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How Self-employed Foreigners Can Reduce Tax Payable in China

by Angel Ho | 17 June 2021

How self-employed foreigners can hire themselves in China AND reduce their tax burden!

Until now, it was complicated for foreigners to work in China. Typically, you would need to be invited to work here by a company (local or foreign-owned), go through the visa process, and then be granted a work permit connected to that employer. However, what about foreigners who want to be self-employed or have their own business in China?

Difficulties Faced by Self-employed Foreigners in China

1. Foreigners have to fulfil many requirements

Typically being self-employed as a foreigner in China isn't really possible. Certainly not long-term, anyway. In the short-term, to be self-employed or do business in China you’d have to fulfil the following criteria:

  • Be on a China business visa (which is probably unlikely and extremely difficult to get right now anyway due to COVID-19 restrictions).
  • Reside in China temporarily (fewer than 183 days in a year) which could be unrealistic for someone who does a lot of work here.
  • Pay individual income tax (IIT) on any earnings made in your country of residence.

This means that the door would be closed for all but relatively short visits. Additionally, self-employed foreigners would not be able to reside in China permanently unless they are willing or able to become a tax resident. This entails remaining in China for longer than 183 days (assuming that a business visa even allows this, as they are not meant to be for long-term residence), or they could be hired and given an employment contract by a company.

2. Being a freelancer in China is expensive

Freelancers in China have a pretty high Individual Income Tax (IIT) rate of 20% on their income. This may even rise to 30% for those with higher incomes. In addition, medical insurance and other benefits will not be covered by an employer. To learn more more about IIT declaration and applying for a rebate in China, click here

Is Hainan the Ideal Location for Self-employed Foreigners?

Hainan province is a thriving business hub and the government has been actively attracting foreign investors to the region. Hainan Province is an attractive destination for foreign investors to use for many reasons, such as the many incentives provided when setting up a company.  Read more about Hainan in these blog posts. In addition to being China's largest free trade zones, Hainan has a fertile business environment not far from the busy PRD area in Guangdong.

How to register a new company and hire yourself in Hainan?

Foreigners seeking to work for themselves or do business in China can begin with a WFOE registration with its own business bank account and then proceed to hire themselves and work legally on a residence permit in China. All of this can be done in Hainan and can conveniently be done remotely with our assistance. Therefore, instead of being employed as a member of staff or a contractor, you are able to transform your business into a B2B business

Who can apply?

The scope for foreign workers who can apply is very broad. Professionals in the following industries can apply: professional service personnel, such as artists, painters, lawyers, tour guides, self-employed operators, software and game developers, real estate sales, performing arts brokers, private business operators, film and television producers, high-income freelancers, etc.

Aside from the residence permit, does this help reduce your tax payable?

Yes. If you’re a freelancer in China the IIT is quite high (20%+). However, if you pay via dividends through a company the CIT is lower at around just 5% on profits of under 1,000,000 RMB per year (and you can also claim business expenses as deductions of your total income first). Click here to read more about post-COVID Tax & Fee Cuts For Businesses In China.

Setting up a Company in Hainan

Setting up your WFOE in Hainan is fairly easy and most importantly, it can all be done remotelyConsidering the many difficulties foreigners face when travelling to China during COVID-19, opening a business remotely is highly sought-after. 

There are 3 stages to get set up:

1. Business registration

Required materials from you:

  • Copy of investor's passport
  • Fill in the application form for registration documents
  • Sign online

Time required: within 5 working days

2. Business bank account setup

Once you have successfully registered your business, the next thing on the to-do list is to open your business bank account.

Required information from you: 

  • Original passport (best to be sent by courier like DHL) and business license of the newly formed company.

Time required: within 5 working days 

3. Tax reporting

This can be done online and very quickly. This is the stage whereby your business is registered with the tax bureau and you are given your own tax account.

Time required: 1 working day.


For a more in-depth understanding of how to set up a company in China, click here


Interested to learn more about Hainan company setup for foreigners?

We can help! You'll be setting up a functioning WFOE first and then the visa process comes later, so hit the button below to speak with us about your plans:

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Topics: WFOE, China Visa, Hainan Free Zone

Angel Ho

Angel Ho

Helping make China companies easy for foreign investors since 2007 as lead consult.



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