Employees working in China? Avoid common pitfalls

Canadian business trips to China are on the rise but mix of traditional and modern policies can cause visa headaches

The number of Canadians traveling on business to China has grown exponentially in recent years, fueled by China’s economic boom and an intense desire by Canadian companies to capitalize on its growing market.

In the recent past, a visa allowing a foreigner to work legally in China was difficult to obtain and regulations within the country were strict, preventing foreigners from visiting or staying in certain areas which were considered to be “non-secure” by the Chinese government. While China is now far more liberal in its approach to granting work visas for foreign expatriate assignments, there are still vestiges of the old restrictive system, often resulting in a confusing and contradictory regulatory regime for foreign workers.

One obvious area of controversy is the inability for foreigners to become naturalized as Chinese citizens, no matter how long they have lived in China. There is no formal naturalization process nor a systematic “immigration process” which would allow long-term residents to obtain Chinese citizenship so they no longer require a work visa. However, China recently introduced a “green card” system which allows for permanent residency by foreigners but its availability is restricted to all but the most affluent investors and influential scholars and individuals.

Distinction between work permit and business visa

Consistent with China's interest in attracting foreign investment, individuals who travel to the country for an official visit, business, lectures, exchange program or short-term study can obtain a business “F Visa” and enjoy relatively unrestricted status. Renewal of this visa within the country allows the holder three months, six months or one year of either single- or multiple-entry status. The long-term duration of the F Visa and the possibility of transferring funds offshore without the knowledge of Chinese authorities have resulted in a large number of foreigners working illegally in China. While this may allow the holder to avoid some of the procedures associated with the more complex and difficult to obtain work “Z Visa” and to escape taxation within China, there are several reasons why they should avoid falling into this trap:

Tax penalties. China has a number of tax treaties with various nations, including Canada and the U.S., which allows tax authorities to interact with their counterparts in treaty countries. According to the Regulations of the State Administration of Taxation, if a foreigner is suspected of evading taxes while in China, he may be prevented from leaving the country until an investigation is completed. Upon conclusion of the investigation, if the individual is found to have avoided paying taxes on income subject to Chinese tax laws, he may be liable for interest on unpaid amounts plus a fine ranging from three to five times the unpaid amount.

Illegality. Obviously, avoiding payment of taxes under Chinese tax law is illegal and working in China without appropriate permits is against the law and may result in serious consequences.

Lack of protection for legal rights. An individual who is not under contract with a Chinese entity will be unable to sue her employer for breach of obligations without an employment agreement. According to Chinese labour laws, employment contracts must be in written form.

Common mistakes made by foreign expatriate workers coming to China

Time requirements for visas and permits. In order to obtain a Z Visa to travel to China, there are a number of steps an applicant must take:

Obtain a foreign employment license. The Chinese employer must attend at the Ministry of Labour and Social Security in order to obtain an employment license for the intended hire. The process takes about 10 business days in Beijing, but may vary in other parts of the country.

Issue an invitation letter. After the Chinese employer obtains the foreign employment license, they must obtain a stamped invitation letter from the local bureau of commerce. This process takes two to three business days.

Make an application at a consulate or embassy. The prospective employee must apply to the Chinese embassy or consulate in her home country, with the invitation letter, so a visa can be issued. The process may take four business days, though often expedited service is available for an extra fee.

In total, the Chinese company and the foreign employee should allow for about one month for processing of a Z Visa.

Further, on entry into China, there are a number of steps which must be taken which will take about 21 working days to complete, depending on the individual applicant. As Z Visas are only issued for single-entry, if the individual must exit China before completion of the in-country procedures, she will have to apply for another Z Visa prior to re-entering China.

Requirement to register within 24 hours of entry. Unless hotel accommodations have been made, all foreign nationals intending to work or reside in China must register within 24 hours of arrival with the local Public Security Bureau in the proposed place of residence. Failure to register may result in a fine of several hundred RMB (yuan) per day.

Entering China with the wrong visa. In order to obtain a working card and employment license and residence permit, the foreign employee must enter China on a Z Visa. Failing to do so will result in substantial difficulties and may require re-application for the appropriate visa, depending on the city in which the individual will work.

Requirements to hire foreign employees. According to the Rules for the Administration of Foreign Employment, “the post to be filled by the foreigner recruited by the employer shall be the post of special need, a post that cannot be filled by any domestic candidates for the time being.” As such, according to a strict interpretation of legislation, the employer must establish the post cannot be filled by any Chinese national at that particular time. However, in practice, the threshold for approval is relatively low, particularly in management and professional employment situations. The rules also require the foreign individual to have been educated to degree level and possess at least two years of work experience outside of China.

As is often the case in China, legislation is flexible and an HR manager should not be overly concerned about Chinese foreign employment standards as, based on practice, these requirements are not interpreted strictly.

The above are some of the more common errors made by foreign companies when sending employees to China on business. Employers must take care to comply with the sometimes complicated system of permits and regulations governing foreign workers in that country. With potential obstacles such as language barriers and bureaucratic difficulties often faced by foreign employees, the visa process may seem overwhelmingly complex at times. The key to navigating the system is engaging competent local counsel who will assist you through each step and ensure a smooth transition of the employee into the new workplace and country.

Sergio R. Karas is a Certified Specialist in Canadian Citizenship and Immigration Law by the Law Society of Upper Canada. He is currently co-Chair of the International Bar Association Immigration and Nationality Committee and Vice-Chair of the Ontario Bar ­Association Citizenship and Immigration Section. He can be reached at Karas & Associates, (416) 506-1800 and [email protected]. Gregory M. Sy is a qualified attorney in the People’s Republic of China with the Beijing offices of Lehman, Lee & Xu. He can be reached at [email protected].

From the archives

Chinese employment law can be complicated to figure out and it’s always a good idea to consult knowledgeable counsel. For more information on the intricacies of Chinese employment law, please see Jenny Yan’s article, “A brief introduction to Chinese employment law.”

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