Benoit Stos have been engaged with businesses in China for almost 16 years. Professionalised in accounting, tax, finance and HR, he helped businesses to set up in China. Benoit Stos shared his China experiences and current relevant subjects in his field.

Compliance in social insurance

When doing business in China, you will need to hire local Chinese employees. When hiring local employees, the laws prescribes that a company should pay social insurance for an employee. This insurance contains health insurance and social securities/taxes.

From 16 years until now, these rules were in place, but companies did not well pay social insurances. However, as China has been developed over the years to a mature and powerful economy, compliance is key in this generation of companies. Following the local laws of being compliant in paying social insurances for your workers is a priority.

Tax-cuts in China implemented

Following more strict regulations and compliance have been followed up by newly announced tax-cuts. To support the economy its businesses and consumers in their growth. Where income taxes have been lowered, on business level mainly SME’s are taking benefit from these new rules.

– Turnover till 1.000.000 RMB/CNY is charged only 5% profit tax
– Turnover from 1.000.000 – 3.000.000 is charged only 10% profit tax
– Small High-Tech companies can deduct losses from 10 years period

Fapiao system

In China, costs can be only deducted in the company’s books by booking a “fapiao”. A fapiao is an “under government-controlled paper invoice acknowledged proof of payment or income”.

A standard receipt like we know in Europe is not sufficient and not acknowledged to be a proof of income or payment for company books. In a more simplified way of explaining; regular receipts you receive are not able to be booked as costs. As not all businesses, shops or companies are willing or able to provide you with a fapiao. You will encounter difficulties with completing your books. In case of being only in possession of a normal receipt, costs made cannot be deducted causing the situation of paying profit-tax over non-deductible expenses.

Setting up a Hong Kong limited or a WFOE on mainland

Many companies who are looking to set up an office or opening a company in China are faced with the dilemma of setting up in Hong Kong (SAR CHINA) or mainland China. Depending on the business scope, operations and target market mainland China has become became in certain ways more attractive to set up a company than Hong Kong (SAR China).

Due to a new tax-treaty including with The Netherlands, dividend tax has been decreased to 5%. This is equal to Hong Kong, as mainland China to Hong Kong (SAR China) dividend tax is also set on 5%. For this reason, there is no benefit to go through Hong Kong anymore. Direct to The Netherlands becomes a possibility.

When hiring employees in mainland China, you will need to set up an entity in mainland China. This can be a WFOE (Wholly Foreign Owned Enterprise) or a Representative office. Hiring employees on mainland need to be registered on and pay taxes via a mainland registered company. Only when using an Office in CIL Office solution, as a business, you are not required to set up or register your entity on mainland China. In this way, employees are still registered in China, without setting up or registry.

Take opportunities directly

In China, opportunities can be suddenly found. By experience, when an opportunity arises, it is advised to take it immediately. As chances are everywhere but very unstable.

When hiring employees for example; if after an interview the candidate seems suitable, it will not work well to take your time to overthink your decision for a long time. Considering other departments of the company to get confirmation to hire a person will risk that the candidate chooses for another company in the meantime. They generally would not understand why it should take so long to make a decision.

Also with business deals made, it is commonly seen that when an oral agreement has been made, this doesn’t have to mean the agreement is ensured. If waiting too long with signing the contract, companies and people easily make up their minds and not proceed or bring up new demands.

Expectations of employees in the “service sector”

Although a lot of people still think that Chinese employees all work overtime, the service sector has been developing otherwise. As in Chinese factories, it is still commonly seen that factory workers only will join the company when there is the possibility to work a lot of overtime hours, in the service sector employees start to have similar demands like European people.

In the service sector, this generation of employees also all require or wish a five-day working week with two weekend days off. While before a six-day working week was more than moderate. Employees are asking for personal annual holiday leave days, besides the national governmental set holiday periods. Expectations in salary, career and comfort are in addition to that also rising and important when running a company in China.