China Expansion Guide
Global Upside helps companies set up, hire, and operate in China. Set up a legal entity quickly and easily with our solutions for branch, subsidiary, and rep office. Looking for an alternative to permanent establishment? Hire and pay employees in China without a legal entity by using our PEO & employer of record services. Once your business is set up, our teams can support with recruitment and staffing, human resources, employee benefits, payroll, accounting, and tax.
China has the second-largest economy globally and is a prominent economic and technological dominion in eastern Asia. Additionally, the country has the world’s most significant hydroelectric power potential and numerous mineral resources. However, China can be a complicated country for newcomers since it has several provinces, each with its criteria.
A limited liability company usually has up to 50 investors, and generally, there is no personal liability of shareholders. Taxed at two levels (commonly called double taxation) – an LLC pays an enterprise income tax on its corporate income. It then distributes its after-tax profits as dividends to the investors who pay income tax on those dividends.
A company limited by shares requires at least 2 to 200 investors, who must be Chinese citizens. Usually, the investors have no personal liability. However, this entity is subject to tax on corporate earnings, and investors pay taxes on any distributed dividends.
A partnership enterprise requires a minimum of 2 investors, up to 50 investors for limited partnership if not specified by law. The general partners have unlimited joint liability for the association’s obligations, while limited partners have liability for the partnership’s debts to the amount of their capital contributions.
Per the Labor Contract Law, a written contract is the most common type of contract in China. However, written agreements are not mandatory for part-time employees.
The employer and employee must copy the agreement in Chinese and any relevant foreign language depending on the local dialect.
Some of the details typically mentioned in the written contract include:
- Contract term
- Social security
- Protection against occupational hazards, labor protection, and working conditions
- Liability for contract breach
- and more
The different types of employment relationships are:
- Permanent Employment – Permanent employment relationship is also known as a contract without a fixed term as there is no indication of an end date in the agreement. Under these contracts, terminations can be complex.
- Fixed-Term Contracts – Defined as a labor contract in which both parties have agreed on the period of termination, fixed-term agreements are authorized under the Labor Law of China.
- Short-term Employment – Often, employers can use employment service agencies or labor dispatch agencies for temporary work that is less than six months.
According to China’s Labor Contract Law, probationary periods vary from one to six months, subject to the length of the employment contract.
Chinese labor law states that employees are not allowed to work more than 8 hours a day and an average of 44 hours a week. Typically, the employer can extend working hours up to 1-3 hours per day for production or operational requirements considering the trade union and the employee’s consent. Overtime cannot exceed 36 hours per month.
Employees in China are entitled to the following leaves:
- Annual leave – Per China’s labor law, employees are entitled to paid annual leave after working for a continuous period of one year. Annual leaves vary from 5 to 15 days, depending on the years of employment.
- Maternity leave – Per China’s Special Rules on the Labor Protection of Female Employees, a minimum of 98 days of maternity leave are allowed. Many provincial governments, however, have raised this minimum threshold.
- Sick leave – Employees in China are entitled to sick leave ranging from three months to two years, depending on their years of employment.
- Paternity leave – Although China’s Labor Law does not provide statutory paternity leave on a national level, all municipal or provincial governments grant it. Paternity leave varies from 7 to 30 days, depending on the region.
There are various other types of leave categories available to employees with specific situations.
The following are the statutory national holidays observed in China:
- January 1 – New Year’s Day
- January 2 – New Year’s Holiday
- January 3 – New Year’s Holiday
- February 11 – Spring Festival Eve
- February 12 – Chinese New Year
- February 13 – Spring Festival Golden Week Holiday
- February 14 – Spring Festival Golden Week Holiday
- February 15 – Spring Festival Golden Week Holiday
- February 16 – Spring Festival Golden Week Holiday
- February 17 – Spring Festival Golden Week Holiday
- March 8 – International Women’s Day
- April 3 – Qing Ming Jie Holiday
- April 4 – Qing Ming Jie Holiday
- April 5 – Qing Ming Jie Holiday
- May 1 – Labor Day
- May 2 – Labor Day Holiday
- May 3 – Labor Day Holiday
- May 4 – Labor Day Holiday
- May 4 – Youth Day
- May 5 – Labor Day Holiday
- June 12 – Dragon Boat Festival Holiday
- June 13 – Dragon Boat Festival Holiday
- June 14 – Dragon Boat Festival Holiday
- September 19 – Mid-Autumn Festival Holiday
- September 20 – Mid-Autumn Festival Holiday
- September 21 – Mid-Autumn Festival Holiday
- October 1 – National Day
- October 2 – National Day Golden Week Holiday
- October 3 – National Day Golden Week Holiday
- October 4 – National Day Golden Week Holiday
- October 5 – National Day Golden Week Holiday
- October 6 – National Day Golden Week Holiday
- October 7 – National Day Golden Week Holiday
Employers must provide their employees with social insurance benefits. They must contribute 20% to social security, covering pensions, health insurance, maternity insurance, work-related injury insurance, and unemployment insurance. Generally, the employer contributions differ by province.
Per China’s Social Insurance Law, all employees hold the right to basic old-age insurance, contributed to by both the employee and the employer.
Some examples of social insurance programs are:
- Dependents’/Survivors Benefit – The survivors of the deceased are entitled to receive bereavement allowances. The basic old-age insurance fund covers the expenses and determines the amount following local regulations.
- Life and Disability Insurance/Benefit – Employers must enroll their employees in the work injury insurance system, a part of the country’s social insurance system. Only the employer contributes to work-related injuries.
Employees and employers may unilaterally terminate their employment contract by providing a written notice 30 days in advance. Employers may also offer one month’s salary in place of notice if both parties meet specific labor code standards.
Visa/ Work Permits
Visitors from most countries are obligated to have a visa to enter and stay in China. However, tourists from Japan, Brunei, and Singapore can enter the country without a visa for up to 15 days for traveling or personal visits.
Per the State Council of China, visa categories typically include:
- C – Crew
- D – Resident
- F – Non-business activities
- G – Transit
- J1 – Journalists whose intended duration of stay exceeds 180 days
- J2 – Journalists whose intended duration of stay is less than 180 days
- L – Tourist
- M – Business
- Q1 – Family Reunion where the intended duration of stay must exceed 180 days
- Q2 – Family Reunion where the intended duration of stay is less than 180 days
- R – Talent/ Skill
- S1 – Private Visit where the intended duration of stay must exceed 180 days
- S2 – Private Visit where the intended duration of stay is less than 180 days
- X1 – Students where the intended duration of stay must exceed 180 days
- X2 – Students where the intended duration of stay is less than 180 days
- Z – Work
Before obtaining a work permit, foreign employees need an employment license (provided by their employer). Work permit applications are available at embassies and consulates and must meet specific criteria.
Foreign employees in Beijing are required to obtain a non-criminal background check approved by Chinese authorities.
The standard corporate tax rate is 25%.
Value Added Tax (VAT)
The VAT rate in China is 13%. It applies to most taxable goods and services.
Typically, companies must file a provisional income tax return with the local tax authorities within 15 days of the end of each quarter and pay quarterly tax installments generally based on the profits for the quarter. An annual tax return and final tax settlement are due within five months of the end of the taxation year.
Companies will be charged a daily late payment premium at 0.05% of the unpaid tax amount. In addition to the additional fees for late payment, fines may apply.
Anti-Bribery & Anti-Corruption Law
The PRC Criminal Law, enacted based on the Constitution, regulates bribery. Under Article 383, penalties (for individuals and legal entities) include imprisonment, confiscating assets resulting from bribes, and an additional monetary fine on the company and officials.