How to set up as an independent contractor in China

If — like many of China’s Generation Z — you’re ready to turn your back on the 9-to-5 grind, going it alone as an independent contractor is an appealing career path.

This Asian powerhouse is already home to over 30 million contractors and, as one of the world’s most important economies, there are plenty of opportunities to make a living on your own terms.

Before you can get started, though, you’ll need to know how to:

• Register as a business in China

• Avoid misclassification as an employee

• Create compliant contracts that protect you

• Invoice and collect payments from around the world

In this article, we’ll cover all these things, and help you navigate your tax responsibilities as a self-employed worker. We’ll also discuss some of the other risks and liabilities you should be aware of.

First, it’s important to clarify how China defines independent contractors.

What is an independent contractor according to Chinese law?

Independent contractors are workers who provide paid services (or products) to another party. However, they are classified differently to employees, and are usually not entitled to the same benefits, such as paid leave, sick days, and minimum wage. On the flip side, contractors have more freedom and flexibility in the way they work.

See also: Why businesses hire contractors vs. international employees

As in most countries, China does not explicitly define the difference between employees and independent contractors in law. Instead, the distinction is made based on the nature of the working relationship, and the degree of control exercised by the client/employer.

Based on these guidelines, and the definitions of employment in the Labor Contract Law of the PRC, you are generally considered to be an independent contractor if you:

• Determine your own work schedule and working hours

• Perform work for other companies

• Set your own rates and scope of work

• Provide your own tools or equipment

• Are not integrated into one specific company and its operations (i.e. you don’t have an internal email address)

• Are able to delegate or subcontract work

• Work without direction or supervision

When you work with clients, it’s important to be correctly classified to avoid penalties and fines, and to ensure that you are paying the right taxes.

Business registration in China

Before you can begin working as an independent contractor in China, you’ll first need to choose a formal structure for your business. This will determine what your liabilities are, and how you will pay tax.

The most popular choice for contractors is to operate as a sole proprietorship. Under this structure, you have full control of your enterprise, although there is no legal separation between you (the owner) and the business; you are personally responsible for all its debts and liabilities.

If you want more legal protection, you’re working with other partners, or you anticipate generating a large amount of revenue, you can also incorporate a formal company, or enter into a partnership. If you’re unsure which structure is most suitable for your business, it’s a good idea to speak with a registered solicitor or accountant.

If you do opt for the sole proprietor model, you will need to register with the Enterprise Registration department of the State Administration for Market Regulation (SAMR). This can be done in person at your nearest SAMR office. Once approved, you will then receive an official business license and a company seal.

If your business activity is regulated (i.e. you practice a protected profession such as medicine or law, or you’re handling food), you may also need to acquire additional business permits or licenses from your local issuing authority.

How do I get paid as an independent contractor in China?

As an independent contractor, it’s down to you to handle your invoices and payment collection. Unfortunately, this means billing each client individually and collecting payment through their preferred payment method — which can be inefficient and time-consuming.

Some of the most common ways to collect payments include:

• Bank transfers

• Direct deposits

• Paper checks

• Money orders

• Virtual wallets

• Digital transfer services

These methods all have their own pros and cons. For instance, bank and digital transfers can be pretty quick, but often come with hefty service fees. And if you have clients in other countries besides China, the payment collection process can be even more complicated. 

Alternatively, you can use a trusted solution like Remote. Our platform is a simple, secure, and reliable way to get paid quickly in Chinese yuan — and with no hidden fees. Learn more about how our platform can help.

Independent contractor taxes in China

As an independent contractor, you’re responsible for filing and paying your own taxes and social security contributions.

The good news is that, as a sole proprietor, your business income is included in your personal income tax return. This means that you do not have to fill out extra returns or pay additional corporate taxes.

In China, your business income will be taxed at anywhere between 5% and 35%, depending on how much you earn.

It’s not mandatory for self-employed people to make social security contributions, although it is generally recommended to make voluntary contributions. Note that social security rates can vary depending on which part of China you live in.

The State Taxation Administration (STA) may ask you to file your tax return on a monthly, annual, or even transactional basis, depending on the nature of your business. Tax payments must be made each month, based on your previous month’s income.

As in most countries, you can claim tax deductions on business expenses, although the sum of these deductions is capped. In general, the Chinese tax deduction system is complex, so it’s advisable to consult with a qualified accountant or tax specialist.

VAT information for independent contractors in China

If your monthly business income exceeds ¥150,000 (around $20,000), you’ll need to register for — and charge your clients — VAT.

In China, most independent contractors are recognized as small-scale VAT taxpayers, and are subject to a reduced VAT rate of 3%. If you are classed as a small-scale taxpayer, you will need to file and pay VAT on a quarterly basis. Note that, if you generate a large amount of sales, the STA may consider you a general VAT taxpayer, and you will be subject to the standard rates of between 13% and 0%.

Liability considerations for independent contractors in China

As a sole proprietor, you are personally liable for finance and tax debts, which means your private assets can be forcibly used to settle your business debts. Many independent contractors purchase liability insurance to help mitigate this risk.

It’s also important to cover yourself when drafting and signing agreements with clients. Our legal experts can provide you with fully compliant contract templates, for both Chinese and international clients.

Note, too, that Chinese business and commerce laws are notoriously strict and heavily enforced. For example, you can receive fines, penalties, and even the revocation of your business license if you:

• Engage in any business activities that have not been pre-approved by the state

• Use your business name inconsistently

• Do not “prominently place” your business license

• Do not conduct any business within six months of registration

• Miss tax deadlines

• Make administrative errors in your registration paperwork

Accounting requirements for independent contractors in China

As a sole proprietor, you do not need to publish annual financial statements.

However, you must keep organized, accurate records of all your income and expenditure (including client invoices, purchase orders, bank statements, and receipts) in line with the Accounting Standards for Small Business Enterprises (ASSBEs). This will also help you correctly file your taxes, give you a stronger picture of your financial situation, and generally make life easier if you are audited by the tax authorities.

You can either manage these records yourself using an accounting or bookkeeping tool, or hire a professional bookkeeper or accountant.

The dangers of contractor misclassification in China

As we’ve mentioned, independent contractors are classified differently to employees in China. Many of the protections and benefits employees enjoy do not typically apply to contractors.

As a result, companies may deliberately misclassify you to circumvent their legal obligations, while at other times, it may happen accidentally. Whether it’s intentional or not, misclassification can result in penalties and fines for both you and your client.

As an independent contractor, you can work with your clients to ensure this doesn’t happen. Discuss your role and responsibilities with them, and review the working arrangement regularly.

If your working relationship changes over time and you become more integrated into a client’s company, you can ask to be converted into an employee.

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

Download

How do I ask the company I’m working with to convert me to an employee in China?

Open a dialogue with your client and carefully discuss the risks and benefits of moving to an employer-employee relationship. In particular, be clear about how it can benefit both parties — not just you.

You can even suggest the help of a third-party solution, such as Remote, to ease the transition. Our global employment services help both parties stay compliant by taking care of key HR functions (like payroll management and benefits administration) in line with Chinese law.

4 ways Remote makes life easier for contractors and their clients

As you can see, there’s a lot to take on board when setting up as an independent contractor. Remote can help you with many of these challenges, allowing you to focus on growing your business and delivering to your clients. Here’s how:

1. International payments in countries around the world

Navigating all of your clients’ different invoicing, approvals, and payments systems can be complicated and time-consuming. And manual methods of invoicing and collecting payments can increase the risk of fees, errors, and delays.

Remote gives you access to a highly secure, streamlined dashboard that makes invoice management and international payments cost-effective and efficient. You can use our platform to get paid in Chinese yuan (or other currencies), without any hidden fees.

2. Localized in-app contracts and advice

When you draft agreements and contracts for your clients, you run the risk of non-compliance with local labor laws — especially when working with international clients. Remote offers localized contracts tailored to Chinese laws, ensuring that you stay compliant. Our legal experts can also provide guidance on complex issues, such as local classification and intellectual property protections.

3. Invoicing automation

With Remote, you no longer need to rely on spreadsheets and other manual tools to invoice for payments; we remove many of the inaccuracies and delays caused by archaic processes and manual management. Our platform lets you create invoices, submit them for approval, and subsequently get paid in your local currency without needing to switch to any other tool or software.

4. Tax management

Tax management is notoriously complex work. Remote helps you quickly and efficiently deal with tax management by compiling data about your income based on your invoices and payments received.

Setting up as an independent contractor in China

Having the freedom and flexibility to work on your own terms is liberating. But your administrative responsibilities can distract from what you really want to be doing: helping your clients, delivering great work, and collecting invoices.

By using a stable, trusted platform like Remote, you can manage these obligations quickly and efficiently, allowing you to focus on your business goals. Specifically, we can help you:

• Avoid intermediary fees and delays with international client payments

• Draft compliant contracts for Chinese and foreign clients

• Enhance your invoice management and avoid manual processes

• Comply with local labor laws regarding work practices

Our platform makes it quick, simple, and seamless to get started as an independent contractor. Learn more about how our expertise can save you time and resources today.