China payroll and tax overview.

Home to over 1.4 billion people, the People’s Republic of China is the most populous country in the world. Once a Soviet-style planned economy, following 30 years of social and political reform, in the 21st century China has repositioned itself as a thriving market-economy. With liberalisation measures stimulating growth and opening the country to investment, China has become the second-largest economy in the world: in 2019 its GDP stood at an estimated $14.14 trillion with a growth rate of 6.1% and a purchasing power parity of around $27.3 trillion. Low labour costs have made China a leading global manufacturing location, while a huge domestic market and excellent access to the rest of Asia has encouraged international businesses to explore opportunities within the country. China is an influential regional and global power and is a member of the G20, BRICS, APEC, and the WTO. In 2019, China was ranked the second largest recipient of foreign direct investment in the world after the United States, and was ranked 31 on the World Bank’s Ease of Doing Business Survey.

Why Invest in China?

Over the past 40 years, investment opportunities in China have multiplied. Some of the best reasons to invest include:

• Growth: China’s economic growth rate has held at an average of 9% for around two decades. While recent figures reveal a slowdown, the growth rate is still outpacing other highly developed economies - and is helping reduce poverty, expand domestic markets, and reinforce China’s global prestige.
• Infrastructure: From the ready availability of physical labour and resources, to extensive transport links and low distribution costs, businesses in China benefit from a range of highly developed infrastructures. China’s workforce is vast, and highly skilled, meaning businesses can draw employees from a diverse labour pool.
• Stability: The Communist Party has ruled China since the mid-twentieth century, providing the country’s businesses with a high degree of political stability. While founded on Socialist values, the modern Communist Party has embraced a range of western economic policies to stimulate business and encourage prosperity.
• Industries: Major investment targets in China include the traditionally-important mining and agricultural industries, along with the increasingly important manufacturing and services industries. In fact, China is the world’s most prominent manufacturing destination, exporting a huge amount of products to the world every year - everything from solar-cells and shoes, to mobile phones and automobiles.
• Asia: China represents a regional and global hub, and a gateway to lucrative middle-eastern and south-asian markets. The Chinese government has initiated a range of free trade agreements with countries all over the globe to stimulate economic activity.

Foreign Direct Investment in China

China’s economic reforms were designed to increase consumerism and serve a growing middle class, but foreign investment can still be a constantly changing process. Depending on the desired market, access can be easily achieved, or completely refused - and each case must be considered on an individual basis. That said, many of China’s industries are benefiting international business, including products from a range of manufacturing sectors, and the mining industry. Initiatives like the establishment of the Shanghai Free Trade Zone represent a bold step by the Chinese government to introduce new levels of FDI to the country.

Registering a Company and Establishing an Entity in China

The company is required to have a legal entity established in order to process a payroll. They require an entity before they sign the labour contract with the employees.

Foreign employers can register the following entities in China:

Representative Office (RO): Registration time is around two months.

Wholly Foreign Owned Enterprise (WFOE): This is a form of limited liability Company in China. The registration time is around four months.

Business Banking in China

It is mandatory to make payments to both employees and the authorities from an in-country bank account. In general, the opening hours for banks in China are 0900-1100 and 1300 -1500. Banks are closed on Saturday and Sunday.

Working Days and Working Hours in China

The working days in China are from Monday to Friday. General opening hours for commercial offices are 0900-1200 and 1300-1800.

Basic Facts About China

General Information

China is one of the world’s largest sovereign territories - and its most populous. It lies at the eastern edge of Asia, bordered by a number of the region’s most prominent nations including Russia, India and Pakistan, and sharing maritime borders with South Korea, Japan, Vietnam and the Philippines. China’s earliest civilisations stretch back to prehistory, but the country was ruled by a series of grand imperial dynasties for centuries - until 1912, when the old system was replaced by the Republic of China. In 1949, the Communist Party established the People’s Republic of China and, after a period of socialist rule, opened up to the world with economic reform in 1978. China’s landscapes include mountain ranges, grasslands and plains, contrasting with densely populated urban centres like the capital, Beijing. China’s climate shifts between dry seasons and monsoons, while temperatures vary greatly across every corner of the country thanks to a diverse topography.

Full Name: People’s Republic of China

Population: 1.398 billion (World Bank, 2019)

Capital: Beijing

Primary Language: Mandarin

Main Religion: Buddhism, Christianity, Islam, Taoism

Monetary Unit: Yuan

Main Exports: Electrical machinery and equipment, furniture, cotton, tea and rice

GNI Per Capita: US $16,790 (World Bank, 2019)

Internet domain: .cn

International Dialing Code: +86

The tax year in China runs from 1 January to 31 December.

Individual Income Tax (IIT): The employee has the duty for tax filing every month.

Each city/region has a Tax Bureau and Social Security Bureau that can be contacted for more information.

Income Tax

Monthly individual income tax contributions in China are paid on the 15th of the following month, except for special months due to public holidays, which the tax bureau will postpone the due date of the tax payment.

The penalty for late payment of Individual Income Tax is 5/10000 of the amount owed per day.

Standard Deduction

Effective as of 1 October 2018, the standard deduction on comprehensive income is RMB 5,000 per month for both resident and non-resident taxpayers.

Monthly Tax Calculation

According to the new tax regulations effective from 1 January 2019, the monthly individual income tax = cumulative tax payable – cumulative tax withheld in previous period.

[Cumulative tax payable = cumulative taxable income × withholding rate – quick deduction

Cumulative taxable income = cumulative income (excluding tax-exempt income) – cumulative applicable deductions (including personal deduction, special deductions, itemized deductions and other applicable deductions)]

Social Security in China

There are two mandatory statutory contributions:

Social Security

China’s standard social security scheme comprises a system called the “Five Insurances” – the basic pension, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance. Contribution to China’s social security system is mandatory for Chinese employees and their employers as well as foreigners employed in China. The social security contribution is calculated as a percentage of employees’ monthly salary, which is subject to lower and upper cap. The caps are adjusted every year. Social security and housing fund contributions are mandatory in China for both the employee and the employer. Contributions are made on a monthly basis, but rates differ per city and province.

The employer or payroll agent needs to report to the local Social Security Bureau during the first week of the current month. If social security is paid late the government will calculate the amount owed (if any).

Housing Fund

Housing Fund contributions are mandatory for both the employee and the employer, except for foreigners. Contributions are made on a monthly basis.

Reporting Tax in China

Monthly Social Security Report

Information required for completion of this document is as follows:

• Monthly Social Security Registration
• Monthly Social Security Termination
• Contribution Information

The document can be filed by the employer or their authorised agent and must be submitted to the Local Social Security Bureau. The document is required to be signed by the employer.

Monthly Individual Income Tax Report

Information required for completion of this document is as follows:

1. Monthly Individual Income Tax Summary
2. Detail Information

The document can be filed by the employer or their authorised agent and must be submitted to the Local Tax Bureau. The document is required to be signed by the employer.

New Employees in China

When a new employee starts in China, he/she must be registered with the Social Security Bureau. Registration will be done by the employer or agent before the 15th of the current month if hired before the 15th.

When setting up a new start, the following information is required:

• Employee information
• Monthly salary, start date
• Location of contributing social security and housing fund

When setting up an expat, the following additional information is required:

• Passport
• Work permit

Registration for an expat will be done by the employer or agent before the 15th of the current month if hired before the 15th.

Leavers In China

Payment for leavers will usually be made before the regular payment date. The authorities do not have to be notified of a leaver.

China’s payroll system includes numerous associated statutory regulations. Failure to comply with payroll statutes can lead to costly penalties. Employers have a responsibility to withhold income tax from employees - and report those taxes before the 15th of each month. Social security contributions must be paid on the same schedule.In addition to tax withholding, important components of the payroll process include:

• Registering new employees in the payroll system
• Registering new employees with social security
• Salary calculation and payment arrangements
• Delivery of payslips (which may take place online)
• Maintaining payroll records (for at least five years)