Hire independent contractor in China can be a good strategy for companies when they’re working on a specific short-term project that doesn’t require full-time employees. Independent contractors are quite popular in western countries like United States and are becoming popular these years in China. This article will walk you through the most important aspects of hiring independent contractors in China.
An independent contractor in China is a person who provides temporary services to a company or organization under the terms of a business or service contract in China. An independent contractor is a self-employed person or entity hired as a non-employee to perform work for or provide services to company in China. There is no employment relationship between the independent contracts with the company in China.
There is big difference between hiring a full-time employee in China and independent contractor in China. Check below comprehensive comparison between full-time employees and independent contractors in China.
Hiring in Chinese – Ultimate Guide on China Employment Law and Practice
An individual’s income derived independently from performing various services not for employment, such as design, decoration, installation, drafting, laboratory, testing, medical, legal, accounting, consulting, teaching, translation, reviewing, calligraphy and painting, sculpture, video, audio, video, performance, performance, advertising, exhibition, technical services, introduction services, brokerage services, agency services, and other personal services shall all contribute individual income tax in China.
Deduction of expenses for remuneration of independent contractors services: for each income of less than CNY 4,000, the deduction is CNY 800; for each income of more than CNY 4,000, the deduction is calculated at a rate of 20%.
The amount of each income is used as the withholding taxable income, and the excess progressive withholding rate of 20% to 40% is applied, as shown in the table above.
Amount of withholding tax payable in advance for remuneration for independent contractors services = amount of withholding tax payable in advance – Quick deductions calculation
If the company pays CNY 70,000 yuan for independent contractors in China, the calculation process of withholding tax on this income is as follows:
Income: 70,000*(1-20%)=CNY 56,000
Income Tax payable in advance: 56,000×40%-7,000=CNY 15,400
Understand more about How to Calculate Employee Salary in China? [China Payroll Guide].
1. Do not pay independent contractor in China from overseas, which may have the tax compliance issue. You can pay through China PEO vendor.
2. Do not manage independent contractors working time, working method, working place etc, which might be treated as full time employment.
3. Company shall calculate and declare the individual income tax for independent contractors in China.
4. Do not sign employment contract with your independent contractor in China.
Yes. A contract can help you to avoid any potential disputes by ensuring that both parties are on the same page. Please do not mention any terms in relation to managing your China independent contractors’ working hours, managing their work in detail, or anything else. This term could lead to the relationship between independent contractors being treated as full-time employment.
No. Sign independent contractor in China with your oversea entity is not under protection in China. As an oversea entity, you are unable to declare and deduct the individual income tax for independent contractors in China which will have the risk for tax compliance. The compliance method of hiring independent contractors in China is through a China PEO and employment agency.
No. If you are hiring independent contractor in China, you don’t need to contribute China social insurance and housing fund for them. Only hiring full time employees in China are required to contribute China social security.
If you have your registered company in China, you can sign agreement with them directly and pay them as agreed in the agreement. If you have no legal entity in China, you shall engage a China PEO and employment agency, to have them signing the agreement with your independent contractor in China, and they can ensure the payroll compliance.
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