Now! China - Outsourcing Accounting Services in the Fund Industry [Issue No.36]

The fund industry in China is among the fastest growing and most dynamic sectors of the global financial market. Over the past two decades, it has experienced growth driven by domestic economic expansion, regulatory reforms, and increasing investor participation.

As the fund industry flourishes, various investment vehicles have emerged. However, the primary operational models can be categorised into two main types:

1. Private Equity (PE) Funds:

These involve investments in the equity of a non-publicly traded companies or other non-publicly traded equities.

2. Securities Investment Funds:

Key Challenges

1. Stringent Compliance Requirements:

China's fund industry operates under stringent regulations from bodies like the China Securities Regulatory Commission (CSRC). Only 8 registered Foreign Invested Enterprises currently hold Fund Management Company (FMC) licenses, which allow them to operate public funds in the market. Companies must meet strict compliance standards, requiring comprehensive knowledge of fund regulations. Employees in the fund Industry are also mandated to hold the “基金从业资格证” certification to handle daily operations.

2. Shortage of Professional Staff:

Fund companies typically rely on operational, investment and marketing departments. However, challenges such as high staff turnover, skill gaps, and difficulties in hiring for specialised roles, particularly in accounting, are prevalent. The regulatory demands exacerbate the struggle to fill critical positions on short notice, which may affect the daily operations of the company.

The Outsourcing Solution

Faced with the increasing complexity of regulatory requirements, a need for operational efficiency, and rising costs of maintaining in-house expertise, many companies are turning to outsourced services as an optimal solution. Outsourcing offers the following benefits:

1. Regulatory Compliance: 

China's fund industry operates under stringent regulations from bodies like the China Securities Regulatory Commission (CSRC). Third-party service providers ensure adherence to evolving regulations, covering areas such as financial reporting, tax compliance, and fund valuation, while maintaining high standards set by the CSRC.

2. Cost Efficiency: 

Outsourcing reduces overhead costs associated with hiring, training, and retaining specialised staff and eliminates the need for expensive software systems.

3. Access to Expertise: 

Third-party service providers bring extensive knowledge of fund accounting, local and international standards (e.g., IFRS), and industry-specific complexities.

4. Scalability: 

Outsourcing offers flexibility to adjust services based on transaction volume or changes in fund structure, ensuring compliance can scale efficiently without overburdening internal resources.

By leveraging outsourcing, fund companies can focus on core business operations while ensuring compliance, reducing costs, and gaining access to specialised expertise. This strategy supports long-term growth and stability in an increasingly competitive market.

China Updates

Accounting and Taxation

• On 28 October 2024, the General Administration of Customs of the People's Republic of China issued the "Measures for the Administration of Customs Duties on Import and Export Goods." 

These Measures will come into effect on 1 December 2024. These measures will govern the collection and administration of import and export tariffs as well as customs-collected taxes on imports, introducing significant procedural updates for enterprises.

Keyhighlights of the New Measures:

The Measures comprise eight chapters and eighty-four articles, covering a wide range of customs tax administration aspects, including general provisions, calculation of duties, special circumstances for duty collection, confirmation of duty amounts, refund, supplementary collection, and recovery of duties, duty guarantees, and tax enforcement.

Enforcement Actions

• Issuing written notices to banking financial institutions to transfer deposits or remittances equivalent to the amount of duties owed by the taxpayer
• Seizing or detaining goods or other properties of the taxpayer or withholding agent with a value equivalent to the amount of duties owed.

Integration with the ‘Customs Tariff Law’

The revised "Measures for the Administration of Customs Duties on Import and Export Goods" summarise the achievements of past customs tax administration reforms and clarify new approaches for future customs tax administration. As a departmental regulation accompanying the "Customs Tariff Law," these measures will directly impact the daily declaration activities of enterprises and customs’ supervision functions. Particularly, the newly established procedure for "confirmation of duty amounts" should be given special attention.

Changes to Enterprise Declaration and Tax Payment Procedures

Starting 1 December 2024, the process for enterprise declaration and tax payment, as well as customs review and confirmation, will undergo changes.

• Past: Enterprises declare all tax-related elements —— Customs reviews all tax-related elements —— Enterprises pays taxes —— Customs conducts subsequent supervision
• After the New Law Takes Effect: Enterprises declare tax-related elements and tax amounts —— Enterprises pay taxes —— Customs confirms tax amounts (within three years after the enterprise pays taxes or after the release of goods)

• Announcement of the State Taxation Administration on Reducing the Lower Limit for the Pre-Levy Rate of Land Appreciation Tax

On 13 November 2024, the State Taxation Administration issued an announcement to adjust the lower Limit for the Pre-Levy Rate of Land Appreciation Tax (LAT), effective from 1 December 2024. The adjustments aim to enhance the regulatory role of LAT.

The key points of the announcement are as follows:

• According to the relevant provisions of the PRC LAT, the lower limit for the pre-levy rate of LAT has been reduced by 0.5%.
• After the adjustment, excluding affordable housing, the lower limit of the pre-levy rate for each region and province is outlined in the table below:

Human Resources

• On 18 November 2024, the Shanghai Municipal Human Resources and Social Security Bureau issued a notice announcing the Shanghai Overseas Vocational Qualification Certificate Recognition List (version 2.0).

The updated list aligns with the city's "(2+2) + (3+6) + (4+5)" modern industrial system and expands the recognition list (Class A) professional fields to cover 111 certificates, offering six support services, including entry and exit, work permits, residence permits, and residence permit points. Among them, 22 certificates are selected to be included in the urgent shortage list (Class B), providing more streamlined security services. 33 certificates are selected to be included in the title comparison list (Class C), and those who meet the conditions can pass the declaration review, interview defense, and determine the corresponding title by comparison. A supplementary list (Category D) is added to promote the mutual recognition of overseas and domestic vocational qualifications, vocational certifications or professional and technical titles in fields such as construction engineering, finance and accounting, human resources and other fields in the form of direct application for qualifications, courses exemptions, and exam subject reductions, and other talent evaluation methods. 

Corporate Governance

• On 2 November 2024, six government departments, including the Ministry of Commerce and the China Securities Regulatory Commission, revised and issued the Administrative Measures on Strategic Investments in Listed Companies by Foreign Investors, effective from 2 December 2024. 

The Measures aim to lower the investment threshold in six areas:

1. allowing foreign natural persons to implement strategic investment;
2. lowering the asset requirements for foreign investors as non-controlling shareholders;
3. allowing Takeover Bid (“TOB”) as a mode of strategic investment, by which foreign investors may implement strategic investment;
4. allowing equities of overseas non-listed companies to be used as transaction consideration for the implementation of strategic investment by means of Private Placement and TOB;
5. cancelling the shareholding ratio requirement for implementing strategic investment by way of Private Placement; and
6. adjusting the shareholding lock-up period for foreign investors from not less than 3 years to not less than 12 months.

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