Compliance Challenges for Foreign Companies in China: A Health Check

You set up a company in China to trade, source or sell, and the rules around it keep changing. A missed filing can freeze a bank account, block a dividend or put your legal representative on a credit blacklist. This guide explains the main compliance challenges for foreign companies in China, from the revised Company Law to data and tax rules, and shows you how to run a company health check. By the end you will know what to review, in what order, and which deadlines to put in your calendar.

Why foreign-owned companies need a health check

Foreign companies in China work within a complex regulatory environment that changes quickly. Compliance duties, financial risks and day-to-day operations are hard to manage if you are not familiar with local rules and business practice, and harder still if the owner sits in Riyadh, Dubai or Sana'a while a small local team runs the company.

A company health check is a structured review of your China entity: its legal documents, filings, tax position, bank arrangements, data handling and internal controls. It helps you identify risks, confirm compliance and improve operations. For a trading or sourcing company with a small team, a yearly check before the annual filing season is usually enough; add an extra review after any change of manager, business scope or ownership.

Regulatory changes you need to review

The revised Company Law

The amended Company Law took effect on 1 July 2024. It introduced new requirements for corporate governance, financial reporting and compliance. The change with the most practical impact is capital: shareholders of a limited liability company must generally pay in their subscribed registered capital within 5 years of the company's establishment. Companies set up before the law took effect with longer schedules have a transition period to adjust; check the deadline that applies to yours. Directors now have clearer duties, including checking that capital has been paid, and can be personally liable if they fail.

Separately, the Foreign Investment Law required older joint ventures and wholly foreign-owned enterprises to bring their structure and articles of association into line with the Company Law by the end of 2024. If your articles were never updated, that is the first item to fix.

Beneficial owner disclosure

Since 1 November 2024, companies registered in China must report their ultimate beneficial owners through the business registration system under rules issued by the People's Bank of China and the State Administration for Market Regulation. A beneficial owner is broadly anyone who holds 25% or more of the equity, profit rights or voting rights, or who otherwise controls the company. Existing companies were given a deadline to file, and some small companies owned only by individuals can make a simplified commitment instead. Check that your filing has been made and that it is updated within the required period whenever ownership or control changes; banks now check this information.

Data privacy and security

The Cybersecurity Law, the Data Security Law and the Personal Information Protection Law (PIPL) impose strict requirements. They apply even to a small trading company that holds customer, supplier or employee data. Sending personal information outside China, including to your head office CRM or email server, may require a standard contract filing, a certification or a security assessment. Rules issued in March 2024 exempted many smaller and routine transfers, so check which category your data flows fall into before assuming you need, or do not need, a filing.

The new VAT Law

China's VAT Law, adopted in December 2024, took effect on 1 January 2026. It turned the previous VAT regulations into law. The main rates of 13%, 9% and 6% stay the same, but some definitions and rules on deemed sales, input credits and cross-border services have been clarified. Ask your accountant to confirm how the law affects your invoicing, export refunds and any services you buy from abroad.

Digital tax and accounting

The tax authority has moved to fully digital electronic invoices and uses data analytics to compare your invoices, bank flows and filings. Mismatches that once went unnoticed, such as expenses without valid invoices or income booked late, are now flagged automatically. Your bookkeeping needs to be accurate every month, not only at year end.

For the import and export side of compliance, see our compliance checklist for importing from China.

Internal control risks that grow quietly

Regulatory change is only half the picture. Five management risks tend to build up in foreign-owned companies without anyone noticing.

• Rapid digitisation: new systems for invoicing, payments and e-commerce create new access rights and data flows that nobody reviews.
• Less oversight from head office: when the owner visits once a year, the local manager controls the company chop, bank tokens and the accounts.
• Management changes: a departing manager may still be the legal representative, hold the chops or know the only passwords.
• Hidden risks: unpaid social insurance, unfiled changes to the business licence, or a lease that has expired on the registered address.
• Related-party transactions: as the business grows, sales and service fees between your China company and your Gulf company increase and must be priced at arm's length and reported with the annual tax return.

Company chops and the legal representative

In China the company chop, not a signature, is what normally binds the company to a contract, a bank instruction or a government filing. Whoever holds it can act for the company. The legal representative also has wide authority and carries personal exposure: if the company ignores court judgments or unpaid debts, the legal representative can face restrictions such as limits on high spending and, in some cases, a ban on leaving China. Keep a written log of every chop and bank U-key, store the official chop securely, and change the registered legal representative as soon as that person leaves the company.

Bank account reviews

Chinese banks now run regular know-your-customer reviews of corporate accounts. They may ask for updated shareholder details, beneficial owner information, contracts behind large payments, or a visit to your office. If you do not respond within the bank's deadline, the account can be restricted until you do. Make sure the bank has a working phone number and a contact who reads Chinese, and keep supporting documents for large or unusual transfers ready.

Our guide to risk management strategies when importing from China covers the commercial side of these risks.

How to run a company health check

1. Collect the core documents: business licence, articles of association, shareholder and director resolutions, lease for the registered address, and the latest audit report.
2. Compare the business licence with what the company actually does. If you have started new activities, the business scope may need amending.
3. Check capital: how much is subscribed, how much is paid, and whether the payment schedule meets the revised Company Law.
4. Confirm the beneficial owner filing is complete and matches your current ownership.
5. Review tax: monthly or quarterly VAT and corporate income tax filings, the annual corporate income tax reconciliation (due by 31 May), invoices, and related-party transaction disclosures.
6. Check the annual report on the National Enterprise Credit Information Publicity System, which must be filed between 1 January and 30 June each year.
7. Review employment: contracts, social insurance and housing fund contributions, and work permits for any foreign staff.
8. Map your data: what personal information you hold, where it is stored and whether any of it leaves China.
9. Review controls: who holds each company chop, bank U-keys and system passwords, and who approves payments.
10. Write a short action list with owners and deadlines, and repeat the check next year.

Health check checklist

• Articles of association updated to the current Company Law
• Capital contribution schedule within the legal limit, with payments recorded
• Beneficial owner information filed and current
• Business scope matches actual activities
• Registered address lease valid and the address reachable by post
• Annual report filed by 30 June and annual tax reconciliation filed by 31 May
• Annual audit completed where your city or bank requires one
• Related-party transactions documented and priced at arm's length
• Personal data inventory and a legal basis for any cross-border transfer
• Legal representative, directors and supervisor still in post and correctly registered
• Company chops and bank tokens logged, with named custodians

Common mistakes foreign owners make

• Leaving a former manager registered as legal representative after they have left
• Subscribing a large registered capital to look impressive, then facing a 5-year payment obligation
• Assuming a dormant company has no filing duties; zero returns and the annual report are still required
• Letting one person hold every chop, bank token and password without a record
• Transferring customer or staff data to head office systems without checking the cross-border rules
• Invoicing the Gulf parent company with no transfer pricing support
• Treating compliance as a year-end task instead of a monthly routine

For a broader view of the legal side, read our article on legal challenges in import and export from China, and if you are still planning your entity, our guide to establishing an import and export company in China explains the set-up choices. To secure your brand and designs, read intellectual property protection in China.

What to do this week

Ask your local manager or accountant for the documents in step 1 and a list of the last 12 months of tax filings. Check who is registered as legal representative and who holds the chops. Put 31 May and 30 June in your calendar, and confirm your beneficial owner filing and capital schedule. HiGreenPanda handles bookkeeping, filings and annual compliance on the ground through our accounting and tax filing service.