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Sending Your Employee to China Again and Again: What if the Well Runs Dry?

China visas

Mega law-firm Mayer-Brown just did what it calls a “bite-size” article on foreigners working in China for the home office. The article  asks and then answers the following question:

If a foreigner will not be employed by any PRC company, and will frequently travel to the PRC as an employee of a foreign company to deal with business in the PRC, does he/she need to obtain a work permit from the PRC authority?

The answer is that foreigners who enter the PRC for business can usually enter with a business visa and do not need a work permit so long as they stay three months or less. A work permit and work visa are required if the foreigner “will work in the PRC for three months (not stated to be continuously, but generally considered as being cumulative) or more, unless he/she will act as an engineer or other professional under a sino-foreign technology transfer agreement.”

The article then talks about how a PRC entity is required to employ the foreigner if the foreigner is going to stay in China for more than three months. If the foreign company has no legal entity in the PRC and needs to have its foreign employee frequently travel to the PRC for business development purpose, the article suggests the foreign company “consider having a [China-based] business partner fulfill the relevant application and filing obligations.

This is all good advice. I see this problem most often with foreign businesses that get a big contract in China requiring they send employees to China for 6 to 12 months. This company essentially has three options. It can convince its China partner to hire its employees and get them work visas and work permits that way. It can form a WFOE in China to employ these people. Or it can try for multiple entry visas and hope the Chinese government looks the other way at someone spending too much time in China without a work visa or a work permit.

We have had many clients do all three of these things. We usually recommend our clients try to get their China-based partner to hire their employees, but the China-based partner usually will not. I have to confess that when our clients ask us about hiring on temporary employees for others, they seldom do so after we tell them of the risks involved in hiring anyone in China.

The big problem with forming a China WFOE just to hire a few people for a temporary job is that it is time consuming and expensive. The big problem with shuttling employees back and forth into and out of China on 1-3 month business visas is the chance some or all of them will not be allowed back in. China does have its periodic visa crackdowns and visa tightenings and a whole host of our clients encountered major problems when China cracked down hard on visas before the Olympics. We had one very profitable client who literally had to close down its China operations because it was denied entry visas for so many of its key people.

The question we pose to our clients thinking of taking the 1-3 month business visa risk is how big a disaster it would be if their company had to pull out of the contract halfway through it because it can no longer get its people into China?  I estimate around half take the risk half form the WFOE.

What have you seen or heard on this?

8 responses to “Sending Your Employee to China Again and Again: What if the Well Runs Dry?”

  1. @ Dedric
    That’s a GREAT question, the answer to which is pretty much no. Those companies typically have a two year minimum contract.

  2. FESCO & CIIC and similar organisations can only employee locals… in the case of WOFEs in Shanghai with low capitalisation, or Rep Offices anywher in China, local staff are employed through these organisation but expats required to be employed directly by the WOFE or Rep Office.
    The tax implications of having so many foreign staff come in on a major project for such long periods are enormous, both from an income tax and a business tax perspective. With so many expat staff staying so long, regardless of visa status, the company overseas is going to find itself liable for significant China-side income tax as well as business tax…
    Dan, that issue worth exploring in detail…

  3. I have heard that if China has a double taxation treaty with a country that allows for the employee to avoid double taxation for a period of 6 months, that this three month rule does not apply. Is that correct?

  4. We’ve been subcontracting foreign staff including work permits and payroll, mostly contractors (fixed term Expats), through our China partner for just over two years. It took a long time for them to setup which is maybe why, to my knowledge, there aren’t many contractor management companies operating in China.
    Bearing in mind this is just my experience, the issue I found is the Expat community is surprisingly comfortable with doing regular business visa runs out of PRC and using offshore pay vehicles. This short term thinking is also evident in many companies first foray into the China market. Once they have concrete revenue they take steps (time and money) to establish WOFE. I think the proportion of people taking the risk vs WOFE route is more like 75% to 25%.
    This obviously changes with stronger regulatory controls around business visas (like we saw during the Olympics) and a more mature market.

  5. Can one be on the mainland for more than 90 days if the focus of ones work is to actually get set up all the proper legal structures, be it either a Rep Off or WFOE? Would an F-class visa be adequate to enable one to be here in China getting the right structure arranged so longer-term visas and work permits can then be procured? Or must you get everything done in under 90 days to avoid a visa problem?

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