How can an Umbrella Company Help with Contracting in China?
Most freelance workers aren’t superheroes who successfully tackle these issues all on their own. There are companies who specialise in helping workers make the most out of their contracts.
They’re called Umbrella Companies (or, contractor management companies).
Basically, an Umbrella Company acts as your full-time employer, even though you maintain your independence as a contractor. They collect and filter payments from your clients, filtering out the necessary social security and fees. You send them your timesheets, and they send you payments.
Because they act as your “employer,’ they can sponsor you and provide a single work permit for multiple contracts in China. Even better, most are experts in Chinese and expat tax law, meaning they’ll also help you optimise your earnings in China.
Although the Umbrella Company is technically your “employer,” you’re essentially freeing yourself to work even more independently. You still dictate your contracts, your hours, your schedule. The Umbrella Company simply filters out the time-consuming admin and immigration issues, allowing you to focus on your new contract.
Can I Organise My Taxes and Work Permit Myself?
Generally, you need to have an employer sponsor in order to secure the appropriate work permit and work visa for China.
If you’re working independently, it can be difficult to find clients willing to sponsor you. Moreover, even if your client can do this, you’ll need a new sponsor each time you decide to take on a new contract. Of course, every new sponsor will mean more paperwork.
Also, are you familiar with the intricacies of the tax system in China, as well as your own country’s laws on overseas earnings? If so, good on you!
However, if you’re like the rest of us, figuring out (much less reducing) your tax liability in China and your home country can seem like full-time work in itself.
A Contractor’s Guide to Taxes in China
One of the most consistently challenging aspects of contracting in China is complying with the country’s tax system. As well as paying tax in China, you might also still be eligible to pay some tax in your home country, and understanding the legislation behind this can be a challenge.
How do I calculate my taxable income in China
If you’re working in China under a permanent contract, many employers will handle your tax under the PAYE (pay-as-you-earn) system. This means that they calculate and process your taxes in China for you and then send you a net wage. Your income tax, public health insurance, social security and other deductions will all be covered by this payment. This is the easiest way to handle your income tax in China, but contractors may not be offered this service because of their short stay with each employer.
Anybody who can’t pay their tax in China through PAYE is left with the prospect doing everything themselves.
Do you know much about Chinese Tax Law? Does China have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in China can range from 3 to 45 percent, and you need to be sure you are placed in the correct tax brackets.
Tax Filing as a Contractor in China
| When Do You Need to Lodge Your Tax Return? | 31 March of the following year |
| Tax Filing Deadline | 31 March of the following year |
| Can you file it online? | Yes, https://www.tax.sh.gov.cn/zrr/ for Shanghai |
How to File Taxes in China as a Contractor
Taxes can be filed online for most cities in China. Each city has their own online portal or software for tax filing. It is recommended that you consult a translator as all websites are in Mandarin.
Step 1: Register
The links below will allow you to register for tax filing, based on your location.
Beijing(link is external)
Shanghai
Shenzhen(link is external)
Guangzhou(link is external)
Tianjin(link is external)
Hangzhou(link is external)
In Beijing, Guangzhou, and Tianjin taxpayers are required to download tax filing software.
Step 2: File Taxes
Log in to the online tax filing portal for your city via the links below.
Beijing(link is external)
Shanghai(link is external)
Shenzhen(link is external)
Guangzhou(link is external)
Tianjin
Hangzhou(link is external)
Tax Figures in China
| Currency | Renminbi or Chinese Yuan (RMB/CNY) |
| Tax-free Threshold in China | None |
| Notes | Standard Deduction: A standard deduction is subtracted every month from the amount of tax on gross monthly income, so that: To calculate gross monthly income from net monthly income: Gross Monthly Income = (Net Monthly Income – Deduction) / (100% – Tax Rate) Tax Rates: Non-residents and residents are subject to the same tax rates. |
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Tax Residency in China
When do you become a tax resident in China
You become a tax resident in China when:
You become a tax resident in China when:
You are domiciled in China i.e. you habitually reside in China by reason of your permanent registered address, family ties, or economic interests; or
You are a non-domicile of China and you live in China for 365 days, without a single period of absence of more than 30 consecutive days, or cumulative periods of absence of more than 90 days within the same calendar year.
An individual with a Chinese passport or ‘hukou’ (household registration) is generally regarded as domiciled in China. A foreign national is generally regarded as a non-domicile of China.
Does the 183 day rule apply in China
No
Am I taxed on my global income in China
You are taxed on your global income if you are:
Domiciled in China;
A non-domicile of China who has resided in China for more than five consecutive ‘full’ years and your global income will be taxed from the 6th year onwards; or
A non-domicile of China who has resided in China for more than 1 year but less than 5 consecutive ‘full’ years and your global income will only be taxed to the extent of income paid by a Chinese entity.
You are taxed on your China-sourced income only if you are:
A non-domicile of China and you have lived in China for less than 1 year.
You are tax exempt if you are:
A foreign individual who travels in China and derives income from an overseas employer with no permanent establishment in China; and
You do not physically stay in China cumulatively for more than 90 days in a calendar year (or 183 days/365 days if extended by a tax treaty).
Can you set up your own Limited Company in China?
| How long does it take to set up | 7 days |
| How much does it cost | CNY300 |
| Is it easy? | Starting a Business Rank: 93/190 (Source: World Bank) |
Tax Calculator in China
If you are a contractor and want a calculation on your tax and net retention in China, we can supply it to you free of charge.
Using an Umbrella Company for Income Tax in China
Contractors in China are faced with masses of paperwork and numerous wasted hours filing a tax return unless they find an alternative option. A Chinese umbrella company can act as your employer during your stay in the country whilst still allowing you the freedom of a contractor. The only difference is that you submit your timesheets to them; they’ll calculate and pay your taxes as you earn, and then you receive a net wage (as well as documentation for your records).
The companies are experts in Chinese taxation, and they’ll ensure that you keep the largest proportion of your earnings whilst complying with local laws. They can deal with any issues with the Chinese tax office or tax department directly including processing your tax refund if you are eligible.
How We Can Help You with Tax in China
We work with numerous umbrella companies in China, many of whom are experts in tax and immigration laws. If you have any questions about tax in China, we’ll get the answers from them directly so you can rest assured you’ll be getting accurate information. We have comprehensive knowledge of the different services they provide, and can help you find the right company to handle your income tax. We help oil and gas workers, software developers, IT project managers, testers, business analysts and telecommunications contractors get tax efficient payments and sponsorship for their Chinese work permit.
Our advice is 100 percent free, and comes with no obligations. You will be paying taxes in China but without the overhead of directly dealing with the Chinese tax authorities. Get in touch with us today for some reliable advice on tax in China!
A Contractor’s Guide to Work Permits in China
Immigration is one of the primary concerns for any contractor hoping to start working in China. Permanent employees will find it easy to get their Chinese work permit because they’ll receive “sponsorship” for their entire stay from their prospective employer.
The Chinese work permit, known more commonly as the Z Visa, is dependent on this sponsorship because it confirms that you’ll be earning money during your stay in the country. Contracting in China is more difficult because the work permit is tied to one employer, so you have to change it to suit each new contract. Thankfully, umbrella companies provide a convenient and effective solution to this issue.
How Does an Umbrella Company Work?
Most people want to do their work, earn their money and enjoy their spare time without taking on loads of admin in a new country. That is why an umbrella company can help.
When you’re working through an Umbrella Company, you’ll essentially be outsourcing the admin and tax issues to specialists.
While the umbrella company will charge a fee, you’ll likely end up saving more money in the long run: you’ll be able to focus on your work, expertly reduce your tax liability, and comply with all laws and regulations in China (which means avoiding fees, fines, or even worse penalties).
How Can We Help You?
There’s a huge variety of Umbrella Companies with different specialities and advantages in China. How do you find the right one for your circumstances?
We work closely with Umbrella Companies all throughout China and match contractors with the right company for them. If you’ve already secured a contract in China, we can help you find your best match (for free). Or, we can simply give you feedback on your situation (for free).
