Navigating Chinese Economic Employer Rules under STA Bulletin 19 Secondments
STA Bulletin 19 exempts 1:1 secondment salary reimbursements from Corporate Income Tax provided domestic entities maintain direct economic control without markups.
WFOE Employment
Meaning
Labor relationship between a wholly foreign owned enterprise and a local employee is governed by national labor contract laws and regional regulations. Under the rules of WFOE employment, the employer must provide a written employment contract, contribute to social security programs, and adhere to strict statutory working hours. This framework provides strong protections for workers and limits the employer’s ability to terminate contracts without cause.
Contractual Framework
Drafting a valid contract requires incorporating mandatory provisions regarding wages, working conditions, and social security. In establishing WFOE employment, the company must register the labor contract with local labor bureaus. This registration must be completed within thirty days of the employee’s start date to avoid statutory penalties.
Regulatory Oversight
Local labor authorities monitor compliance through audits and dispute resolution committees. WFOE employment is subject to close scrutiny to ensure that overtime pay, annual leave, and social welfare contributions are handled correctly. Non-compliance can result in administrative fines and damage the corporate reputation of the foreign investor.
Termination Risk
Ending a labor relationship requires the employer to navigate a highly structured legal process and pay statutory severance. To legally terminate WFOE employment, the company must demonstrate specific statutory grounds, such as serious misconduct or economic redundancy. If the company fails to prove these grounds, the employee can sue for reinstatement or double severance, making termination a major operational risk for foreign enterprises that fail to document employee performance properly.