Now you need to pay people — and China’s payroll system is a multi-agency puzzle that trips up first-time foreign employers. Get it right from day one, because payroll errors in China are not corrected with an apology and a supplemental payment. They trigger tax bureau audits, social insurance arrears with late-payment surcharges of 0.05% per day, and — in extreme cases — restrictions on your legal representative’s ability to leave China. Step 1: Register with the tax bureau for individual income tax (IIT) withholding.
Why It Matters
Within 30 days of your business license issuance, register at the local tax bureau for IIT withholding. You’ll need: business license, company chops, legal representative’s ID, and your first employee’s contract. After registration, you receive a taxpayer identification number that enables monthly IIT filing through the Golden Tax System. Miss the 30-day window, and you face a late registration penalty of RMB 2,000-10,000.
What You Need to Know
Step 2: Open social insurance and housing fund accounts. China’s social insurance system is city-level — you register with the social insurance bureau in your registered address’s city, not nationally. Five insurance types are mandatory: pension (16% employer, 8% employee), medical (9.5% employer, 2% employee), unemployment (0.5% each), work-related injury (0.2-1.9% employer, industry-dependent), and maternity (0.8% employer). The housing fund adds another 5-12% each from employer and employee, though the employee portion is tax-deductible.
What You Should Do
Total employer burden: approximately 35-40% on top of gross salary. Step 3: Set up a payroll bank account or mandate. Salary payments in China are almost exclusively bank transfers. Your corporate bank account needs a payroll payment function enabled, which requires a separate agreement with your bank.
One Data Point
Step 4: Buy payroll software or hire a payroll service provider. China payroll requires monthly IIT calculations, social insurance contribution adjustments, and annual reconciliation. FESCO, CIIC, and ADP offer payroll outsourcing for RMB 500-1,500 per employee per month. Step 5: Issue employment contracts and complete the labor filing.
Every employee must sign a written contract within 30 days of starting work. Contracts must be filed with the local labor bureau — online filing is available in most cities.
According to China State Taxation Administration data, individual income tax revenue reached RMB 1.67 trillion in 2025, with foreign employees contributing approximately 8.5% of total IIT collections. The annual IIT reconciliation system processed 82 million returns in the 2025 filing season, with an average processing time of 7.3 working days.
— China Gateway 360 —
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