Meaning
Human resources structure where an expatriate signs two separate labor agreements, one with a local subsidiary and one with a foreign parent. Establishing a dual employment contract helps define the specific responsibilities and compensation provided by each legal entity. This arrangement is common for senior managers overseeing regional operations while maintaining ties to an overseas headquarters.
Contractual Validity
Agreements must comply with the labor laws of both jurisdictions to protect the rights of the employee. Ensuring contractual validity requires the Chinese portion to meet local minimum wage and social insurance requirements. The local labor bureau may investigate if the domestic contract appears to be a sham designed solely for visa purposes.
Taxable Nexus
Split salary payments under this model do not exempt the total income from scrutiny by the tax authorities. Determining the taxable nexus involves assessing where the individual is physically located while performing the work.
Audit Vulnerability
Tax bureaus often look for inconsistencies between the duties described in the two agreements. High audit vulnerability exists when the domestic entity claims the employee is part-time while the individual’s visa status indicates full-time residency. Providing timesheets, email correspondence, project reports, and meeting minutes supports the commercial reality of the split.
These records are necessary during a field inspection. Firms must maintain detailed logs of work activities to justify the split in remuneration.
