Is it Legal & Safe to Hire a Freelancer in China?

Questions & Answers (Hire a Freelancer in China)

Q: More and more websites (like oDesk.com, Elance.com Freelancer.com) in English and Chinese are connecting international business people w Chinese freelancers to project work on a part time and sometimes full time basis. What do the Chinese HR laws say about this?

A: Technically, this transaction is not governed by Chinese Labor law and there can’t be a legally binding labor contract in place because the “employer” is not a legally registered Chinese entity. However, Chinese tax law does apply when you hire a freelancer in China.

AsiaBridge Law - Engaging Lawyers in Asia - Is it Legal & Safe to Hire a Freelancer in China?It's not forbidden for a Chinese person in China to work for an overseas entity as a freelancer, as long as he/she complies with Chinese laws and regulations, especially the tax law. Income tax needs to be paid and is it the responsibility of the individual freelancer to pay it.

The PRC individual income tax laws clarify how much income tax would need to be paid:

For tax on remuneration for labor services (usually for freelance job) a flat tax rate of 20% is applicable.

There is a different structure for the tax on salary (usually for full-time, long term jobs paid by a formal employer). In those cases a progressive tax rate is in place. 3 to 45 percent is applied depending on the income bracket. Income tax is not applied to the salaries below 3,500 RMB/month.

At the moment, it's not easy for the China tax man to know how much a freelancer is actually making and where the money came from. However, it's required by the law that any individual whose income is more than 120,000 RMB per year should report their income to government, regardless of the source.

To date, there are few instances of freelancers getting in trouble for failure to pay full income tax. In the not too distant future, PRC government will start to crack down. But for now, the laws remain unenforced. BUT there are cases where freelancers and their “employers” are getting into trouble if they perform a service that should only be performed by a licensed entity in China.

Here is one common example:

Dangers of hiring a freelance QC inspector

Some foreigners hire freelance Chinese to do product inspection. The freelancer goes to the foreigner’s supplier in China and conducts an audit of the factory or does a product inspection. After the visit a report is provided to the foreign customer. Actually, this field is highly regulated and only AQSIQ licensed firms with AQSIQ registered auditors/inspectors should be doing inspection/auditing work.

The danger for the foreign customer is as follows:

  1. If the Chinese supplier wants to remove the inspector because that inspector is making them look bad because he/she is good at finding defects, suppliers can secretly turn the inspector into AQSIQ. So suddenly, the overseas buyers find themselves without eyes and ears at the factory.
  2. If the freelance inspector does a poor job and doesn’t find defects or reviews the wrong shipment… the overseas client has little recourse as there is no formal labor contract in place and unless you have a solid service contract, you will find it hard to apply to bring the matter before a Chinese judge.
  3. Most overseas companies try to get the lowest price freelancer out there. Yet they ask this freelancer to inspect product which may have a significant value. This situation is ripe for bribery.

Say you pay the freelancer 100 bucks to visit a factory and give the yes/no on a 100,000 USD order. Factory knows they have defects, but they get paid from you when the goods ship, so they give the freelancer 400 USD to turn a blind eye and send you are report that says the order “100% OK”. Since there are no ramifications for the freelancer (keep in mind you can’t sue him if you don’t have a legally binding contract with him under PRC law), they are highly likely to go to the dark side and accept the bribe and you get a load of junk.

Additional resources:

www.SupplierBlacklist.com is a great site if you want to see the problems international buyers have when dealing with freelancers, agents and factories in China. Here is a case study of a Canadian company, published on the CSIC blog.

About the Author:

Mike Bellamy is an American based in Asia since 1993. He is a lecturer at ChinaSourcingAcademy.com and the founder of the PassageMaker Group. We are honored to have him on our board of advisors at AsiaBridge Law Firm in China, and thank him for these blog posts.

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ABL Blog: Sr. Editor and Primary Content Creator:  Michael J. Bellamy

About the Author: Michael J. Bellamy

Originally from Upstate New York, Mike moved to Asia in 1993 and is a China business advisor to both Fortune 500 companies and small businesses.  Recognized as an expert on doing business in China, he has been interviewed by WSJ, CNBC, FT & Bloomberg.

A featured presenter on China issues at seminars, trade shows and corporate events across the globe.

Learn more about Mike and AsiaBridge Law at
https://www.asiabridgelaw.com/business-advisory-services/

Mike is the author of “The Essential Reference Guide to China Sourcing
(available on Amazon).

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