China

China: A Dynamic Nation with Global Influence Nestled along its southern coast, China boasts a vibrant metropolis that seamlessly blends Eastern traditions with Western influences. Renowned for its towering skyline and architectural marvels, this region pulsates with energy, captivating visitors and locals alike. From iconic landmarks like Victoria Harbor to bustling markets and serene islands, China offers a kaleidoscope of experiences.

Economically, China’s prowess is unparalleled as a global financial hub. Its robust financial sector, sophisticated banking system, and dynamic stock exchanges attract multinational corporations. Low taxation policies and a business-friendly environment foster a competitive and innovative landscape. Positioned as a premier global trade hub, China remains a beacon for investors seeking unparalleled opportunities in the heart of the Asia-Pacific region.

Special Agreements & Treaties: Double Taxation Avoidance Agreements (DTAs), Exchange of Information Relating to Taxes Agreements (TIEAs), Free Trade Agreements, Labour Cooperation Arrangements, Arrangements with other regions within China.

At a glance

Currency

Chinese Yuan (Renminbi)

GDP

Estimated 140 trillion yuan in 2025

Annual GDP Growth Rate

5.3%

Population

Approximately 1.416 billion (In Mid of 2025)

Labour Force Participation Rate

Varies across provinces’

Special Agreements & Treaties

Double Taxation Avoidance Agreements (DTAs), Exchange of Information Relating to Taxes Agreements (TIEAs), Free Trade Agreements, Labour Cooperation Arrangements, Arrangements with other regions within China

Payroll Frequency

Monthly

Online Registration:

Business registration is mandatory for all businesses in China. Entities other than corporations (e.g., sole proprietorships or partnerships) must register within one month of business commencement. All domestic limited companies or foreign companies that have established a place of business in China must first register with the State Administration for Market Regulation (SAMR).

Steps to Incorporate a Domestic Limited Company in China:

Step 1 – Choose the Type and Name of the Company: Select the appropriate type of company and choose a unique name that is not already in use as per the records maintained by the State Administration for Market Regulation (SAMR)^iv.

Step 2 – Submit Application: Submit the following documents with the required fees either electronically through the "e-Registration" platform or as hard copies:

• Application Form for Company Registration
• Articles of Association
• Business License Application Form

Step 3 – Obtain Certificates: Upon approval, the company can download or collect the Business License and other necessary certificates. These can be issued in electronic or hard copy form, depending on the mode of submission, and hold the same legal validity.

Step 4 – Acquire Additional Permits or Licenses: The relevant governmental departments provide information on additional licenses, permits, certificates, and approvals necessary for various business operations in China.

Steps to Register a Foreign-Invested Enterprise (FIE) in China:

Step 1 – Submit Required Documents: Submit the following documents with the appropriate fees either electronically or as hard copies:

• Application Form for Registration of Foreign-Invested Enterprise
• Certified copy of the company's articles of association or equivalent
• Certified copy of the company's certificate of incorporation (or its equivalent)
• Certified copy of the company's latest financial statements
• Business License Application Form

Step 2 – Obtain Certificates: Upon approval, the Business License and other relevant certificates must be downloaded or collected. These can be issued in electronic or hard copy form, depending on the mode of application submission. Typically, the certificates are issued within 10 working days.

Governing Body:

State Administration for Market Regulation (SAMR)iv

Obligations:

• Submission of application with required documents
• Collection of Business License and other relevant certificates

Additional Requirements:

• Businesses must register with the local tax authorities within one month of starting business.
• Once registered, the Business License must be displayed at the place of business.
• Employers are required to enroll their full-time and part-time employees aged 18 to 64, who have been employed for a continuous period of 60 days or more, in a social insurance scheme within the first 30 calendar days of their employment.

In China, employers have several key payroll obligations. They are required to ensure timely payment of salaries to employees, usually on a monthly basis. Employers must also contribute to various social insurance programs, including pension, medical insurance, unemployment insurance, work-related injury insurance, and maternity insurance. Additionally, both employers and employees contribute to the housing fund, which supports housing-related expenses. Employers are responsible for withholding income tax from employees' salaries and submitting it to the tax authorities. They must also maintain written labor contracts with employees, providing statutory benefits such as paid leave, overtime compensation, and severance pay as required by Chinese labor laws. Compliance with these obligations is crucial to ensure legal adherence and maintain harmonious employer-employee relations.

The given table summarizes the specifications and details of employment contracts:

In China, the Provisions on Minimum Wages establish a statutory wage floor to protect employees’ basic living standards. There is no national uniform rate; instead, each province, municipality, or region sets its own monthly and hourly minimum wage standards based on local economic conditions.

As of January 2025, the monthly minimum wage ranges from approximately ¥1,600 to ¥2,740, while the hourly minimum wage ranges from about ¥17 to ¥26. For example, Shanghai has a monthly minimum of ¥2,740, and Beijing’s hourly minimum is ¥26.4.

Employers are required to ensure that employees’ pay, after excluding statutory deductions, does not fall below the applicable local minimum wage standard for the hours worked or the period of employment.

1. Maximum Working Hours and Overtime ⁱⁱ

In China, the standard workday spans eight hours, and the maximum weekly working hours are set at 44 hours. Should employees exceed these limits, they are entitled to overtime pay. Regular overtime is compensated at 150% of the base pay rate, while overtime on rest days commands 200%, and on national holidays, employees receive 300% of their base pay rate.

2. Rest Days

According to Chinese Labor Law, employees are entitled to a minimum of one rest day per calendar week, which can be scheduled on any day as determined by the employer. Typically, Saturdays and Sundays are observed as rest days across China, though employers have the discretion to adjust these based on operational needs and production schedules.

If unforeseen circumstances require an employee to work on their designated rest day, the employer must arrange for another rest day to be provided within 30 days of the original date.

It is essential for employers and employees to mutually agree on whether the rest day will be compensated as paid or unpaid to ensure compliance with legal requirements and promote fair labor practices.

According to Chinese regulations regarding the employment of minors. Here’s a summary:

Definition and Employment Restrictions:

• A minor is defined as an individual under the age of 16 years.
• Minors are generally prohibited from engaging in employment, except for specific industries and conditions outlined by law.

Specific Provisions:

• Children aged 13 and 14 years may be allowed to work in non-industrial sectors under strict conditions, provided they attend full-time schooling concurrently.
• Children under the age of 13 are strictly prohibited from employment, except in cases where special permission is granted by relevant authorities (typically for entertainment-related activities).

Regulations for Young Workers:

• Young workers (aged 16 or older but under 18 years) have specific regulations governing their employment.
• These regulations ensure working hours, conditions, and protections to prioritize their well-being and education.
• Exceptions exist for limited forms of employment under specific conditions.

Working time restrictions for young persons employed in industrial undertakings:

• Premium [Overtime, Night Work, and Work on Rest Days and Holidays is prohibited.
• Employment of young persons in any dangerous trade is prohibited.]

1. Statutory Holidaysi and Holiday Pay

An employee, irrespective of his length of service, is entitled to the following statutory holidays ⁱ:

Premium Employers are encouraged to give their staff the day off on Chinese New Year's Eve (Jan 28 in 2025).

The State Council also provides public holidays for specific social groups:

An employee who has worked under a continuous contract for at least three months before a statutory holiday is entitled to holiday pay.

The daily rate of holiday pay is calculated based on the average daily wages earned by the employee in the 12 months preceding the first day of statutory holidays. If the employee has worked for less than 12 months, the calculation is based on the shorter period.]

2. Statutory Leaves^v

Other Leave

In China, in the event of the death of an immediate family member, an employee is entitled to up to three days of leave, depending on the employment contract and the region.

For an employee's marriage, they are entitled to between three and ten days of leave, depending on the employment contract and the region.

1. End-of-Year Payment in China:

End-of-year payment is an annual payment of a contractual nature that may include double pay, 13th-month payment, end-of-year bonus, etc. An employee is eligible for an end-of-year payment if they have been employed under a continuous contract for a full payment period as specified in the employment contract or a lunar year if not specified.

Amount of End-of-Year Payment:

• The amount specified in the employment contract.
• If not specified, a sum equivalent to the average monthly wages earned by the employee in the 12 months (or shorter period) preceding the due date.

Pro-Rata End-of-Year Payment:

• An employee is eligible for a pro-rata end-of-year payment if they have been employed under a continuous contract for not less than 3 months in a payment period and either:
• Continue to be employed after the expiry of the payment period, or
• Are dismissed by the employer (except in cases of serious misconduct).

Payment Timing:

• On the day specified in the employment contract.
• On the last day of the payment period.
• Within 7 days after the last day of the payment period.

2. Employment Protection

China has a comprehensive legal framework that safeguards workers' rights and protections against exploitation and discrimination. Key aspects of employment protection in China include:

• Protection against unreasonable dismissal
• Protection against unreasonable variation of employment contract terms
• Protection against unreasonable and unlawful dismissal

1. Termination of Employment Contract

In China, either the employer or employee can terminate an employment contract without cause by giving advance notice or making a payment in lieu of notice. If an employee is terminated for cause, no notice is required.

An employer may summarily dismiss an employee without notice or payment in lieu of notice under certain conditions, including:

• Wilful disobedience of lawful and reasonable order
• Misconduct
• Fraud or dishonesty
• Habitual neglect of duties

However, an employer cannot dismiss an employee under specific circumstances, such as when the employee:

• Is confirmed pregnant and has notified the employer
• Is on paid sick leave
• Provides evidence in legal proceedings or inquiries related to employment laws or safety regulations
• Engages in trade union activities
• Is negotiating compensation following a work-related injury

An employee can terminate their employment contract without notice or payment in lieu of notice if:

• They reasonably fear physical danger due to violence or disease
• They are subjected to mistreatment by the employer
• A registered medical or Chinese medicine practitioner certifies them as permanently unfit for their current job after at least 5 years of employment.

2. Termination Notice

Termination notice in China typically requires a period of 30 days unless otherwise specified in the employment contract. The contractual notice period cannot be less than 7 days. Alternatively, the employer can opt to pay the employee instead of requiring them to work during the notice period.

3. Severance Payment

Employers in China may be obligated to provide severance payment under certain circumstances when terminating employees who have been continuously employed for at least 24 months. Reasons for severance payment include:

• Redundancy
• Non-renewal of fixed-term contracts due to redundancy
• Lay-off

Severance payment is calculated based on the employee's type of employment:

Calculation Formula:

Severance pay is calculated at the rate of one month’s salary for each year of employment with the employer.

If the employment period is more than six months but less than one year, it is counted as one year.

For periods less than six months, half a month’s salary is paid as severance

• Maximum Years and Salary Cap:

If the worker’s monthly salary is more than three times the average monthly salary of employees in the region (as announced by the local government), severance pay is capped at three times the average monthly salary.

The maximum number of years of severance pay should not exceed twelve years.

• Termination Violations:

If the employer terminates the labour contract in violation of the provisions of Article 47 (which governs severance pay), the employer must pay the worker an indemnity equal to twice the standard of economic compensation stipulated in Article 47

Payslips in China are essential for employees to understand their earnings breakdown, typically containing:

• Gross Salary: Total earnings before deductions.
• Deductions: Amounts deducted for social insurance, housing fund, and income tax.
• Net Salary: Take-home pay after all deductions have been subtracted.

Additionally, payslips include details such as employee and employer information, payment period, and banking details.

Employers must comply with both national and local payroll regulations set by the Ministry of Human Resources and Social Security (MOHRSS)v and regional authorities. This includes adherence to minimum wage laws, working hours, overtime pay, and social insurance contributions.

Employers are tasked with making contributions to social insurance schemes and the housing fund. These include:

• Pension Insurance: Helps support employees post-retirement.
• Medical Insurance: Covers healthcare expenses.
• Unemployment Insurance: Provides financial assistance if unemployed.
• Work-Related Injury Insurance: Covers medical expenses and compensation for workplace injuries.
• Maternity Insurance: Provides support during maternity leave.
• Housing Fund: Assists with housing-related expenses.

The contribution rates and amounts are set by Chinese regulatory authorities v and vary by city governed by local authorities. In some cities, Maternity Insurance no longer exists separately as it has been merged into Medical Insurance. These contributions are calculated as a percentage of the employee's gross salary and differ based on regional regulations.

Employers are obligated to withhold Individual Income Tax (IIT) from employees' salaries and ensure the timely remittance of these funds to the tax authorities.

Individual Income Tax (IIT) calculation is managed at the national level in China. Employees are liable to pay IIT based on their earnings. The system operates on a progressive scale, with tax rates ranging from 3% to 45%iii for Chinese residents and monthly rates for expatriates. Taxable income includes salaries and allowances, with potential deductions for social insurance and housing fund contributions. Tax exemptions include:

• Standard Basic Deduction (RMB 5000/month)
• Specific Deductions (such as social insurance contributions)
• Additional Specific Deductions
• Deductions applicable to expatriates

Accurate computation and punctual submission are imperative to avoid penalties.

1. Annual Bonus Tax:

• This tax applies to lump sum bonuses received by employees annually.
• It is computed only for Chinese residents; expatriates’ bonus tax is combined with regular income tax.

2. Labour Service Tax:

• Labor service income falls under individual income regulation tax.
• It includes earnings from services like design, installation, medical treatment, consulting, and artistic endeavours
• Tax rates vary from regular income tax rates.

3. Severance Tax:

• Severance pay is a one-time compensation given upon termination of an employment contract.
• It is taxable if it exceeds three times the local average annual salary from the previous year.
• The tax rate depends on the employee’s domicile and applicable tax rate slab.

4. Equity Tax:

• Equity-based compensation (such as stock options or restricted stocks) is indeed separately taxed.
• Unlike regular salary income, it is not combined.
• For multiple months, equity-based incomes are accumulated within the same tax year, adjusting for previously deducted tax.