Legal Recordkeeping Requirements

Article excerpt

In Part I of this two-part article (RMQ, April 1998), we provided our readers with an introduction to recordkeeping and records management in the People's Republic of China (sometimes referred to here as "the PRC"). We now turn to the aspect of recordkeeping in China that is of most immediate concern to records managers in our primary readership area of North America - legal recordkeeping requirements. We will devote this entire article to this issue because North American records managers of multinational corporations doing business in the PRC want to know, first and foremost, how to advise their companies about complying with recordkeeping laws and regulations in China.

This article will, it is hoped, provide an excellent starting point for these records managers toward the goal of full compliance with Chinese recordkeeping laws. We caution, however, that most if not all multinational records managers will want to conduct extensive legal research on their own, in order to verify the laws and regulations cited here, and also to customize the research fully so that it supports specifically the records that the business maintains in the PRC.

A LEGAL MANDATE FOR RECORDS MANAGEMENT

Among the laws of the world, a "legal mandate" for records management - that is, a law or regulation requiring its introduction by private enterprises - is rare. Laws of this type are generally confined to the public sector, whereby agencies of government are legally required to institute a records management program. There is, however, at least one legal mandate for business records management in China - the law applies to the accounting practices of foreign-related enterprises doing business in the special economic zones of China's Guangdong Province.

Article 5 of these regulations states that "Accounting procedures of foreign-related enterprises [doing business in Guangdong Province] shall include the following principal elements ... records management ..." Thus, for multinational companies that conduct business in this province, the establishment of a formal records management program supporting its business operations would be required under Chinese law. This provision is significant, because many U.S. and other Western multinational corporations have plants or other business operations in Guangdong Province.

LAWS SPECIFYING WHAT RECORDS MUST BE KEPT

There are numerous laws enacted by the Chinese government requiring businesses to create and maintain certain specified types of records. These are summarized here:

* Articles 100 through 102 of Regulations for the Implementation of the Income Tax Law applicable to foreign enterprises (including "exploration and development operations") require joint venture companies to maintain accounting books and vouchers, financial statements, and tax returns and receipts.

* Article 15 of Chapter 2 of the Accounting Law states that "Records shall be properly kept for accounting vouchers, accounting books, accounting statements and other accounting data according to relevant State provisions."

* Article 93 of the Rules for Implementation of the Income Tax Law for Foreign Enterprises states that "Enterprises with foreign investment which establish branch offices in China shall complete consolidated filings and payment of income tax..."

* Article 12 of Section 2 of the Law on Administration of Tax Collection states that "Taxpayers engaged in...business operations...shall establish accounting books, keep accounts based on legitimate and valid vouchers..."

LAWS RELATING TO THE ACCESSIBILITY OF RECORDS

In many instances, the accessibility of business records - their availability to government tax auditors or other investigators - is implied rather than expressly contained in law. There are, however, instances in which lawmakers in certain countries have considered it advisable to include specific provisions pertaining to the accessibility of business records in various laws. …