China Payroll Service: What Do Offshore Companies Need to Know

China is one of the leading global financial powerhouses. With its population of over 1.3 billion people and robust economic growth, it is the offshore dream jurisdiction for most investors across the globe. All about China Payroll Service just below.

In 2019, China’s gross domestic product (GDP) was USD14.2 trillion, which was second only to the US. However, China surpasses the US if you factor in people’s purchasing power in the GDP. When it comes to imports/ exports, China also stands taller than its peers. Although the country’s economic growth stagnated in the last couple of years, it remains one of the most desirable on the globe. 

Even with the impressive economic profile, running a business in China can be pretty challenging. For example, regular trade wars with the United States and issues related to the onset of the COVID-19 pandemic have made the jurisdiction a double-edged sword for investors. 

Despite the issues, registering a company in China is still highly lucrative. The country offers awesome opportunities, especially in the manufacturing, import-export, energy, and real estate industries.

One core component that you need to get right when running a company in China is managing payroll. This can be very challenging because it has to be managed in line with the complex payroll policies, country’s tax requirements, and staff employment guidelines. Therefore, you should consider seeking help with China payroll service from professionals.  Here are the main considerations about China payroll.  

China Payroll Service

China Payroll Service : How Do You Get Started?

Before you can start thinking of the China payroll service, the first step is to register the company in China. At this early point, it is important to appreciate that the different regions, from provinces to cities in China, have varying payroll rules. Some of the most preferred areas for business include the top industrial and financial centers of Guangzhou and Beijing. Once you pick a location, get a proof or lease to commence the process of company incorporation in China

Then, pick the preferred business form. Representative offices (RO), Joint Ventures (JVs), and wholly foreign-owned enterprises (WFOEs) are some of the common business forms you might want to select. If you select a joint venture, it implies that you will require a Chinese partner who must hold a majority shareholding in the company. The Chinese administration is encouraging foreigners to opt for different formations instead of JVs.

Unlike a JV, a representative office (RO) is considered an extension of your company that is already established back home or another jurisdiction. Using an RO, you are only allowed to run non-commercial activities in China.

This means that you cannot enter into monetary deals or profit-generating activities. Because of this consideration, most companies consider ROs as good options for market research or scouting for potential partners. 

WFOE and Shareholding

Since JVs and ROs have major limitations, WFOEs have become the most popular structures for firms targeting to run profit-based enterprises. As the name suggests, a WFOE allows you to have 100% shareholding. This implies that decision-making is pretty fast, and there will be no sharing of profits with partners. 

Setting up a WFOE is a pretty complex issue, but Chinese authorities have been working on simplifying it. For example, the administration introduced the “Five-In-One Business License” that has tried to combine some of the elements, such as business license, organization code, statistical registration certificate, and tax registration certificate that are required during registration. Even with the effort, the Five-In-One Business License still does not include all components of registration. For example, VAT and import/export still require separate certificates. 

Other requirements include a statement about the business scope, feasibility study, and proof of financial status. Once you are through with company registration and acquired a certificate of incorporation, it is time to get started. So, here is all that you need to know about China payroll service. 

Employment Considerations 

One of the mistakes that investors make with payroll in China is failing to comply with the country’s set guidelines. The underlying principle, just like with most jurisdictions across the globe, is that every staff should be accorded fair treatment irrespective of sex or race. In addition, all employees should be provided with the right to collective bargaining agreements, and children should not be employed. 

According to the Chinese labor laws, the employees you hire must sign an agreement. However, oral contracts are also allowed where part-time work is involved.  We must also indicate that the labor law requirements also differ based on the company structure. For example, it is only the limited firms that are allowed to sign contracts with Chinese citizens. For an investor who prefers to start a firm as a representative office, hiring staff is only allowed via third parties referred to as local service units. 

To hire staff in your company, they are required to provide proof of residence. Then, your company is required to file social insurance paperwork on the first day of the staff at work. In the contract, you must include the following: 

  • Job description. 
  • Employer details. 
  • Employee details. 
  • Social insurance. 
  • Terms and conditions, including remuneration. 
  • Details about hazard prevention and safety of the employee’s work environment. 

Contracts in China can be either short-term or long-term. A temporary work contract can be based on a specific period or until a defined occurrence. If you want to employ workers from abroad, permission from the local labor authorities should be sought and a work visa issued for the staff.


business in China

Compensation, Bonuses, and Severance Considerations

In China, the minimum wages vary from city to city and province to province. Shanghai has the highest minimum wage, which is 2480 Yuan/ month and 22 Yuan/hour. On the lowest end are Tieling and Huludao of Liaoning province. The minimum wage of these two regions is 1120 Yuan/month and 10.6 yuan/ hour. However, these numbers can change regularly. 

Officially, China follows a standardized national eight-hour workday, and companies must also provide staff a day off per week. Although you will find some employers who do not follow these guidelines, it is a good idea to operate within the law to avoid the risk of severe penalties. 

If an employer requires employees to work overtime, the long list of labor laws might require consultations with trade unions. Again, overtime work can only be extended by one hour per day. Also, overtime pay is usually higher than the standard pay. The law has set overtime pay at 150% of the standard wages. However, overtime work done during weekends and holidays is paid 200% and 300% of normal wages. These rates mainly apply to low-ranking employees, and top managers are not automatically included. 

While bonuses are not mandatory in China, your company is expected to pay a 13th-month salary prior to the Chinese New Year Holiday. This additional payment is subject to all taxes that are applied to the standard wages. You might find some companies offering even 15th and 14th-month salaries to motivate their staff. 

If an employee’s contract comes to an end and the employer does not intend to renew it, the law requires severance payment, which is equal to one month’s salary for every year he/she has worked.

The only time that this might not be applicable is when the employee has violated laws and regulations as listed in the Chinese Labor Agreement

Note: It is important to carefully structure bonuses, commissions, and other incentives to avoid being flagged for fraud and bribery. This is one of the reasons why you should work with experts to help with China payroll service. 

Benefits, Tax, and Withholdings 

Like most jurisdictions on the globe, the personal income tax is based on progressive rates, meaning that higher tax rates apply to those earning more. This model is applied in line with the new individual income tax (IIT) regulation that was passed at the start of 2019. So, how does this progressive rate apply? 

For the first 5000 Yuan an employee earns per month, the law exempts it from tax. However, anything above this earning is taxed between 3-45%. Here is a further breakdown of what you should expect to pay: 

Annual income  Tax rate 
5001 – 36,000 3%
36,001 – 144,000 10%
144,001 – 300,000 20%
300,001 – 420,000 25%
420,001 – 660,000 30%
660,001 – 960,000 35%
Above 960,000 45%

Employers are obligated to withhold all applicable taxes from employees and remit to China’s Tax Bureau prior to every 15th day a month. Furthermore, they are also required to withhold and pay a severance tax, bonus tax, and shares tax where applicable. 

Another crucial consideration when processing China payroll is contributions to the mandatory social-related schemes, including medical insurance, industrial injury insurance, Housing Fund, social insurance, and maternity insurance. In the case of the Housing Fund, make sure to check with the local authority because the rates usually change per year. 

Like tax deductions, the withholdings must be paid by the 15th of every month to the respective boards, including the National Health Insurance Council, Bureau of Labor Union, and Employee Pension Board. 

China Payroll Service : Employees Vacations and Holidays 

China payroll management will not be complete before factoring vacations as well as vacations for staff. During public holidays, workers are entitled to time off. Indeed, these closely resemble those of many western jurisdictions. The two main holidays in China are the Chinese National Day Holiday in October and the Spring Festival in late January and early February. Each holiday is three days. You also need to provide a holiday to staff during other holidays. 

Every year, your employees are entitled to 5-15 days of paid leave, which is paid based on the length of service to the company.

In the first year, employees are not entitled to any leave and need to work for the same company for a longer period to get the leave. However, when applicable, every employee has a right to apply for funeral leave, marriage leave, and sick leave. 

Following China’s relaxing of its one-child policy in 2015, maternity and paternity leaves have also changed. Now, women get 98-day maternity leave, which is paid by the employer. If the employee had difficulties during childbirth, she is allowed an additional 15 days. According to the labor laws, companies are banned from terminating contractual employment for a pregnant woman or one with a child below one year. A company discovered to have gone against this policy is punished severely. 

The Importance of Working with Expert China Payroll Service Provider 

With a rapidly growing economy and a huge influence on the international scene, China provides multiple advantages for multinationals. However, the rules and policies on employment and payroll are complex. For example, they change regularly, differ from one region to another, and depend on the nature of your company formation.

Throw in cultural differences and China’s unique accounting system and everything can easily grind to a halt and cause excess pressure. The best way out for your company is to consider outsourcing the China payroll service from a reputable firm of experts. Here are the main advantages of working with professionals: 

  • They have the experience of working with companies operating in China. Therefore, they are conversant with all related laws and can comfortably track the latest changes. 
  • You are sure of following the right procedures, whether for taxation or executing the required deductions in the country, in line with various Chinese policies and regions.
  • The experts can help you in crafting good strategies for success in China. As experts, they have helped other companies and will be able to tell you what works and what cannot easily. 
  • Professionals help you to cut down costs of operations. Instead of trying to handle the payroll on your own, risking doing everything wrong and getting penalized, the experts ensure your payroll runs smoothly. You can never go wrong with a professional.   

As we have highlighted, China is a high-potential jurisdiction that you can use as a catapult to fire your enterprise to success. To make this possible, let an expert like us hold your hands. On China payroll service, these professionals make it pretty easy to operate in compliance with the law, motivate staff, and rapidly grow your enterprise.