Following are some of the key issues noted by Expat Advisors Community member, Patrick Huang, Argyle Lawyers at this Koehler Group webinar on the legal, tax and visa issues in Seconding Expatriates to China.
Employment regulatory issues for foreign employers
It is critical to understand the employment laws in China and ensure full compliance at every step of the secondment life cycle, otherwise significant penalties can apply (which can include arrest!)
• Immigration – make sure the right work visa is in place prior to commencement of work
• Compliance with employment law – observe work hour requirements, rest days and minimum wages designated by the Chinese labour bureau
• Written contract – ensure there is a corresponding, written version in Chinese of the employment contract, and be aware of any legal and financial implications on termination, particularly where the expatriate holds statutorily-mandated or executive positions in Chinese registered companies.
Financial costs for Employers
There are a range of employment benefits for employees that must be provided, even though a number may not ultimately be utilised:
• Mandated leave – including annual leave and maternity benefits
• Penalty payments – rates vary from normal days, to a rest day or a statutory holiday
• Social security contributions – such as old age pension insurance – won’t be claimed by most expats.
It is highly recommended that expatriates have their own personal medical and health insurance cover to access adequate Western medical services.
Chinese tax for Expatriates
• Tax residency rules – varies subject to how long you are working in China and tax treaty in the home country. If living in China for over 5 years, you automatically become a Chinese tax resident and be subject to Chinese tax on world-wide income.
• Individual income tax – tax rates on taxable income range from 3% below RMB 1,500 per month to 45% over RMB80,000 per month
• Expatriate allowances – items such as paid home leave, relocation costs, meal allowances and reasonable housing allowances are not taxable. Note these must be government approved prior to expenditure and receipts retained. The allowances generally cannot exceed 30% of an expatriate’s total salary.
It is critical for overseas employers to have the right documentation in place at every stage of an expatriate’s secondment, ensuring you “dot the i’s” and “cross the t’s” or risk facing government-imposed penalties for non-compliance. Chinese local and state regulations can differ between regions to region and need to be considered along with the expatriate’s home country tax considerations.
Partnering and working closely with trusted tax and legal advisers is fundamental to ensure compliance with regulatory requirements, maximise the intended benefits for the employer and assignee, and ensure a smooth transition for an expatriate working in China.
A copy of the webinar slides can be downloaded here.
The Koehler Group was set up in 1979 by Kristina Koehler-Coluccia ‘s father who migrated from Germany to Hong Kong. She and her brother now serve their European, US, UK and Australian clients personal and business interests in Asia. They have offices in in Beijing, Chengdu, Dalian, Guangzhou, Hangzhou, Hong Kong, Shanghai, Shenzhen, Singapore and Tianjin.
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