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China Payroll And Taxation

There are specific rules for payroll and taxation in China, depending upon whether your company employs foreign nationals or local Chinese employees. The primary concerns for a foreign company that needs to comply with tax laws in China include: Individual income tax (IIT) for employees in China, social security costs, payroll tax, sales tax, withholding tax, business tax and permanent establishment concerns.


China has some unique rules regarding employment, for example foreign nationals must pay local Tax and Health Insurance and also carry their own Health Insurance. Additionally employers of Chinese nationals must register and make contributions, which vary by region, to China's social insurance system, known as the "Five Insurances," plus a housing fund. The Five Insurances comprise a pension fund, medical insurance, industrial injury insurance, unemployment insurance and maternity insurance. For many companies using a local specialist payroll provider will simplify this process and ensure full compliance with local laws.


Remote Payroll


A remote payroll in China is where a foreign company, i.e. a nonresident company, payrolls a resident employee in China. This is not possible in China. Under Chinese law only Chinese entities are allowed to have employees based in China. This applies to both local and foreign employees. The only option for a non resident company to payroll its employees (local and foreign) in China is to use a fully outsourced service like a GEO or FESCO (Foreign Enterprise Service Company which will employ and payroll the staff on their behalf.


Local Payroll Administration


In some cases, a company will register their business in China under one of the forms available, (RO, WFOE or JV) but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider



Internal Payroll


Larger companies with a commitment to China may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff. There will be a need for incountry human resources personnel who have the background needed to manage a Chinese payroll, and can fulfill all tax, withholding, and payroll requirements.


This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Chinese employment and tax laws.


Full Outsourced Payroll And Employment


Companies can outsource the employment and payroll of their staff in China to a GEO, like Shield GEO. This is possible for both foreign workers and Chinese nationals. This is the easiest, fastest and safest way to payroll staff in China.


Shield GEO manages all aspects of payroll for workers in China, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.


Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with pay slips.

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