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Preferential Tax Treatment in China: A Guide for Overseas Employers

If you are hiring employees in China, you will be required to follow the strictly enforced payroll and employment regulations.  If you don’t have a legal entity in China, how do you run payroll and make sure that all taxes and withholdings are correct? Most companies entering China will not attempt a DIY employment approach, and will require local expert assistance.  For example, even if you set up a representative office as a branch, you can’t employ Chinese residents without a third party.

Taxes, Benefits and Withholdings in China

Here is an overview of some of the key elements of Chinese payroll and tax rules:

  • The personal income tax rate ranges from 3% to 45%, for both expats and Chinese citizens.
  • Taxes are withheld monthly at source for employees and then paid by the employer to authorities.
  • Likewise, social security contributions are withheld and paid monthly, and the rates vary based on the city of employment.
  • The average social security contribution rates are 33% for the employer and 11% for the employee.
  • Tax exempt benefits in China include housing rental, meals, laundry, children’s tuition, home leave and relocation all paid or reimbursed to the employee.
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Case Example: Preferential Tax Treatment in China

One unique feature of Chinese tax law is that of preferential tax treatment.  This is a once per year option to lower the applicable tax rate on bonuses.

We had a client’s employee in China who wanted to use this rate for one month of commission payments to reduce his taxes.  After consulting with our in country employer of record, we were able to inform him that is was possible and that we would have to adjust the following month’s invoice to reflect the change.

Further, it would only apply to one month’s bonus and could not be used again until the following year.

This is one example of how we work closely with our clients to handle all questions and issues that come up in the course of foreign employment.

Shield GEO Solution

If you are just entering the Chinese market and hiring employees, it may seem daunting to learn and comply with all of the new regulations. 

We can offer you a complete payroll and employment solution in China, through our local employer of record.  We are already set up and ready to onboard both expat and Chinese employees quickly and efficiently.  This way you have access to a compliant payroll where all contributions and taxes are calculated and withheld accurately and on time.

We make international employment simple for you in China.

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Looking to hire an employee in China? Get in touch.

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