2020 Annual Closing Reminders for Businesses in China

Posted by: admin
Category: Business in Asia, Tax and Regulations
2020 Annual Closing Reminders for Businesses in China

It is that time of the year again for businesses to settle their accounts and prepare for the annual closing for the year 2020. During this period, businesses in China follow certain procedures and go through the basics of tax settlements or annual reporting. Moreover, individuals should also complete their annual individual income tax (IIT) return procedures from March 1 to June 30, 2021.

Have a look at our previous article on Annual Accounting Procedures for IIT Return 2019

What is the 2020 annual closing?

A year-end closing or annual cut off refers to an accounting procedure all businesses must partake in by the end of the year 2020. This procedure allows businesses to close out business activities from the previous year. Moreover, it also involves carrying forward balances from the previous year and opening posting accounts for the upcoming year.

The closing procedure allows the company to reconcile expenses and revenues, create profit and loss statements, and file necessary documentation and financial statements.

What documents are requested for annual closing and reporting 2020?

Prepare your complete annual report for your headquarters and for the local authorities.

Your accountants will request accounting and legal documents related to your business income, revenue, expense, and cost bookkeeping for 2020. Furthermore, there are instances when there are no fapiaos or tax invoices yet issued for these aspects of your business. Hence, the tax bureau will demand supporting documents such as receipts, contracts, purchase orders, or any legal document that justifies the transaction made.

What belongs to the calendar year 2020?

Goods and services under revenue, cost, and expenses belong to the annual cut-off. These include:

  • Completed projects in late December 2020 but no payments or fapiaos received
  • Shipped goods received by clients with no invoice
  • Salaries and social insurances
  • Rent paid for December (often paid in early January of next year)
  • Electricity and other utilities paid in the following year
  • Annual bonus, 13th-month pay
  • Accumulated and unpaid service fees
  • Unpaid purchase of goods in transit or arrived with no fapiao

It is important for business owners to determine the inventory status of certain goods in transit or in consignation. They need to be cautious about goods in inventory that do have invoice yet or have not been paid for.

What is account balance reconciliation?

Account balance reconciliation requires every business to reconcile their account balances in case of huge differences. Accounts and receivables involving other parties such as suppliers, clients, or vendors must be checked and confirmed. This step is beneficial to avoid any disputes on credit or debit rights.

Consequences of missing fapiaos or documents for the annual closing

  • Expenses that cannot be justified by proper supporting documentation are not tax-deductible and will impact your net profit.
  • Expense used to offset the salary of an employee will be prequalified as an additional taxable salary for the employee. Thus, the tax authorities will collect the corresponding individual income tax (the IIT).
  • The employer is responsible for withholding and paying the IIT on the salaries and taxable benefits. In China, fines may run up to five times the amount of tax evaded, with an additional 0.05 percent interest per day.

For trading and manufacturing companies, it is advisable to conduct a year-end comprehensive physical stock-taking and provide the necessary documents for annual closing.

Conclusion

The annual closing procedures may be tough for those who have not prepared in advance. Thus, businesses are reminded to prepare for the annual paperwork to avoid discrepancies in their financial performance.

Contact us

S.J. Grand’s tax and accountancy services provide advisory on China’s tax and business regulatory environment as well as assist in annual closing for foreign individual workers and enterprises in China. Contact us to get you started.

kwikdroid

If you are interested to know more about how Kwikdroid works, contact us, or go to our Kwikdroid page to check the prices and packages we offer, no matter the size or type of company.

Check out COVID-19 related news on our COVID-19 Policy Briefings.

Follow us on social media to receive the latest updates:

sj grand wecaht mini program

See how much salary you receive after tax and check your company value without leaving WeChat! Also, our Mini Program can estimate the salary in your industry, for your experience level and position. A huge help for salary negotiations!

Scan the QR code now to use our free calculators!

Author: admin

Leave a Reply