China offers many opportunities for companies looking to expand or grow their business overseas. With the 2nd largest economy in the world and over 1.3 billion people, China has a strong urban and rural work force and top industry sectors including consumer goods and services, industrial machinery, retail and technology.
There are challenges to expanding your business and managing payroll in China. There are frequent changes to rules and regulations taking place at the provincial level, more than 11 languages spoken with many regional dialects, and many cultural differences and expectations in business transactions. There are complex business structures, and a controlled currency. The tax year ends on December 31, and taxes must be filed by March 31 each year.
The types of companies registered in China can include:
- Wholly Foreign-Owned Enterprise (WFOE) – companies started by foreign nationals with no investors/connections from China (mainland)
- Joint Venture (JV) – companies that are established by foreign nationals and Chinese mainlanders
- Representative Office (Rep Office) – an office representing a company not registered in China
- State Owned Enterprise (SOE) – businesses owned by the Chinese government
- Private Enterprise – a company that is registered without government by individuals or groups
- Individually Owned – a company owned by one person that must be a Chinese citizen
Corporate tax rates can vary between 10 – 25%, depending on the type of company. The minimum wage in China is set by local governments and varies by province. The highest minimum wages are found in Beijing and Shanghai. Employees must submit the following information by March 31st each year if they meet the following criteria:
- Annual income exceeds RMB 120,000
- Earn income from two or more difference sources in China
- Earn income that is derived from sources outside of China
- Receive taxable income for which there is no withholding agent
- Meet any other conditions that are specified by the State Council
Employers must pay Individual Income Tax and Social insurance each month – partially paid by employer and partially deducted from employee salaries. Annual self-declaration forms must be submitted by employees if they meet the following criteria:
- Annual income exceeds RMB 120,000
- Earning income from 2 or more sources in China
- Earning income derived from sources outside of China
- Receiving taxable income with no withholding agent
- Any conditions specified by the State Council
Payroll is complex and varies by region so it is important to understand the nuances of each region if you have employees in more than one location in China. Funding options for payroll are flexible. Blue Marble provides money movement services so you can fund payroll in USD and settle in the local currency. If you have a local bank account, you can pay employees directly using EFT, but if you do not have a local bank account in China you can send funds to the in-country provider who can pay employees and social contributions on your behalf.
Foreign nationals are not required to pay tax on income earned from sources outside of China. Only Chinese nationals are taxed on foreign-earned income.
If you are just getting started in China, or need a better way to manage payroll and compliance, Blue Marble can help. Our cloud-based payroll software with customized monthly reporting gives you real-time access to your payroll to ensure compliance and stay ahead of regulation changes by province. We provide you with a dedicated US-based team and in-country experts in China to help when questions come up. Click here to learn more and ensure compliance for your payroll in China.