Bifurcating Corporate NNN Agreements and Individual PRC Labor Contracts
Corporate NNN agreements cannot bind individual PRC workers directly without compliant labor contract non-competes backed by monthly statutory stipends.
Departure Audit Clearance
Meaning
Official administrative verification constitutes a mandatory tax review of a senior executive before their exit from China. This examination, known as departure audit clearance, ensures all personal tax liabilities of the foreign director are resolved. The authority must certify this before exit permission is granted.
Legal Basis
Statutory rules under the Tax Administration and Collection Law allow authorities to prevent individuals from leaving the country if they have unpaid tax liabilities. The departure audit clearance process applies specifically to legal representatives of companies undergoing liquidation or those with unresolved audit disputes. Municipal tax departments coordinate with the exit and entry administration to enforce these travel restrictions when necessary.
A company must appoint a new legal representative if the outgoing executive must leave before the audit is completed.
Auditing Process
Review proceedings require the submission of complete transaction records, personal income tax filings, and corporate balance sheets for the relevant fiscal years. Tax officers analyze cross-border payments, housing allowances, and equity-based compensation to detect any underreported income. This review can extend to the entity itself if the executive is the controlling shareholder or senior manager.
The audit typically takes several weeks to complete depending on the size of the business.
Executive Liability
Clearance is granted when the tax bureau issues a formal notice confirming that all liabilities have been paid or that sufficient security has been provided. If unpaid taxes are discovered, the executive remains personally liable for the settlement before travel restrictions are lifted. This action represents a severe measure that can disrupt international operations if a replacement executive is not registered.
The execution of this clearance process occurs mostly during corporate restructuring or voluntary company closure.