Contracting in China: A Guide for International Contractors
China’s strong economic growth has created opportunities for international contractors who may have the right experience or skill set. The areas of IT, manufacturing, design, and multimedia all have demand for contractors looking for projects and new clients. Even so, there are a few barriers to contracting successfully inside China when compared to other countries.
Contracting is legal in China but is not as favoured as employee relationships, emphasising employee rights and direct tax collection. That has changed somewhat due to the pandemic but emphasises how you set up your work. Also, language could be an issue but that will depend on the type of company and the work role.
What visas do I need to be a contractor in China?
Every foreign contractor will need a work visa in China, and for stays beyond the length of a business visa (90 days), a work visa will require a Chinese sponsor. Visas are specific to one company, making it difficult to acquire multiple clients or change clients.
How do I get paid as a contractor in China?
The options for getting paid as a contractor in China are narrower than in other countries due to business regulations. For all practical purposes, you will probably be working as an ‘employee’ in some respect.
China’s self-employment laws do not allow foreigners to work or register as sole proprietors or freelancers unless they are domiciled in China. Foreign nationals are generally deemed non-domiciled. Therefore, you will need to either become a formal employee of the client or use one of the other options below.
Set up your own limited company
You can set up your own limited company in China, but that will carry unexpected costs and complexity. You may need a Chinese partner as well.
Work with an umbrella company in China
Because of the challenges with other methods of getting paid, using an umbrella company is really the best way to work with clients. The umbrella company would sponsor your visa as an ‘agency’ and you could then work with multiple clients who would remit payment to the umbrella company for disbursement to your account.
How do taxes work for contractors in China?
Foreign workers of all types are subject to tax on earnings in China, and the process and rates will vary depending on how you are getting paid and your residency status.
If you are working through your limited company, the tax rates are 5%-35%, and if you use an umbrella company you pay employee rates of 3%-45%.
Tax residency rule in China
China uses the 183-day rule, meaning that stays beyond that will result in tax residency and taxation of worldwide income. However, for residency less than six years, foreign-sourced income won’t be taxed under some conditions.
How to file taxes in China
Because the most likely way to contract in China is with an agency or umbrella company, your monthly taxes will be calculated and paid using the PAYE system. Then, you would only be required to file a tax return for the calendar year.
Taxes are filed between March 1st and June 30th with the State Taxation Administration for your region. They can either be filed
- Through your umbrella company
- Through an independent tax agency
- By using the Chinese tax online app by yourself. (The app is in Chinese, so this may not be the best choice for most expats)
What are the social security contributions in China?
China’s social security system covers pensions, medical, unemployment, and work-related injuries. The contribution rate of around 10% for ‘employees’ and 20-30% for employers varies and depends on the city in China, and in some locations, expats are not required to contribute at all. China also has social security totalization treaties with ten countries, where if you are covered at home you don’t need to contribute.
Can I work remotely for a company in China from my home country?
One encouraging trend in China is the use of Chinese freelancers for remote work inside the country. This could also mean openness to hiring you from your own country. As actual physical location or proximity is less important in the digital age, you could market your services to Chinese companies from your home country.
In that case, you would just set up the contract with your client as a foreign freelancer or limited company, and they would remit payment to you just like any business. The client would have no Chinese compliance to worry about. You, on the other hand, would handle your own tax and social contributions, or use a local umbrella company.
How do I stay compliant while contracting in China?
As a foreign contractor, you will be concerned about compliance with Chinese law and regulations, as you are working and living within its borders. Your primary compliance risks are:
- Meeting tax and social contribution requirements
- Business registration for limited companies
- Work visa validity and sponsorship
- Avoiding being classified as an employee
That is a lot to overcome, especially for new contractors, and you might need the help of an umbrella company to take over many of these tasks. Contractor Taxation has licensed, verified umbrella companies in China who are ready to assist you with setting up your contract and making sure that your payments are secure. Here are some of the benefits of using an umbrella company:
- Handles all client payments, tax withholding, and any social contributions
- Issues you a payslip each month, to a Chinese or foreign account
- Can sponsor work permits
- Helps set up the Chinese contract with the client
- Moderates any disputes with your client
- Advises on access to totalization and double taxation treaties
Unless you are prepared to handle all of this on your own, you may find that an umbrella company is a valuable partner in China as you embark on your contracting journey in a new country. Please contact Contractor Taxation with your questions about how an umbrella company can work for you.