Overview on Employment Models for Chinese Firms Going Global

In recent years, with Chinese companies actively expanding their international business and accelerating their globalization strategy, overseas employment has become an important human resource allocation strategy and an indispensable part of their overseas operations. In practice, Chinese enterprises usually adopt diversified employment models to meet the needs of overseas business development in order to adapt to the market environment, laws and regulations, and cultural differences of different countries and regions.

Introduction to employment scenarios

In practice, the overseas employment scenarios for Chinese enterprises going global commonly include the expatriate of domestic employees and labor dispatch.

Expatriate Staff

Expatriate staff refers to the assignment by a Chinese enterprise of its domestic employees (“Expatriate”), with whom it has a labor relationship, to its subsidiaries, branches, affiliated entities, and cooperative entities (“Overseas Employing Entities”) outside China.

In this scenario, the expatriate still has a labor relationship with the Chinese enterprise, and the rights and obligations between the two parties shall be governed by the Labor Law of the People’s Republic of China, the Labor Contract of the People’s Republic of China and other relevant laws and regulations, as well as the agreement of the labor contract between the two parties, i.e., during the period of expatriation, the Chinese enterprise shall still be responsible for the expatriate’s working conditions and labor protection, daily employment management, and payment of salary, social insurance payment, etc.

Labor Dispatch

Labor dispatch refers to Chinese enterprises choosing to dispatch personnel to overseas Employing Entities through qualified labor cooperation enterprises. The overseas Employing Entities and the labor cooperation enterprise sign a Labor Cooperation Agreement, stipulating that the labor cooperation enterprise will be responsible for the recruitment and overseas management of the personnel. To a certain extent, this scenario disperses the risk of employment to the labor cooperation enterprise, makes sure the compliance of Chinese enterprises in employment, and reduces the management burden.

Compliance Analysis on Employment Scenarios

Expatriate Staff

In this scenario, the expatriate staff only has a labor relationship with the Chinese enterprise, and since only Chinese law applies, the legal relationship is clearer compared to other scenarios.

However, the actual workplace of the expatriates is outside China, and in practice, they need to comply with overseas laws in addition to Chinese laws. Therefore, Chinese enterprises need to follow overseas laws to apply for relevant working permit procedures (including local working permits and visas, etc.) for their expatriates, and to assess whether it is necessary to establish labor relations with overseas employers, and whether it is necessary to exclude the application of relevant laws and regulations on labor and employment in China (the place of dispatch). In other words, if the overseas laws require the expatriates to establish a labor relationship with the overseas employer, the overseas employer shall fulfill its obligations in accordance with the local laws (which may include, but not limited to, the payment of wages, the purchase of insurance, the management of employment in accordance with the local regulations on working hours, labor protection, dismissal, etc.), and the relevant labor disputes may be governed by the overseas laws, so the Chinese enterprises should fully consider these factors and discuss with the expatriates and the overseas employer in advance. Chinese enterprises should fully consider these factors and coordinate in advance with the expatriates and overseas employers on how to deal with overlapping and conflicting obligations between Chinese enterprises and overseas employers.

Labor Dispatch

According to the Regulations on Administration of Foreign Labor Service Cooperation (“Administrative Regulations”) and the Notice of the Ministry of Commerce on Strengthening the Work of Classification and Management of Outbound Personnel for Foreign Investment and Cooperation (“Notice”), under the scenario of labor dispatch, a qualified foreign labor service cooperation enterprise can organize Chinese citizens to go abroad to work for overseas employment entities, and the legal relationship between foreign labor service cooperation enterprises and expatriates can be a service relationship or a labor relationship. In practice, personal income tax and social security have commonly attracted more attention.

First, regarding the personal tax issues. Expatriates often have dual incomes that include both domestic and foreign salaries, and enterprises shall conduct tax compliance according to the regulations of Individual Income Tax Law of the People’s Republic of China and Announcement on Policies Concerning Individual Income Taxes on Foreign Income.

Second, the issue of social security. According to Chinese law and the practice of the Human Resources and Social Security Bureau, Chinese citizens working abroad also can participate in social security in China in accordance with the relevant provisions, while foreigners are generally required to participate in the social security of their home countries, so expatriates are often faced with the situation of dual payment of social security. Since 2012, China has signed bilateral social security treaties with 12 countries, including Germany, South Korea, Denmark, Canada and Japan, etc., and expatriates can be exempted from paying social insurance premiums if they meet the requirements of the treaties. However, Chinese enterprises should be aware that the agreements are often not fully recognized and exempted from social security premiums, e.g. China and Japan and Canada only exempted each other from the pension insurance.

Compliance Advices on Employment Scenarios

Based on the above introduction and analysis, we suggest that Chinese enterprises going overseas need to pay attention to the following points regarding the choice of labor scenarios and compliance:

Suitable employment models and employment programs may be selected by taking into account various factors such as business model, staff management, cost control, and staff needs.

In the scenario of expatriate staff, Chinese enterprises should pay attention to various formalities in compliance with local laws, including but not limited to work visas and residence permits. If the expatriate constitutes a dual labor relationship in domestic and offshore scenarios, Chinese enterprises should also pay attention to issues such as personal tax and social security in conjunction with offshore laws, and coordinate the overlap and conflict of obligations to be performed by Chinese enterprises and offshore employers in to reduce the risk related to employment.

If the scenario of labor dispatch is adopted, Chinese enterprises should confirm the qualification of the foreign labor service cooperation enterprise and should also pay attention to issues such as personal tax and social security.

To sum up, in the context of enterprises going global, Chinese companies can choose corresponding employment models based on specific employment scenarios, flexibly adjust human resource allocation, strengthen cross-border team building and cross-cultural management capabilities, in order to achieve sustainable development and steadily move forward in the international market.

Aris Xie Aris Xie

Aris Xie

Senior Associate
Aris Xie is a Senior Associate at D’ Andrea & Partners Legal Counsel, located in Shanghai.
Albert Deng Albert Deng

Albert Deng

Senior Associate
Prior to joining D’Andrea & Partners Legal Counsel, he served as a legal practitioner at Dentons LLP.

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