New administrative regulation for tax-related professional services in China: Stricter administration for tax service providers from May 2025

The new regulation is a response to the increasingly complex requirements in the global tax environment, including the growing importance of cross-border transactions, the digitalization of business transaction flows and higher compliance expectations of international standards. The primary objectives of the reform are to prevent tax evasion, create fair competitive conditions for tax service providers and increase the efficiency of government administrative processes through the use of modern technologies.

The ongoing digitalization of the Chinese tax authorities, which relies on AI-supported analyses and real-time data processing, among other things, requires companies and their advisors to adapt internal processes in a timely manner. Only by implementing transparent and technologically optimized structures can risks in connection with official audits or regulatory sanctions be minimized.

1. Mandatory registration and credit scoring system (TSC): All tax service providers, including tax consulting firms, accounting firms, law firms, accounting agencies, tax agencies, financial advisory firms and other entities that provide professional tax services, must register with the tax authorities by May 2025. In addition, a five-tier credit rating system (Tax Service Credit, TSC) will be introduced to assess the reliability and compliance of service providers. The rating - from TSC1 (lowest level) to TSC5 (highest level) - will be publicly accessible on the Chinese tax authorities' central platform in future and is intended to make it easier for companies to select trustworthy partners.

2. Enhanced documentation and reporting obligations: Service providers are obliged to archive work logs, client orders and reports in their entirety. Extended reporting obligations to the authorities apply to specific services such as tax audits or compliance reports. Violations of these requirements can lead to fines of up to RMB 10,000 for companies and RMB 5,000 for employees.

3. Digitalization and AI-assisted monitoring: China's tax authorities are increasingly relying on big data and artificial intelligence to identify irregularities in real time. Algorithms analyze tax data for plausibility and automatically flag anomalies for further checks. This development underlines the need for digitally optimized processes on the corporate side.

4. Strict sanctions and reputational risks: In the event of serious violations, tax consulting firms, auditing firms, law firms, accounting agencies, tax agencies, financial advisory firms and other institutions that offer professional tax services may face fines, downgrading of their TSC rating, public citations as ‘non-compliant actors’ or even the withdrawal of business licenses. For international companies, there is also a risk that misconduct by local partners could lead to reputational damage or delays in official proceedings.

The reform is likely to result in an accelerated consolidation of the tax services sector. In particular, smaller providers that do not have the necessary resources to meet the stricter compliance and digitalization requirements could exit the market in the long term. In contrast, established law firms that already have a robust technological infrastructure and international expertise will benefit from the new regulatory framework. Against this backdrop, it is recommended to evaluate the selection of service providers based on their sustainability, technological agility and compliance capacities in order to establish competitive partnerships in the long term.

We recommend the following steps to successfully master the changeover:  

The reform emphasizes China's strategic focus on promoting tax transparency and technological innovation. For companies, this implies a fundamental transformation of regulatory expectations: Compliance is evolving from a formal obligation to a decisive competitive advantage. Proactive implementation of the new requirements not only enables operational and regulatory risks to be minimized, but also helps to strengthen the company's reputation with government institutions and business partners.