Step #4: Ensure your Chinese contractors have the right tax information
In China, employers don’t withhold or pay income taxes for contractors. In fact, doing so could create a misclassification risk. Freelancers in China should calculate and submit their own taxes.
Employers based in the US need to consider compliance with the Internal Revenue Service (IRS). Employers need to get their contractor’s legal name, date of birth, contact information, bank account information, and identity certificate number (or TIN). The IRS compels employers to have their foreign independent contractors (including those based in China) fill out a Form W-8BEN. Then, employers fill out a 1096 Form which outlines details about their foreign contractor.
Tax compliance can be confusing and challenging—get it wrong and you could risk encountering issues with the tax revenue services of your country as well as China’s. Accordingly, it's important to consult with a tax professional before working with Chinese contractors.
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Frequently asked questions about running payroll for contractors in China
Do you need to withhold taxes when paying contractors in China?
No. When using Chinese contractors, employers are not responsible for deducting taxes from their pay. The contractor is solely responsible for their taxes.
Does Chinese minimum wage apply to independent contractors in China?
No, minimum wage and other employment laws don't apply to contractors in China. Instead, they negotiate their own rates.
Do Chinese contractors get benefits?
No, Chinese contractors are not owed benefits and, in fact, giving them benefits may put you at risk of misclassification.
Can you pay contractors in China in your home currency?
You should pay your contractors in Chinese yuan (CNY) or renminbi (RMB), which are interchangeable terms for their currency. You can choose to pay them in your own currency as long as you have a written agreement. If you pay your Chinese contractors in a foreign currency, they may have to pay an exchange rate and wait for processing times.
What information do you need from contractors in China?
When onboarding a new Chinese contractor, make sure to get their:
- Name (matching the account where you’ll deposit their pay)
- Date of birth and date of hire
- Contact information, including their email and physical mailing address in China
- Identity certificate number; for employees using a Chinese ID card for identification, their tax identification number (TIN) is the same as their ID number. However, for those using passports or other types of ID certificates, a TIN will be issued by the local tax office. Passport numbers may be recognized as TINs for foreigners in some parts of China.
- Bank account information or other payment information
Can you manually pay contractors in China?
Yes, you can manually pay Chinese contractors. While it’s common for small business owners to do this to cut costs, the process can be time-consuming, especially as your business expands or if you work with multiple foreign contractors. Manually processing payments also has some risks:
- Compliance. Running payroll manually creates the risk of human error and omission. Rippling can protect your business by automatically enforcing compliance with any applicable local laws.
- Security. Using spreadsheets or paper records comes with security risks, as sensitive contractor information may be lost, stolen, or misused.
- Contractor experience. Manual payments can be slow and confusing. Payment timelines aren't always clear, and contractors may not know exactly what they're being paid for, which makes for a frustrating experience.
Rippling makes payroll automatic, syncing all your business's HR data with payroll and eliminating the need for manual data entry. Your global contractors and employees will be paid quickly and compliantly, no matter where they live.
How do you turn a contractor into an employee in China?
Whether you want to avoid misclassification, want your contractor to become an official part of your team, or you’re seeking to better protect your intellectual property, there are a lot of reasons to convert a contractor. To convert contractors into full-time employees, you’ll need to run the same onboarding as you would with any other new hire:
- If you don’t have any other Chinese employees, you’ll want to decide whether to establish a local entity or use an employer of record service (EOR) to legally hire them in China. Rippling EOR can help you easily transition contractors to full-time employees.
- Supply employees with an employment contract and employee handbook in Standard Chinese, both of which they should sign. Ensure compliance with minimum wage laws, statutory employee benefits, legal working hours, statutory public holidays, severance pay laws, and other Chinese labor laws.
- If you don’t use an EOR, register your employee with the State Taxation Administration, the local Social Insurance Bureau, and the Housing Fund Bureau. An EOR can do this registration on your behalf.
- Verify their information, including their name (matching the account where you’ll deposit their pay), nationality, date of birth, date of hire, contact information, identity certificate number, and pay information. Because of China's strict Personal Information Protection Law, only collect necessary data and use security measures to collect and store it.
- Once you run payroll, you’ll need to withhold and submit federal income tax, as well as social security, which covers pensions, health insurance/medical care (including maternity care, work-related injury insurance, and unemployment insurance).
