Written in China for China Professionals by China Professionals

Employment Overheads in China’s Social Security System

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China Briefing is a monthly magazine and daily news service about doing business in China. We cover topics relating to the Chinese economy, the market in China, foreign direct investment and Chinese law and tax. It is written in-house by the foreign investment professionals at Dezan Shira & Associates

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Employment Overheads in China’s Social Security System

In this issue of China Briefing we look at China's social security regime and the five social insurance funds that enterprises in China must contribute to: pension, medical insurance, unemployment insurance, maternity insurance, and occupational injury insurance. We also look at the housing fund, another mandatory fund that both employers and employees contribute to. Because mandatory benefit requirements change from city to city, we compare and contrast 20 cities around China, introducing the proportions of salary that need to be contributed to social insurance in Dalian, Qingdao, Beijing, Shanghai, Hangzhou, Ningbo, Shenzhen, Guangzhou, Zhongshan, Dongguan, Shenyang, Tianjin, Chengdu, Suzhou, Xi'An, Changchun, Nanjing, Jinan, Kunming and Zhengzhou.

We also examine how to setup and pay out mandatory benefit contributions and the procedures for registering with the social insurance bureau and the housing fund bureau. We then take a brief look at the some of the main HR management trends in China including changes in recruitment, dispatch and secondment contracts and HR administration. Finally, we cover the impact of China's rising minimum wage levels, analyzing the data from 20 cities to gauge the impact the increases will have on future investment in China.

In This Issue:

The Actual Costs of Employing Staff in China

Chinese Employee Contributions

Practical Administration of Social Security

Minimum Wages and Social Security in 20 Chinese Cities Compared

The Changing Role of the HR Agent

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Supplier Due Diligence, Drafting OEM Contracts, and Buying and Selling in China

In this issue of China Briefing we go over some important issues to consider when buying and selling in China. From handling suppliers to OEM contracts, we review effective methods for sourcing from China. First we look at the decision to go and the basic questions that need to be answered before a foreign enterprise can enter the China market. We also examine the threats and opportunities of moving your sourcing operations to the mainland. Once a business has established a sourcing operation in China, it is important to put the China supplier through a thorough due diligence. We cover some of the basic information a foreign investor can obtain from a supplier's business license. In addition, we review some common issues that occur with OEM agreements and list some contractual issues to consider when entering into such agreements.

Finally, we discuss some of the different methods of selling to China. Whether using an agent or distributor, or setting up a foreign-invested commercial enterprise, there are many options for foreign enterprises looking to distribute and sell their products to the growing consumer market in China.

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Pre and Post-Incorporation Registration Procedures

In this issue of China Briefing, we look at the important pre and post-registration procedures foreign investors need to be aware of when setting up in China. When establishing a company in China, careful planning must be done prior to incorporation to fully prepare for the financial and tax implications of the business. If not included, the business can be inefficient from its birth. Attention to detail also needs to be put in once the business license has been issued, there is still quite a bit of work to do for a business to be completely legal and functional. From opening a bank account to registering the new company with Customs and the State Administration of Foreign Exchange, injecting capital, and obtaining a capital verification report, there are vital steps in the establishment process that every investor should be aware of. Failure to correctly follow through on these procedures can lead a company to non-compliance and government penalties.

We also include post-registration procedure workflow charts for representative offices, foreign-invested enterprises and foreign-invested manufacturing enterprises.

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Opportunities in China’s Emerging Industries

With foreign direct investment again on the rise in China - FDI increased by 7.7 percent to 23.44 billion in the first quarter of this year - and China looking to modify its catalogue for foreign investment, we use this issue of China Briefing to examine some of the markets where the opportunities for FDI are increasing. We begin by looking at the automotive industry in China, now the world's largest market. We also look at the growing investment in clean technologies, a sector where China ranks number one in spending, having dedicated US$34.6 billion to clean energy projects in 2009. We finish our look at emerging sectors by focusing on logistics, specifically cold chain logistics. China's cold chain market remains seriously underdeveloped and modernization of the industry could save an estimated US$160 billion in costs.

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RO vs. FICE: Determining Which Structure is Right for You

In this issue of China Briefing we take a look at the difference between the representative office and the foreign-invested commercial enterprise. The representative office has long been the vehicle that foreign investors have used to get their feet wet in China, acting as a bridge to a company in the home country. But with China increasingly regulating representative offices, it may now be time to turn to the foreign-invested commercial enterprise as a viable alternative, especially if the ultimate goal of investing in China involves trade. We explore the legal and tax issues at hand with ROs and FICEs, look at the recently released tax regulations for representative offices and examine the three steps to a FICE application.

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March: Operational Due Diligence: Kicking Your China Business’s Tires

In this issue of China Briefing we a look at operational due diligence and compliance issues that should be taken into account when "kicking the tires" of a China business. This includes operational issues like examining organizational structures, risk assessments, key operational functions, external relationships, competitors, environmental considerations and corporate secretarial responsibilities. It also involves financial issues including assessing financial statements and audit, taxes and tax filing, financial reporting and depreciation of assets. We conclude our look at operational due diligence by reviewing some human resources concerns including key employment issues and social security benefits that companies in China may face.

In additional to operational due diligence issues, we investigate China's new transfer pricing documentation requirements and look at what records companies will need to have compiled by May 31. With an increased burden on compliance and stricter penalties in place, it is important that enterprises involved in transfer pricing properly maintain their documentation and keep themselves completely updated on all tax requirements.

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Closing Down Representative Offices and Liquidating Businesses in China

With the global economic crisis still affecting businesses in China, executives must be aware of their responsibilities when having to liquidate a business on the mainland. Overseas companies may be impacted by external circumstances beyond their control and have to close their China-based representative offices as a result of a situation with their parent company.

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January: Preparing for Annual Audits in China

It's annual audit season in China, a time when companies take stock of their business on the mainland, prepare annual corporate income tax filings, and review any outstanding issues that may affect the coming year. It is also a good time to review the company business license; something that all China-based businesses must do every year. In this issue of China Briefing we take a look at some of the more pertinent aspects of China's audit regulations, examine some corporate tax considerations to take into account when filing CIT returns, and review the preparation procedure for an annual business license review. We also run through some of the salient individual income tax issues for expatriates living and working in China.

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