Compliance Guidelines and Practical Strategies for Chinese Enterprises to Pay Overseas Employees

Compliance guidelines and practical strategies for Chinese enterprises to pay salaries to overseas employees

With the acceleration of globalization, it is increasingly common for Chinese enterprises to hire foreign employees. From the expatriate executives of multinational companies to the introduction of overseas technical talents by Internet companies, the compliance of salary payment is directly related to the international image of the company and the prevention and control of legal risks. Based on China's labor law, foreign exchange regulations and international tax agreements, this paper systematically combs the core processes and risk prevention and control points of enterprises paying salaries to overseas employees.

1. legal framework: clear payment subject and applicable law

1. Determination of labor relations
According to the Law on the Application of Law on Foreign-related Civil Relations, foreign-related labor contracts are directly applicable to the law of the place where the worker works. If foreign employees work in China, enterprises should strictly abide by the labor law, the labor contract law and the regulations on the administration of employment of foreigners in China, ensure that the salary is not lower than the local minimum wage standard, and pay social insurance according to law. For example, a technology company was ordered to pay back and fined for failing to pay provident funds for foreign employees, highlighting the importance of compliance.

2. Tax resident status determination

• Chinese tax resident : If the foreign employee has a residence in China or has lived for 183 days, its global income is subject to Chinese tax law, and enterprises are required to withhold and pay personal income tax.
• Non-resident taxpayer : If the employee has no residence in China and has lived for less than 183 days, he or she will only pay tax on the domestic income. For example, if a foreign engineer comes to China for a short period of time to provide technical services, the enterprise is required to divide the domestic and foreign income according to the proportion of working hours, and only withhold a tax on the domestic part.

3. Double Taxation Agreements
China has signed tax agreements with more than 110 countries. Enterprises can use the "tax credit" provisions in the agreements to avoid double taxation. For example, the Sino-German tax agreement stipulates that if German residents stay in China for no more than 183 days, China will be exempted from personal income tax, and enterprises will not be required to withhold and pay.

2. Operation Process: Four Steps to Ensure Compliance Payment

Step 1: contract filing and tax registration

• labor contract : specify salary composition (basic salary, bonus and allowance), payment period (month/quarter/year) and currency (RMB or foreign currency).
• tax registration : if the employee is a Chinese tax resident, the enterprise shall file his or her personal information and salary terms with the tax authorities. If the employee is a non-resident, the tax shall be withheld and remitted on a monthly or monthly basis.

Step 2: Salary Calculation and Individual Income Tax Withholding

• Calculation Rules :
• Individual Residents: comprehensive income (wages, remuneration for services, etc.) is taxed on an annual basis, and enterprises are required to withhold and pay in advance on a monthly basis;
• non-resident individuals: income from wages and salaries is taxed on a monthly basis, and an excess progressive tax rate of 20%-45% is applicable.

• case : a foreign employee's monthly salary is 50000 yuan, and the enterprise has to withhold personal income tax =(50000-5000)× 30%-4410=9090 yuan.

Step 3: foreign exchange payment and declaration

• payment method :
• domestic payment : remit directly to the employee's overseas account through bank wire transfer or cross-border payment platform (such as Wise and Payoneer), and provide tax payment certificate and contract filing documents;
• overseas payment : if it is issued by an overseas affiliated company, it is necessary to ensure that the domestic enterprises in China have fulfilled the withholding obligation.

• Exchange rate management : Enterprises can enter into forward settlement agreements with banks to lock in exchange rate risks. For example, a manufacturing company avoids a 10 per cent increase in salary costs due to the depreciation of the renminbi by locking in the exchange rate.

Step 4: Compliance Records and Audit Retention

• Payroll : Provide detailed payroll to employees on a monthly basis, list the wages, taxes, social security deductions and actual amounts payable.
• file preservation : keep salary payment records, tax declaration forms and copies of contracts for at least 5 years for tax inspection or labor dispute proof.

3. risk prevention and control: three key points to avoid legal disputes

1. Social Security and Provident Fund Compliance

• Compulsory Payment : According to the Interim Measures for Foreigners Employed in China to Participate in Social Insurance, enterprises are required to pay pension, medical, work injury, unemployment, maternity insurance and housing provident fund for foreign employees.
• Exceptions : If the employee's country of origin signs a bilateral social security agreement with China (e. g. Germany, Japan), part of the insurance coverage can be exempted with the insurance certificate. For example, an employee of a Japanese company's representative office in China is exempt from China's pension insurance with a certificate of Japanese social security insurance.

2. Overtime and allowance calculation

• Overtime : If the Chinese labor law applies to foreign employees, the enterprise shall pay according to the following standards:
• overtime on weekdays: not less than 150% of the salary;
• overtime on rest days without compensatory time off: not less than 200%;
• overtime on legal holidays: not less than 300%.

• allowance nature identification : if overseas subsidies are identified as "food subsidy for business trip" and "meal allowance for delay", they may not be included in the total wages; If it is identified as "technical allowance" or "annual work allowance", it shall be included in the tax base.

3. Data privacy and cross-border transmission

• Compliance requirements : When an enterprise transmits sensitive data such as employee bank account numbers and addresses, comply with the Personal Information Protection Act and the EU GDPR (if EU employees are involved), use encryption technology and obtain explicit employee authorization.
• case : a cross-border e-commerce company was fined 200000 euros by EU regulators for not encrypting employee data, highlighting the importance of data compliance.

4. optimization strategy: improving efficiency and cost control

1. Third-party payroll services

• EOR model : Through Employer of Record services, companies can outsource payroll and tax filings to reduce compliance risks. For example, a technology company reduced the cost of paying foreign employees by 30% through EOR services.
• SaaS platform : Use one-stop payroll management software such as PayInOne and Gonex to automate calculation, tax filing and payment and reduce manual errors.

2. Flexible employment mode

• independent contractor : If foreign employees cooperate under the project system, the enterprise can sign a service agreement with them, results-based remuneration, no social security and personal tax (to ensure compliance with local labor relations certification standards).
• Equity incentives : For core foreign talents, companies can replace part of their cash salaries through stock options, restricted stocks, etc. to reduce short-term cash flow pressure.

Conclusion: Compliance Management for Global Talents

Chinese companies pay salaries to overseas employees, legal compliance, tax optimization and cost control need to be balanced. By clarifying the legal framework, standardizing the practical operation process, strengthening risk prevention and control and adopting optimization strategies, enterprises can build an efficient and compliant cross-border salary management system, laying a solid foundation for the development of globalization.