Contractor’s guide to contracting in China
For most UK contractors, a move to China is a big decision that can appear quite daunting, but it comes with many potential benefits, writes Kevin Austin, managing director of contracting overseas advisory Access Financial.
China’s growing economy is just one of several compelling reasons contractors are attracted to the country. However, as one might expect, very different taxation systems and infrastructure mean there can be significant barriers to cross.
China is one of the most candidate-short markets in Asia, characterised by high pay inflation and staff turnover. Most foreign workers in China are highly qualified and tend to work for foreign-owned multinationals rather than Chinese-owned businesses. While the preference is often for candidates who are bilingual in Mandarin and English, in practice expatriate candidates with in-demand skill-sets and experience in top-level managerial positions will find plenty of opportunities.
What are the benefits of working in China?
The key benefits of working in China are:
- A steadily growing economy
- Access to a wide range of new and innovative job sectors
- Relatively more job opportunities at more senior levels
Ways of working in China
As with Hong Kong, to work in mainland China one must either be a national or have a work permit. A work permit is sponsored by the employer in China and it is also possible for a management company that has a China company and presence to sponsor work permits for those intending to work in China.
To work as self-employed or through a Personal Service Company, a person must already possess the legal right to work in China, which will not be the case for most foreign nationals.
Once a person enters China with a valid work visa, he/she must obtain the work permit and residence permit. The deadline to complete this process can vary by province/city but it normally must be completed within 30 days. Work and residence permits are valid for one year but an extension of one year can be obtained on annual basis, if required.
‘Maximum salary retention is important to me; how much will I take home?’
The maximum salary retention most contractors working abroad in China can aim for is around 60 to 65%.
What are the levels of taxation in China?
China has a progressive tax structure for all income earned above 4,800 yuan (income up to this level is not taxed), the equivalent of about £550. In some instances, it is significantly higher than in other countries depending on your monthly income, but Access Financial China works closely with our contractors to optimise the tax structure for each individual case and maximise salary retention. Please refer to the table at the end of this article to determine your monthly taxable income in China.
According to the “Rules of the Administration of Employment of Foreigners in China” (RAEF), the procedures step-by-step regarding China Work Permit and Residence Permit is as following.
Step 1: Notice of Work License
This is a mandatory supporting document for the visa application. It will take around 25 to 30 working days and then the "Notice" will be sent to the applicant by email and he/she can print it out for the Z visa application.
Step 2: Z Visa Application in the Chinese Embassy/Consulate
Once the Notice of Work licence is received, the applicant can begin applying for the visa. There may be other documents required, which vary depending on the circumstances of the applicant and his/her home country. For example, accompanying family members should apply for S1 visa to enter China.
Step 3: Registration Form of Temporary Residence
After arrival in China with Z visa, you will need to obtain a Registration Form of Temporary Residence. It is important to do this within 24-hours of arrival in China, and this document is available at the hotel or police station.
Step 4: Medical check or Medical check report verification
Visitors to China are required to complete a Physical Examination Record for Foreigner (Q2) form, as part of their Visa Application. These must be undertaken at a Chinese of approved foreign hospital or clinic.
Step 5: Work License Permit application
This will take around 12 to 15 working days after we receive all the necessary documentation.
Step 6: Resident Permit application
It will take around 8 to 10 working days and your passport will be withheld during this period.
The process can be quite lengthy, so applicants should start as soon as they know they will be working in China and allow for:
- 25 to 30 working days (6 calendar weeks) to obtain the Notice of Work License
- 45 to 70 working days (2 to 3 calendar months) to get the whole process completed
The tax year in mainland China runs from January 1st until December 31st. Please see the table below for the current income tax rates in mainland China. The current exchange rate is one yuan equals 0.11 British pounds.
Graduated tax rates of individual income - foreigners
|Grades||Tax Threshold||Interval Participation||Tax rate||Quick deduction|
|1||CNY 4,800||Less than CNY 1,500||3%||0|
|2||CNY 4,800||CNY 1,500 to CNY 4,500||10%||105|
|3||CNY 4,800||CNY 4,500 to CNY 9,000||20%||555|
|4||CNY 4,800||CNY 9,000 to CNY 35,000||25%||1005|
|5||CNY 4,800||CNY 35,000 to CNY 55,000||30%||2755|
|6||CNY 4,800||CNY 55,000 to CNY 80,000||35%||5505|
|7||CNY 4,800||More than CNY 80,000||45%||13505|