Last updated in January 2024.
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China, officially known as the People's Republic of China, is located in East Asia and plays a crucial role in global affairs. It shares borders with 14 countries and has diverse geographical features, from mountains and plateaus to plains and coastlines.
China has the world's second-largest economy and has a rich cultural heritage that spans thousands of years. It has become a global leader in technology and innovation. Home to major tech companies, the government has made substantial investments in areas like artificial intelligence, 5G technology, and renewable energy.
Payroll in China – 2024 Updates
As of January 1, 2024, several new laws and regulations have been implemented in China, impacting various business sectors. Here is a summary of the key changes:
- Administrative Reconsideration Law:
- Effective Date: January 1, 2024.
- Aims to make administrative review the primary method for resolving disputes between individuals and government agencies.
- Expands the scope of cases eligible for administrative review, including issues like governmental compensation, work-related injuries, and abuse of administrative power affecting market competition.
- Introduces compulsory administrative review before court proceedings in specific scenarios, aligning procedures more closely with litigation.
1. Amendment to Civil Procedure Law:
- Effective Date: January 1, 2024.
- Addresses perceived inequities faced by Chinese companies abroad in civil litigation involving foreign entities.
- Extends the jurisdiction of Chinese courts over foreign-related civil cases, potentially increasing legal proceedings initiated by Chinese companies.
- Emphasizes the importance of understanding and leveraging international treaties for protective frameworks and recommends robust dispute settlement clauses in contracts with Chinese entities.
2. Measures for the Administration of Registration of Formula Foods for Special Medical Purposes:
- Effective Date: January 1, 2024.
- Introduces regulatory updates to strengthen China's food safety network, aligning standards with international practices.
- Focuses on areas like infant formula registration and health foods, highlighting China's commitment to refining its regulatory landscape.
- Stakeholders, including companies and producers, need to understand the changes and comply proactively.
3. Import-Export Tariffs (2024):
- Effective Date: January 1, 2024.
- Aimed at boosting high-quality development, advancing openness, and establishing innovative patterns.
- Anticipated changes in tariffs to support the growth of industries, especially in advanced manufacturing, clean energy, and sustainable technologies.
- Part of China's strategy to secure supply chains, promote technological innovation, and actively participate in global industrial restructuring and free trade networks.
Businesses involved in various sectors, including food and beverage, import-export, and financial activities, are advised to closely monitor and adapt to these changes to ensure compliance and navigate the evolving legal landscape in China.
China Payroll – Basic Facts
The official currency of China is the Chinese Yuan (¥). The unit of the currency is called Renminbi (RMB), which translates to "People's Currency" in English.
In China, the tax year generally follows the calendar year, running from January 1st to December 31st. Individuals and businesses report their income and pay taxes based on this annual cycle. China's tax system encompasses various taxes, including individual income tax, corporate income tax, value-added tax (VAT), and others.
Specific rules for payroll and taxation in China vary depending upon whether the company employs foreign nationals or local Chinese employees. The primary concerns for a foreign company that needs to comply with tax laws in China include Individual income tax (IIT) for employees in China, social security costs, payroll tax, sales tax, withholding tax and business tax.
Foreign workers in China are taxed separately from Chinese citizens for income taxes, generally are liable for most social insurance contributions, and are exempt from many labor-related requirements.
Multinational employers paying the salary and benefits of dispatched employees through home country payrolls fall under China’s corporate tax laws under certain circumstances. Tax records generally must be kept for a minimum of three to five years.
Tax and Social Security Considerations
Corporate Tax
The standard tax rate is 25%, but the tax rate could be reduced to 15% for qualified enterprises which are engaged in industries encouraged by the Chinese government.
Income Tax
China levies different rates depending on the source of income. For most individuals employed in China, the most important source of income is Comprehensive income. Comprehensive income is taxed according to a progressive tax rate system, from 3% to 45%. The table below displays the applicable tax rates that are applied to each income bracket.
An individual will be required to make individual income tax payments if they are classified as a tax resident in China. An individual is considered to be a tax resident in China if they meet one of the following conditions:
They are domiciled in China; or
The duration of their residence in China has exceeded 183 days in calendar year.
If an individual is considered to be a resident, they will be required to pay taxes on their global income. The scope of taxation is inclusive of all wages, salaries, any form of labor remuneration as well as any other sources of income, starting from RMB 5,000.
Personal Income Tax Rates for 2024
Taxable Income (RMB) | Income Tax Rate |
---|---|
0 – 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% |
960 000 + |
45% |
*Expats are able to offset their taxable income with relevant business expenses. Replacing the previous 5-year rule, foreign employees will now be considered tax residents, and subject to income tax on their worldwide income, if they reside in China for 183 days.
A flat rate of 20% is applied on the remaining categories of income, including incidental income, rental income, interest income, dividends, and capital gains, unless specifically reduced by the State Council.
Withholding Tax
Dividends, interest, and royalties earned by non-resident individuals and/or foreign corporations are subject to a 20% national WHT under Japanese domestic tax laws in principle. An exceptional rate of 15% is applied to interest on bank deposits and certain designated financial instruments.
The sales tax rate is 13%.
Payroll Tax
In China, the payroll tax is a specific tax which is paid to provinces and territories by employers, not by employees. The tax is subtracted from the employee's salary. The Chinese Government itself requires only one tax to be withheld from paychecks: the PAYG (or pay-as-you-go) tax, which includes medicare levies and insurances.
Social Taxes
Employee Social Security
China has a 10.50% employee contribution which covers pension, health insurance, maternity insurance, work related injury insurance and unemployment insurance. It varies by region.
Employer Social Security
China has 28.52% employers’ social security contribution which covers pension, health insurance, maternity insurance, work related injury insurance and unemployment insurance. This varies by region and generally has a limit to the employer contribution where the maximum social security contribution cannot exceed three times the average monthly wage.
Under the law, employers must provide their employees, including expatriate employees possessing work permits, with five types of social insurance benefits:
- pension insurance
- health insurance
- occupational injury insurance
- unemployment insurance
- maternity insurance
In addition, employers and employees are required to contribute to housing funds, administered on a provincial basis.
Compensation and Benefits
Minimum wage
In China, minimum wage levels are set at the provincial, autonomous area, and municipal levels. In 2023, the Shanghai monthly minimum wage was RMB 2,690.
In 2023, 12 provinces, including Anhui, Beijing, Guangxi, Guizhou, Hebei, Qinghai, Shaanxi, Shandong, Shanghai, Shanxi, Tianjin, and Yunnan, have raised their minimum wage standards.
Working hours
The standard is an 8-hour work day, totaling 40 hours weekly.
Overtime
In general, employers can only require workers to work up to three hours more in a workday as overtime, up to a maximum of 36 hours overtime in any single month. The hourly rate of pay for overtime work on weekdays is 150% of base pay, rising to 200% on weekends and a 300% premium on a holiday.
Public Holidays
The holiday schedule features two major week-long holidays: the Spring Festival (also known as Chinese New Year) and National Day. Saturdays and Sundays are often marked as additional official workdays in China to compensate for long holiday breaks.
Leave
Full-time employees working at least one year are entitled to five days paid annual leave each year. This rises to 10 days after they complete 10 years of work.
Sick Pay: Varies depending on length of service:
6 months sick leave:
- Under 2 years of employment- 60% regular wages
- 2-4 years – 70% regular wages
- 4-6 years – 80% regular wages
- 6-8 years – 90% regular wages
- 8+ years – 100% regular wages
Wage Payment
Wages shall be paid in legal tender to the workers in person monthly.
Bonuses and Special Benefits
Many companies in China have instituted a 13th month salary payment.
Termination of Employment
If the employee is being terminated at the end of a fixed-term contract, no notice is needed. If the employee is not on a fixed-term contract with cause, no notice is required. If it is without cause, 30 days notice is required.
Workers’ Compensation
Severance pay also depends on whether it is termination with cause or termination without cause. If it is with cause, no severance pay is required. If it is without cause, severance pay is required.
Record Keeping
The minimum period for the storage of accounting files in China was adjusted from 3, 5, 10, 15 and 25 years to 10 and 30 years in 2016. The storage period of accounting archives stipulated shall be the minimum storage period.
Foreign Workers in China
Foreigners living in China must file with the local tax authorities for tax registration. Foreigners working or providing services in more than one local tax jurisdiction may file and pay taxes separately in each jurisdiction or apply to the local tax authorities to pay monthly all individual taxes due on a consolidated basis at just one location.
Multinational employers may fall under coverage as a taxable establishment and place (E&P) or a permanent establishment (PE) in China if the home entity carries out the employee’s performance reviews and bears all or part of the responsibilities and risks associated with the employee’s work.
Foreign workers seconded to China and paid from the home country may create this tax nexus for their firms under the following circumstances:
- The Chinese host company pays management or service fees to the home company.
- The payments from the Chinese host to the home entity exceed the employee’s total wages and expenses.
- The home company keeps some of the payment received from the Chinese host instead of passing it all to the dispatched employee.
- The China individual income tax (IIT) for the employee is paid in full on wages received from the home entity.
- The home entity has the authority to decide the number, qualifications, salaries, and working locations of employees dispatched to China.
Visas:
The F Visas can be obtained by visitors who have non-commercial purposes only. The M visa has been introduced for foreigners coming to China for business purposes. Work visas, covered by both Z and R visas, are issued to foreigners for commercial performances or academic exchanges and to their accompanying spouse and minor children.
To reside lawfully within China for more than one year, a non-Chinese national must obtain a residency visa. Permanent resident visas (D Visas) are issued to foreigners authorized to reside permanently in China.
Taxes:
Foreigners who have a residence or reside on the Chinese mainland for more than 183 days a calendar year will be classified as resident taxpayers, subject to Chinese tax on their worldwide income, according to the revised Individual Income Tax Law.
Those residing on the Chinese mainland for less than 183 days a year will be considered nonresident taxpayers, liable for tax only on their onshore income, according to the revised personal income tax code.
Under current law, foreigners who reside on the Chinese mainland for more than one year, but less than five years should pay tax on their onshore income and only the offshore income that’s derived from onshore entities or individuals.
In other words, they don’t have to pay tax on offshore income from offshore sources. Those who reside on the mainland for more than five years are required to pay taxes on both onshore and offshore income, no matter the source. This is also referred to as the "five-year rule."
Treaties
China has entered into more than 90 income tax treaties, including an income tax treaty with the United States. China additionally has an income tax treaty in effect with Taiwan and additionally has income tax treaties in effect between its main part and its two special administrative regions: Hong Kong and Macau. These treaties affect taxation of individuals who may have a presence in some form in the special administrative regions or in the main part of China.
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