Recently, illegal entry into China, taking up residence and working has been included in the Awards for Reporting Illegal and Criminal Offences Implementing Measures (The Measures) in the southern city of Shenzhen.
The Measures were issued by the Shenzhen Municipal Public Security Bureau on 16 May 2019. And while they only relate to the municipality of Shenzhen, similar measures may end up being be promogulated in other top-tier cities.
According to the measures, informants reporting on illegal foreigners shall be awarded RMB 500 for each foreigner administratively detained and RMB 300 for every administrative fine a foreigner that they have turned-in receives.
Correspondingly, under national law, offenders illegally entering or exiting China may be fined up to RMB 10,000 or detained from 3 – 10 days and, perhaps, be simultaneously ordered to leave the country. Those caught staying illegally in China face fines of RMB 500 RMB per day. As a result, companies dispatching workers to China should adhere to the most up to date laws, regulations and rules in order to ensure full compliance and avoid trouble.
At Horizons, we find that many foreign-invested companies’ HR departments lack the international expertise coupled with local know-how in dispatching an employee to China. All too often, outdated information has been provided to companies resulting in employment snafus, delays and monetary losses.
Below we outline a few best practices, based on our experience, that will help you avoid common mishaps.
Entering China on a Tourist or Business Visa
Foreigners are strictly forbidden from working in China without obtaining a proper work permit. A labour contract duly signed and affixed with the company seal should be executed before applying for the work permit. Upon the issuance of the work permit, a foreigner may then apply for a work visa at the Chinese embassy that serves their locale with the required documents. Only then, after the work visa has been issued, can they enter China as a legitimate company employee.
(For more information about the work permit procedure, refer to our previous post titled Keeping on top of employment visa regulations and applications procedures.)
Labour contracts
Certain clauses related to the location of work, working hours and terms of work, including a bonus clause, are required to be included in the labour contract. Relevant labour clauses may be revised from time to time, and as a result, it is best to be aware of the latest labour updates on the Ministry of Foreign Affairs of the People’s Replica of China website.
Type B Work Permits
Applications for work permits are approved according to A, B and C tiers categories (we again refer the above-mentioned link on visa regulations and applications). Qualifying tier A applicants are given first priority. Tier B applicants may submit their application either by demonstrating two years relevant experience or via the employee point scoring system, which does not require evidence of two years’ experience, although tier B applicants are prioritised according to the below criteria.
- 2 years’ relevant work experience and bachelor’s degree or above
- Hold 60 – 84 points accordingly in the point scoring system
If the qualifying applicant utilises the point scoring system, and upon renewal of the work permit, an annual individual income tax return shall be submitted with the renewal application. Therefore, the annual salary within the labour contract shall correspond with the amount of individual income tax withheld and paid in the tax year.
Tier C applicants are usually seasonal workers, although in practice type C employees are rarely approved.
Tax Residency
Effective from 1 January 2019, the Individual Income Law was revised. Individuals residing in China for an accumulated 180 days in the tax year are regarded as tax residents in China. The date of arrival and departure are each calculated as one full day. Therefore, it is important to note whether a dispatched worker is subject to individual income tax (IIT) in China.
Individual Income Tax
IIT is calculated on annual accumulated income but paid and withheld monthly. In practice, the IIT in January shall be lower than December, because the annual accumulated income is lower in January than December. As a result, the net income shall decrease gradually during the tax year, although the total amount of IIT withheld and paid remains the same. (For more information about IIT please visit this link.)
Dispatching employees in China often requires both domestic and international knowledge on cross-border labour, legal and tax issues. For example, how tax residency is defined in the jurisdiction of the dispatching company may subject employees to double taxation, dependent on the double tax agreement signed or not signed by the site-of-employment country.
Often, this important aspect of employment and taxation goes overlooked, putting companies at risk for incurring penalties, not to mention the potential problems faced by individual employees themselves. Equally, in China, it should be noted that local labour rules, regulations and tax bureau enforcement may vary from city to city. As a result, best practices in dispatching employees should include expert consultation on local, national and international to put in place a complete plan.
If you would like more information about dispatched labour in Chinaor other related corporate matters, send us an email at talktous@horizons-advisory.com, and we’ll have a Horizons professional contact you.