Business Travel in China: HR, Logistical, and Tax Considerations
Investors may need to send personnel to China on business trips for a variety of reasons, even if there is an existing entity and staff on-site in China. The most common examples are for negotiations, completing temporary projects, quality control, engineering, training, or consulting purposes.
Travel may consist of visits to attend ceremonies or other types of functions, or longer or more frequent stays. However, there are many factors involved when sending personnel on business trips to China.
Proper management and preparation can help your business trip to China run as smoothly as possible. This article addresses issues for both travelers and HR departments to consider when conducting business trips to China.
Visas and arrival in China
All personnel entering China for business purposes must hold a passport valid for at least another six months.
In addition to this, a Chinese visa is also required. There are two types of visas suitable for business travel: an ‘F’ visa or an ‘M’ visa.
An ‘F’ type visa is specified for non-commercial exchanges, investigations, and for scientific-technological, education, and cultural exchanges. This visa allows for multiple entry visits of up to six or 12 months depending on the purpose of stay. An ‘M’ type visa is specified for business or trade purposes.
Both types of visa require supporting documentation, such as an invitation letter specifying the purpose of the visit, and relationship from a legitimate entity in China.
Once in China, travelers must register with authorities. Registration is automatically done when checking into a hotel, but travelers who do not visit a hotel must check-in at the local police bureau within 24 hours of arrival, or 72 hours in rural areas.
Registration requires a passport and information about accommodation. If travelers fail to register, they are considered non-compliant, and may be subject to fines and deportation.
Border crossing into mainland China
For regular visitors crossing the border into mainland China, such as those residing in Hong Kong or Macau, an automated passenger clearance system has been in place since 2002. This service was extended to all ports of entry into China for foreigners in 2016.
Travelers in possession of an e-passport (the type with an inbuilt microchip) and a visa with at least six months of validity and a corresponding residence permit are eligible to register for the ‘e-channel’ border crossing service.
Application requires filling out a form, taking a photo, and providing thumbprints, as the e-channel scans faces and thumbprints as a means to admit travelers.
For regular business travelers, this means a faster and smoother experience when crossing the border, where previously the ordeal was much more taxing and time consuming.
Chinese New Year and other observed holidays
Chinese New Year, also known as the Spring Festival, is the biggest national holiday in the Chinese calendar. Its date is dictated by the lunar calendar, and so falls between January 21 to February 20 depending on the year.
During this period, most people journey back to their hometowns to be with their family: commerce shuts down and transport is overwhelmed, making business travel and arduous and expensive task.
Businesses can close up for anything from a couple of days to a week, and usually reopen on the eighth day of the holiday. Though the streets may be empty during the main holiday, the effects of the holiday will be felt in the lead up as well. Even when the holiday ends, not everyone immediately returns back to work, and the ease back into business as normal will be slow.
Flights will also be several times more expensive than usual during this period, and trains fully booked months in advance.
Business travel during the period is therefore strongly discouraged. However, if a visit is imperative, due precautions should be made far in advance for travel and accommodation.
Other holidays, such as Tomb Sweeping Day, Dragon Boat Festival, Mid-Autumn Festival, and Golden Week, are also subject to irregular dates, and should also be considered when making a business trip to China.
For companies who regularly dispatch personnel to China, there may be some tax liabilities incurred.
This depends on whether the originating entity dispatching employees to China already has a permanent establishment in China.
Those which have a business venue or construction site in China, is represented in China by an agent, dispatches personnel to China to provide services, or renders services to the local subsidiary count as permanent establishment.
In many cases, where a country has an operational double taxation agreement (DTA) with China, if a foreign employee has not been dispatched to China within a standard of 183 days, it is not classed as having a permanent establishment.
If permanent establishment is determined under a DTA, a foreign entity will be subject to tax on income deriving from China.
Where an entity has a subsidiary in China manned with staff, but sends personnel on projects to China from abroad, salary and reimbursement of the dispatched personnel will be taxed by the Chinese tax authorities on the subsidiary in China.
If the subsidiary requests personnel to come and direct their work, this is not classed as permanent establishment.
However, permanent establishment will apply if the overseas company manages the dispatched employee’s work, determines how many people are sent, bears the cost of the dispatched employee’s salary, and/or obtains profit from the Chinese subsidiary for the assigned employee’s activities. In this case, income derived in China will also be taxed.
It is important for HR teams to properly manage dispatched employees, so as to not incur hidden tax liabilities, even though this is a tax issue.
It is in the best interest of a company to make sure that dispatched employees’ activities are regarded as hailing from the subsidiary in China, as opposed to that of the overseas parent company. An HR department is in the best position to ensure this is so.
On top of dealing with tax liabilities, HR teams should also brief employees traveling to China for business to make sure they are sufficiently prepared, and ensure that all visa issues are correctly processed in order to avoid complications upon arrival to China.
Given the importance of these issues, HR teams should consider working with local partners when planning travel to China for their personnel.