During the Forum of European Researchers in China held in November a special Practical Workshop on Outgoing Mobility was conducted where couple of experts went over some of the main questions European researchers face when departing their employment in China, such as how to deal with social security, pension, tax and remittance of money. Below is an overview of notes made by EURAXESS China representatives during the workshop. This should only be considered as a summary by EURAXESS China, not necessarily representing the views or recommendation of the experts involved.
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Termination of Employment under PRC law
There are three types of terminations that can happen in a professional setting: those initiated by the employer, those initiated by the employee, and mutual terminations. Mutual terminations are subject to mutual agreement and can depend on the bargaining power of the parties involved. In these situations, employees may have the opportunity to bargain for more than statutory severance. The key document for mutual terminations is a Mutual Termination Agreement. In cases of termination initiated by the employee, considerations include whether there is a notice period and the employee's entitlement to statutory severance. The key document for this type of termination is a Resignation Letter. Terminations initiated by the employer are not done at will and must have a legal ground as described by law. The burden of proof is on the employer in these cases. The key document for terminations initiated by the employer is a Termination Notice.
Termination by Employee – With notice period
In cases of termination initiated by the employee, with notice period, the notice period can vary depending on whether the employee is still in their probation period or not. During the probation period, a 3-day notice is required, while after the probation period, a 30 day notice is required. However, if there is an agreed longer notice period in the employment contract, there is a question if this would be supported in courts. The key considerations for notice period include the notice period in the employment contract, any local rules regarding longer notice periods, and the possibility of obtaining a waiver of the notice period.
Termination by Employee - Immediate Effect:
In certain circumstances, an employee may terminate the contract with immediate effect. These include when the employer fails to provide labor protection or work conditions as stipulated in the employment contract, fails to pay labour remuneration on time or in full, or fails to pay social insurance contributions for the employee in accordance with the law. Additionally, an employee may terminate the contract with immediate effect if the employer's rules and policies violate laws or regulations, or if the employment contract was concluded or modified against the employee's true will through fraud, coercion, or exploitation of their unfavorable position. Other circumstances that allow for immediate termination include the employer using violence, intimidation, or unlawful restraint of freedom to compel the employee to work, issuing illegal instructions or reckless work orders that endanger the employee's personal safety, and other circumstances as stipulated by laws and regulations. In cases of immediate termination, the employee is entitled to statutory severance.
Termination by Employer – With notice period
Termination by employer with notice period can happen in cases where an employee has used up their statutory medical treatment period, has performance issues, or there has been a material change to objective circumstances. In such cases, the employer must give notice period of 30 days (or payment in lieu) and the employee is entitled to statutory severance. However, there are some protective circumstances that may apply, such as if the employee has a work-related injury that is yet to be diagnosed, is disabled or partly disabled due to a work-related injury, is within their medical treatment period, is pregnant, on maternity leave or lactation period, has served 15 years and has no more than 5 years to retirement, or other circumstances as stipulated by law.
Termination by Employer – Summary Dismissal
Immediate termination without severance can occur in cases where the employee fails to meet the employment conditions during the probationary period, commits a serious violation of the internal rules and policies, engages in malpractice or gross negligence of duty that causes severe losses to the employer, has dual employment that impacts their job duties or refuses to rectify upon request of the employer, the employment contract is invalid as it was concluded or modified against the true will of the other party through fraud, coercion or exploitation of its unfavourable position, or if the employee is being pursued for criminal liabilities.
End of Employment Contract
End of Employment Contract can happen due to the expiration of a fixed-term employment contract, retirement, death or declared death/missing of the employee, bankruptcy of the employer, revocation of the employer's business license or the employer being ordered to close by a relevant authority, dissolution of the employer, or other circumstances stipulated by laws and administrative regulations. In cases of expiration of fixed-term contract, bankruptcy of the employer, revocation of the employer's business license, or employer being ordered to close, statutory severance may be applicable under some circumstances and the same protective circumstances as those for termination by employer with notice period may apply.
Key points
When an employee terminates their employment contract, there are several key points to consider. These include providing notice period, delivering written notice, obtaining a certificate of termination, de-registering work and residence permits, properly handing over responsibilities, adhering to any restrictive covenants such as non-compete agreements, and addressing any outstanding issues related to renumeration, such as salary, severance, and bonuses. It's important to follow the correct procedures and complete all necessary steps to ensure a smooth and legal termination process.
Social Insurance in China
Understanding China Social Insurance Benefits
In China, there are several basic pension and pension-like benefits that employees may be eligible for, such as annuity and commercial insurance, which are subject to the rules of relevant companies and insurance providers. Social insurance, however, is mandatory and applies to both foreign and local employees. Employers and employees both contribute to social insurance, and it cannot be contracted out.
The four basic social insurances in China include pension insurance, unemployment insurance, medical insurance (including maternity insurance), and work-related injury insurance. The contribution ratios for social insurance are based on the average monthly salary of the last calendar year, with minimum and maximum amounts published by local government regularly. The ratio differs by localities, with Shanghai and Beijing having different contribution ratios.
What to do with social insurance when leaving China?
When leaving China, there are three options for dealing with social insurance contributions. The first option is to withdraw the social insurance fund, which is only available for the funds in the personal account of pension and medical insurance. The second option is to leave China directly without dealing with social insurance contributions, with no specific time limit for keeping the social insurance account. The third option is to apply for the benefits of pension insurance, provided that the employee has reached retirement age during their employment in China and has accumulatively contributed to the pension for at least 15 years.
De-registration of work and residence permits
When an employee is leaving China, one of the necessary steps is to de-register their work and residence permits. In both Shanghai and Beijing, the first step is for the employer to de-register the work permit (外国人来华工作许可注销) through the Service System for Foreigners Working in China (外国人来华工作管理服务系统). The required documents for this step include the Application Form for Termination of Work Permit for Foreigners (外国人来华工作许可注销申请表), the certificate of termination of employment issued by the employer, and the Acknowledgment of All Formalities Being Completed Online (外国人来华工作许可注销事项全程网上办理承诺书).
In Shanghai, after the termination of employment, the individual should de-register the work-type residence permit (工作居留证件注销) at the Exit-entry administration bureau (出入境管理局) within 10 days, this step doesn't require to wait for step 1 to finish. The required documents for this step include the Passport, Registration Form of Temporary Accommodation for Visitors (境外人员临时住宿登记表), and the certificate of termination of employment issued by the employer. After this step, the Exit-entry administration bureau (出入境管理局) will automatically grant a stay permit (停留证件) for no more than 30 days.
In Beijing, the next step for the individual is to de-register the work-type residence permit (工作居留证件注销) at the Exit-entry administration bureau (出入境管理局) after completing step 1. The required documents for this step include the Certificate of Termination of Work Permit (外国人来华工作许可注销证明) which you get after step 1, Passport, Registration Form of Temporary Accommodation for Visitors (境外人员临时住宿登记表), the certificate of termination of employment issued by the employer, colour photo with white background, 2 inch. After this step, the individual needs to apply for and obtain a stay permit (停留证件) for no more than 30 days (this does not happen automatically) by providing the required documents including passport, Registration Form of Temporary Accommodation for Visitors (境外人员临时住宿登记表), certificate of termination of employment issued by the employer, colour photo with white background, 2 inch, written application signed by the individual.
Individual Income Tax in China
Tax resident or not?
The Individual Income Tax (IIT) law in China classifies individuals as either tax residents or non-residents. Tax residents are considered as those who are domiciled in China, or non-domiciles who reside in China for 183 days or more in a calendar year, and are liable for IIT on income inside and outside China. Non-residents, on the other hand, are non-domiciles of China who do not reside in China or who reside in China for less than 183 days in a calendar year, and are liable for IIT on income derived only from China.
If a foreign national employee is not qualified as a resident individual in China due to spending less than 183 days in 2022, they should report to the tax authorities in charge during the period from the day on which they fail to satisfy the resident individual criteria to 15 days after the end of the year. The individual should then re-calculate IIT payable amount as a non-resident individual, and declare tax amount to be paid retrospectively, without being imposed of any late payment interest surcharge. If any IIT refund is applicable, it should be handled pursuant to the tax regulations and circulars.
The counting method for determining days residing in China is based on physical presence on the mainland for 24 hours in one day, in which that day counts towards a day of residing in China. If physically present in the mainland for less than 24 hours in one day, that day is not counted. Additionally, there is a new ‘Six year’ rule, which states that an individual must have resided in China for 183 days or more in each of the tax years during the period of the ‘preceding six years’ and must not have been physically outside of China in one single trip of more than 30 consecutive days during the period of the ‘preceding six years’.
The IIT treatment for non-domiciled individuals also includes an income sourcing rule, where the salaries of non-domiciled individuals eligible for the time apportionment method of IIT computation will have their salaries apportioned based on the number of China/non-China working days. This includes actual working days, public holidays, personal leave and training days both inside and outside of China taken during the China working period. If the individual stays in China for less than 24 hours in a day, that day is counted as half of a China working day.
Filing your taxes
In terms of annual IIT filing, there are two options: standard filing and simplified filing. Standard filing has different deadlines for resident individuals, non-domiciled taxpayers who leave China permanently and resident individuals who immigrate to another country. Simplified filing, on the other hand, has a deadline of 1 March to 31 May and is applicable to resident taxpayers whose annual comprehensive income is no more than RMB 60,000 in a tax year but has overpaid IIT and need to claim IIT refund.
Individuals can file their annual income tax return in China through three methods: self-reporting by accessing the Individual Income Tax APP of State Taxation Administration, the website of the State Taxation Administration, or by calling the STA hotline 12366; engaging a withholding agent who will file the Annual Reconciliation return for taxpayers who received wages and salaries or continuous remuneration for personal services and assist in filing the annual return or provide training and guidance on how to complete the Annual Reconciliation; or by filing through a tax agent, who will file the Annual Reconciliation return on behalf of the taxpayers with a signed authorization letter between the agent and the taxpayer.
Overseas salary remittance
Overseas salary remittance for foreign national employees in China can be done by remitting compensation from China to the employee's individual overseas bank account. Generally, the following documents and certificates are required for such salary overseas remittance application with a bank in China: an overseas payment application form, the foreign national employee's employment contract signed with the China company, the foreign national employee's passport or China work permit and resident permit, the foreign national employee's payroll calculation details, and an Individual Income Tax certificate generated by the tax filing system.
If the monthly salary overseas remittance amount exceeds USD 50,000 per expatriate per batch, a contract tax registration form issued by the in-charge tax authority would be required. This is in accordance with the foreign exchange control regulations of the People's Republic of China, which state that foreign individuals can make conversions for their legitimate income at financial institutions after tax declaration and full payment and can either remit funds via financial institutions or hand carry the funds when they travel overseas.