As 2025 begins, businesses in China are facing increasingly stringent tax regulations, particularly with the rollout of the Golden Tax System Phase IV (GTS IV).
Leveraging advanced technologies such as big data and artificial intelligence, this system enhances tax oversight across all processes, from reporting accuracy to risk monitoring.
At Fidinam, our insights from recent years indicate that companies must prioritize tax compliance from the outset of the year to mitigate potential risks.
This article examines how GTS IV regulates businesses and outlines crucial tax compliance measures for the new year.
To address the heightened scrutiny under GTS IV, businesses should focus on the following areas:
Alignment of Revenue and Profit Margins: Tax authorities compare a company's revenue and profit margins with industry benchmarks. Discrepancies may raise concerns of underreported income.
Genuine and Reasonable Costs: GTS IV scrutinises cost data, particularly expenses related to procurement and services. For instance, discrepancies in travel or event expenses, or delays in obtaining formal invoices, may suggest inflated costs and trigger tax risks.
The system intensifies monitoring of large-scale transfers and cross-border transactions. Transfers exceeding thresholds, such as RMB 2 million from corporate accounts or significant amounts from personal accounts, are flagged. Businesses must align cash flows with legitimate operational activities to avoid triggering investigations.
Invoice Compliance: All invoices must be legitimate and accurate. Issues such as falsified or mismatched invoices are subject to strict scrutiny.
Inventory Control: Discrepancies between inventory records and actual stock levels may be interpreted as income concealment or cost inflation, increasing audit risks.
VAT and Corporate Income Tax Alignment: A consistent disparity where VAT-reported revenue exceeds corporate income tax filings may raise concerns of underreporting taxable income or inflating input VAT.
Employee Individual Income Tax: Wage payments must align with individual income tax declarations. Any inconsistencies could prompt investigations.
Drawing on practical experience, Fidinam offers the following strategies to help businesses ensure compliance and mitigate tax risks:
Regularly review revenue, cost, and expense data to ensure compliance. During budget adjustments and expense reimbursements at the start of the year, adhere strictly to tax regulations.
Example: A hospitality business identified disproportionate service costs in early 2023, exceeding industry averages. Through internal audits, the company realigned its budget structure, achieving compliance and avoiding potential scrutiny.
Evaluate suppliers rigorously to avoid engaging with high-risk entities, such as those flagged for tax non-compliance.
Example: A retail company replaced a long-term supplier with a compliant alternative after discovering the supplier’s prior tax irregularities, thereby mitigating exposure to potential tax liabilities.
Maintain clear documentation for all major transactions, particularly cross-border payments, to demonstrate business authenticity.
Example: A company faced scrutiny over an overseas service fee payment due to insufficient supporting documents. Preparing robust documentation ensured the transaction’s legitimacy and prevented penalties.
Collaborate with tax advisors for periodic compliance assessments to identify and resolve potential risks.
Example: A multinational subsidiary in China discovered VAT input discrepancies during a routine review, enabling timely corrections to avoid penalties.
Establish channels to seek guidance from tax authorities, ensuring accurate reporting and timely resolution of issues.
Example: An internet company identified errors in bonus-related income tax reporting. Proactively engaging with local authorities allowed the company to rectify the errors and avoid penalties.
At Fidinam, we provide comprehensive support to help businesses navigate the challenges of tax compliance under GTS IV. Our services include, but are not limited to:
Tax compliance is increasingly complex under GTS IV's robust oversight. As the new year begins, businesses must strengthen their compliance frameworks and ensure accurate tax reporting.
With extensive expertise, Fidinam is well-equipped to provide end-to-end tax compliance support, helping businesses navigate the evolving regulatory landscape with confidence.
For tailored solutions to your tax challenges, contact Fidinam today. Together, we can safeguard your operations and optimize your tax strategy for sustainable growth.
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