Over the past 30 years, China has become one of the most populous countries in the world and boasts the world’s second-largest economy. Economic liberalization and continued reform make China a great place to hire employees and grow your business.
Taxation Rules in China
Before you can set up your payroll in China, you need to understand all of the country’s taxation rules. China’s progressive income tax ranges from 3% to 45% based on a worker’s income.
Employers contribute to different benefits schemes in China. The country’s statutory benefits include 5 insurances plus a housing fund benefits:
- Medical insurance
- Workers’ compensation
- Unemployment insurance
- Parental benefits
As an employer, you must contribute to the housing fund. While some contribution is mandatory, employees often try to negotiate for more during the hiring phase. Employers typically contribute between 5% and 12% of the employee’s annual salary.
How to set up a payroll in China
To set up payroll, you first need to create a subsidiary and open bank accounts in the country. All payments must be sent to employees in the local currency — the Chinese yuan (CNY).
It is a requirement for employment contracts to stipulate the essential terms of the employment relationship, this includes:
- Name and identification of the employer
- Name and identification of the employee
- Contract term
- Job duties and location
- Working hours, rest, and leave
- Social insurance entitlements
- Workplace protection, health, and safety measures
Entitlement and termination terms
An employment contract outlining the above terms and employee entitlements must be prepared prior to setting up payroll in China. Employees are entitled to between 3 and 24 months’ sick leave for nonwork-related injuries or illnesses, depending on their length of service with the employer and the number of years of general employment.
Termination terms vary by the type of employment contract. Employers must give at least 3-days written notice during the probation period. However, the prior written notice period for those who have passed the probation period shall be no less than 30 days. Termination notice requirements may differ for fixed-term contracts or where termination is for a lawful cause.
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