Successfully managing human resources is a key factor for a business to survive and thrive in China. It is extremely important that investors have a clear understanding of their rights and obligations as an employer in China. China has unique employer obligations related to hiring workers, managing work hours and paid time off, and terminating employees among many others. Failing to understand and comply with this complex set of regulations can result in substantial financial and legal liabilities.
Employment of local staff in China brings challenges. Staffing issues such as hiring, termination and payroll calculation can often be problematic, especially when companies are unfamiliar with local regulations. Working closely with local specialists, Acadia offers a comprehensive range of human resource services including:
- Employment Contract Drafting
- Monthly Payroll Services
- Individual Income Tax Advisory
- Compensation and Benefits Consulting
- Salary Benchmark Study
- Employment Background Check
- Employment Handbook Drafting
- Staff Benefits
- Staff Termination
- HR and Payroll Audit
- Recruitment Assistance
- KPI Setting and Bonus Calculation
Schedule a Consultation to discuss our China HR & Payroll services.
How Payroll Works in China
China adopted a new tax policy in 2019, the taxable amount and tax rate is calculated from monthly to annually. The employer as “withholding tax agent” has the responsibility to declare the employees’ Individual Income Tax on the monthly with the accumulative withholding method.
Employers are required to contribute towards the Social Security of their employees, as well as ensure that the correct withholding tax and deductions are made from employees. Due to the complexity and changing policies in China, many companies today are choosing to outsource payroll to a professional agency to ensure the legal compliance and better focus on their core business and revenue-generating activities.
China Social Security System includes the following contributions
Pension – Pension contributions are made by both employer and employee, with the employer contributing considerably more than the employee.
Unemployment insurance – This contribution is made to provide employees with short-term relief during periods in which they are unable to work.
Occupational Injury Insurance – Also known as workers’ compensation insurance, this provides coverage for any injuries or fatalities in the workplace.
Medical insurance – Medical insurance is implemented to cover the medical expenses incurred by employees. In China, medical now also encompasses maternity contributions for female employees. Employees are not required to contribute towards the maternity contribution.
Housing fund Contribution – This contribution is not considered to be a direct part of Social Welfare, but it can be included under Social Security. This contribution is made by both employer and employee and is used to make put a down payment on a house or to pay back a loan taken for the purchasing of a property.
China Individual Income Tax
Individual Income Tax (IIT) China is applicable to all individuals in the PRC, including Chinese nationals and foreigners who reside or derive income from China. For tax purposes an individual is considered to be a resident if they reside in China habitually be means of a registered address, economic ties or family connections. An individual with a Chinese hukou (documents involving the Chinese Household Registration System) or passport is generally regarded as a Chinese resident.
A foreign national is generally deemed as not being domiciled in China and, as such, are generally taxed based on their length of residence in the PRC. A foreign national will be deemed to reside in China if they have been living in China for 183 days or more in a calendar year, according to the revised IIT laws (effective from January 1st 2019).
| A) Taxable income | (B) Taxable income subject to gross up | Tax rate | Quick deduction | ||
|---|---|---|---|---|---|
| In excess of RMB | To RMB | In excess of RMB | To RMB | Percent | RMB |
| 0 | 36,000 | 0 | 34,920 | 3 | 0 |
| 36,000.01 | 144,000 | 34,920.01 | 132,120 | 10 | 2,520 |
| 114,000.01 | 300,000 | 132,120.01 | 256,920 | 20 | 16,920 |
| 300,000.01 | 420,000 | 256,920.01 | 346,920 | 25 | 31,920 |
| 420,000.01 | 660,000 | 346,920.01 | 514,920 | 30 | 52,920 |
| 660,000.01 | 960,000 | 514,920.01 | 709,920 | 35 | 85,920 |
| 960,000.01 | Over | 709,920.01 | Over | 45 | 181,920 |
If tax is borne by the employee, figures in Column A should be applied to calculate the tax as follows:
Monthly Tax = Monthly taxable income x applicable tax rate – quick deduction.
If tax is borne by the employer, tax should be calculated on a gross-up basis as follows:
Grossed-up monthly taxable income = (Monthly taxable income subject to gross up – quick deduction B) / (100 percent – applicable tax rate B)
Monthly tax = Grossed-up monthly taxable income x applicable tax rate A – quick deduction A.
Non-residents
| (A) Taxable income | (B) Taxable income subject to gross up | Tax rate | Quick deduction | ||
|---|---|---|---|---|---|
| In excess of RMB | To RMB | In excess of RMB | To RMB | Percent | RMB |
| 0 | 3,000 | 0 | 2,910 | 3 | 0 |
| 3,000.01 | 12,000 | 2,910.01 | 11,010 | 10 | 210 |
| 12,000.01 | 25,000 | 11,010.01 | 21,410 | 20 | 1,410 |
| 25,000.01 | 35,000 | 21,410.01 | 28,910 | 25 | 2,660 |
| 35,000.01 | 55,000 | 28,910.01 | 42,910 | 30 | 4,410 |
| 55,000.01 | 80,000 | 42,910.01 | 59,160 | 35 | 7,160 |
| 80,000.01 | Over | 59,160.01 | Over | 45 | 15,160 |
If tax is borne by the employee, figures in Column A should be applied to calculate the tax as follows:
Monthly Tax = Monthly taxable income x applicable tax rate – quick deduction.
If tax is borne by the employer, tax should be calculated on a gross-up basis as follows:
Grossed-up monthly taxable income = (Monthly taxable income subject to gross up – quick deduction B) / (100 percent – applicable tax rate B)
Monthly tax = Grossed-up monthly taxable income x applicable tax rate A – quick deduction A.
