross salary | Salary expense and employee payable | Should match employment contracts, payroll register, and management approval. |
| Individual income tax withholding | Tax payable and deduction from employee salary | Should reconcile with monthly IIT filing and payment. |
| Employer social insurance | Employer statutory benefit expense | Should match local contribution rules and payment records. |
| Employee social insurance | Employee deduction and payable account | Should be deducted correctly from gross salary and paid through the local process. |
| Housing fund | Employer expense plus employee deduction | Should match contribution base, rate, and payment records. |
| Reimbursements | Expense booking or employee payable | Should be supported by business purpose, approval, and proper source documents. |
Where do invoices and source documents fit into accounting?
Invoices and source documents matter because accounting entries must be supported by real, reviewable evidence. For China operations, this may include contracts, bank records, tax invoices, reimbursement approvals, payroll reports, customs documents, delivery records, and intercompany service evidence.
This article is not a VAT invoicing guide. The key accounting point is narrower: finance teams should make sure every accounting entry is supported by documents that show the transaction actually happened, the parties are correct, the amount is correct, and the treatment is consistent with tax and business records.
| Accounting entry | Typical support to keep | Control question |
|---|---|---|
| Revenue | Contract, delivery or service evidence, invoice records, bank receipt, customer confirmation | Do the accounting entry and tax records reflect the same transaction? |
| Supplier expense | Supplier contract, invoice, payment proof, service evidence, approval record | Can the company prove the expense is real and business-related? |
| Payroll expense | Employment contract, payroll report, IIT filing, social insurance record, payslip, bank payment | Does the payroll accounting match HR and tax records? |
| Intercompany service fee | Intercompany agreement, service report, pricing support, tax review, payment record | Can the company prove that the service was actually provided and benefits the China entity? |
| Reimbursement | Expense claim, approval, invoice or receipt, business purpose, payment record | Is it a business expense, payroll benefit, or potentially taxable employee payment? |
What financial statements and reports should a China entity prepare?
A China entity’s accounting records should support statutory financial statements, tax filings, management accounts, and group reporting. These reports may serve different users, but they should be reconcilable.
| Report type | Main purpose | Primary users |
|---|---|---|
| China statutory financial statements | Support local accounting, tax filing, audit, banking, and regulatory compliance | China finance team, tax bureau, auditors, banks, local authorities |
| Monthly management accounts | Track business performance, cash flow, budget, and operational results | Local management and overseas headquarters |
| Group reporting package | Map China results into parent-company consolidation rules | Parent company finance team and group auditors |
| Annual tax settlement materials | Support annual CIT filing and tax adjustment schedules | Tax team, accountants, auditors, tax bureau |
| Annual enterprise report | Submit enterprise information through the public credit information system | Market regulation authorities and public credit system users |
Foreign headquarters should avoid using management accounts as a substitute for statutory accounting. A useful reporting pack should show how statutory RMB books reconcile to group reporting figures.
Does every China company need an annual audit?
Audit requirements depend on entity type, local rules, regulatory status, investor needs, bank requirements, tax position, and whether another law or regulation requires CPA-audited financial statements. China’s Accounting Law states that where laws or administrative regulations require financial accounting reports to be audited by certified public accountants, the audit report should be provided together with the financial accounting report.
In practice, many foreign-invested enterprises prepare for annual audit because audited or audit-ready figures may be needed for tax review, dividend distribution, bank review, investor reporting, group consolidation, restructuring, or due diligence. Even where a specific filing does not require an audit in a given year, poor accounting records can still create problems.
What annual reporting obligations should foreign-invested enterprises know?
Foreign-invested enterprises must distinguish annual accounting close, annual CIT settlement, annual audit, and annual report submission. These are related, but they are not the same process.
The Shanghai Government annual report guidance explains that foreign-invested enterprises established and registered in China by December 31, 2024 were required to submit their 2024 annual foreign investment information report from January 1 to June 30, 2025. It also notes that failure to submit annual reports as required may result in abnormal-operation listing and other consequences.
| Annual task | Main purpose | Practical note |
|---|---|---|
| Year-end accounting close | Close ledgers, reconcile accounts, and prepare financial statements | Should start before annual tax settlement, not after. |
| Annual CIT final settlement | Reconcile taxable income and tax paid for the year | Annual CIT return is generally due within five months after the tax year. |
| Annual report submission | Submit enterprise information through the public credit system | Late or false reporting can affect credit status and operations. |
| Annual audit or audit preparation | Support statutory, tax, bank, investor, or headquarters needs | Even if a formal audit is not always mandatory, audit-ready records reduce risk. |
| Group reporting | Report China results to the parent company | Should reconcile with China statutory books and documented adjustments. |
How long should accounting records be kept in China?
The Measures for Administration of Accounting Archives require companies to manage accounting archives, including accounting vouchers, accounting books, financial accounting reports, bank reconciliation documents, bank statements, tax returns, archive transfer records, custody records, destruction records, and other accounting materials with preservation value.
The measures also recognize electronic accounting archives if specific conditions are met, including authenticity, completeness, usability, security, backup, and long-term archive management. Retention periods are divided into permanent and fixed-term categories. Fixed-term retention periods are generally 10 years or 30 years, depending on the type of record.
| Record type | Why it matters | Control point |
|---|---|---|
| Accounting vouchers | Support individual accounting entries | Keep source documents, approvals, invoices, and payment evidence together. |
| Accounting books | Show ledger-level accounting treatment | Maintain general ledger, sub-ledgers, journals, and reconciliation schedules. |
| Financial reports | Support tax, audit, bank, investor, and management reporting | Archive final signed or approved versions. |
| Tax returns | Support tax filing and audit defense | Match filings to ledgers, payroll, invoices, and bank payments. |
| Electronic accounting records | May be retained electronically if conditions are met | Ensure access control, backup, integrity, and long-term readability. |
What should foreign headquarters ask the China finance team for?
Foreign headquarters should not manage China accounting through a loose spreadsheet alone. The goal is to maintain local statutory compliance while giving overseas management a reliable view of China performance.
A monthly China finance pack should usually include:
- statutory ledger summary in RMB;
- management P&L and balance sheet mapped to group accounts;
- cash movement and bank reconciliation;
- tax filing status and tax payment schedule;
- payroll, IIT, social insurance, and housing fund reconciliation;
- receivables and payables aging;
- intercompany transaction schedule;
- open accounting, tax, payroll, and audit issues.
This is especially important during market entry. A company following a China market entry guide should set up accounting, tax registration, banking, payroll records, and reporting workflows before the first major invoice or payroll cycle.
Common accounting mistakes foreign businesses make in China
- Assuming IFRS accounts are enough. China statutory books still need to follow China accounting requirements.
- Keeping English-only records. Foreign-invested enterprises may use a foreign language at the same time, but Chinese accounting records are still required.
- Confusing management reports with statutory books. Headquarters reports should be reconciled to China ledgers, not treated as substitutes.
- Failing to reconcile payroll and accounting. Salary, IIT, social insurance, housing fund, and bank payments should match across HR, payroll, tax, and finance records.
- Recording expenses without support. Accounting entries need source documents, business purpose, approval, and payment evidence.
- Ignoring intercompany documentation. Service fees, royalties, loans, and cost allocations need contracts, substance, pricing logic, and tax review.
- Starting annual tax settlement too late. Annual CIT filing depends on monthly accounting quality.
- Not managing accounting archives. Electronic and paper records need retention, security, backup, and retrieval controls.
Practical checklist for accounting in China
| Compliance area | Action item |
|---|---|
| Accounting framework | Confirm whether the entity follows ASBE, ASSBE, or another applicable China accounting framework. |
| RMB reporting | Maintain RMB statutory reporting and document foreign-currency conversion policies. |
| Language | Use Chinese accounting records, with English or another foreign language added where useful for headquarters. |
| Chart of accounts | Map China statutory accounts to group-reporting accounts from the beginning. |
| Payroll accounting | Reconcile payroll, IIT, social insurance, housing fund, and bank payments each month. |
| Tax calendar | Track VAT, CIT, IIT, withholding tax, annual CIT settlement, and annual report deadlines. |
| Source documents | Maintain contracts, invoices, approvals, bank records, customs documents, payroll reports, and reimbursement support. |
| Archive controls | Apply proper retention periods and electronic archive safeguards. |
| Headquarters reporting | Document adjustments between China statutory books and group reporting standards. |
What is the practical takeaway?
Accounting in China should be treated as the operating foundation for tax, payroll, banking, reporting, audit readiness, and headquarters visibility. A China entity needs true and complete accounting books, RMB-based financial reporting, Chinese-language records, proper source documents, payroll-accounting reconciliation, tax filing support, and accounting archives.
Foreign headquarters can still use IFRS, US GAAP, or another group standard for consolidation, but the China statutory accounting layer must be maintained correctly. The best approach is to design accounting before operations begin: choose the right accounting framework, set up a chart of accounts, connect payroll with finance, define source-document controls, track annual reporting, and reconcile local books with group reporting every month.
FAQ: Accounting in China and Chinese GAAP
What accounting standards do companies use in China?
Companies in China use Chinese accounting rules and standards, commonly referred to in English as Chinese GAAP or Chinese Accounting Standards. The exact framework depends on the company type, size, industry, and reporting obligations.
Is Chinese GAAP the same as IFRS?
No. Chinese Accounting Standards have substantially converged with IFRS in many areas, but they are not identical in every situation. A China entity usually needs statutory books under China rules, while headquarters may prepare separate group reporting under IFRS, US GAAP, or another framework.
Can a foreign-invested enterprise keep accounting records only in English?
No. Accounting records in China must use Chinese. Foreign-invested enterprises may use a foreign language at the same time, but English records should not replace Chinese statutory accounting records.
What currency is used for accounting in China?
China accounting generally uses RMB as the bookkeeping currency. If an entity mainly receives and spends in another currency, it may select that currency for bookkeeping, but financial accounting reports must be converted into RMB.
How does payroll affect accounting in China?
Payroll affects accounting through salary expense, employee deductions, employer social insurance, housing fund, individual income tax withholding, payslips, and bank payment records. These should be reconciled with accounting entries every month.
How long should accounting records be kept in China?
China accounting archives are generally divided into permanent and fixed-term categories. Fixed-term retention periods are usually 10 years or 30 years depending on the record type, and electronic accounting archives must meet authenticity, completeness, security, backup, and long-term storage requirements.
