arrangement with Hong Kong provides for a five percent reduced withholding tax rate on dividends and a seven percent reduced withholding tax rate on loyalty incomes provided that certain requirements are met under such tax arrangement. d) Other Taxes There are other taxes that may apply to an FIE during its operation and activities, such as the customs duty, urban maintenance and construction tax, and stamp duty. It is recommended that an FIE consult a legal or tax advisor for a comprehensive tax assessment that might be applicable to its specific case.

written labor contract with an employee for more than one year, it will be deemed that the two parties have entered into a permanent labor contract. The employer is subject to different obligations to the employee under either a fixed-term labor contract or a permanent labor contract; and its obligations are more burdensome under the latter. Subject to local exceptions, in principle, when an employee and the employer have concluded two consecutive fixed- term labor contracts, the employer shall enter into a permanent labor contract with the employee upon renewal. c) Social security The employer shall contribute social security insurances and housing fund for employees on a monthly basis. Social security insurances are comprised of five categories of contributions: pension, medical, work-related injury, unemployment, and maternity insurance. The contribution ratio of social security insurance and housing fund for the employer and the employee varies from location to location. d) Termination of employment There is no “at - will” termination in China. The employer can only terminate an employee relying on limited statutory grounds, such as serious violation of the employer’s policies, incompetence, mass layoffs due to economic reasons, etc. The employee may claim double severance pay or reinstatement of

7) Labor

a) Hiring capacity Under Chinese labor laws, ROs are not eligible to hire employees directly. An RO shall engage a local authorized labor agency to hire employees, and the labor agency will dispatch such employees to the RO. By contrast, a company, or partnership can hire employees directly. b) Labor contract All employers in China shall execute a written labor contract with each employee within one month from the date when the employee starts to work. Otherwise, the employer is required to pay double salary to the employee from the second month. If the employer fails to enter into a

ILN Corporate Group – Establishing a Business Entity Series

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