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.
What are 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.
Difference of Independent Contractors and Full time Employee in China.
Tax Obligations for Independent Contractors in China.
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].
Important Tips when hiring independent contractor in China.
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.
Frequently Asked Questions about hiring independent contractors in China.
Do I need to sign contract with independent contractors 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.
Can I hire independent contractors in China through my oversea entity?
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.
Should I need to contribute social security for my independent contractors in China?
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.
How to hire and pay independent contractors in China?
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.
Should I pay my independent contractors monthly in China?
No. There is no requirement for payment frequency for paying independent contractor in China. Usually paid shall be paid after project or services completed. Detailed payment rule can be aligned by independent contractors and company in the agreement.
Should I undertake severance payment when terminating independent contractor in China?
No. Since this is not an employment relationship, relationship at be ended at will.
Can I know any other ways of hiring contractors or employees in China?
The below article is going to guide foreign investors regarding different type of options that can enable them hiring employees in China in a quick and compliance manner.
Best way to hire employee in China in 2022
About JSC – China PEO & Employment Expert.
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Our core services China PEO and employment solution enables foreign investors to hire employees in China without setting up any company which allow them to expand into China market in days, not months. Our in-country local experts are also experienced in assisting businesses to compliantly establish their own legal entity in China.
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