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China's Labor Contract Law makes individual contractor arrangements extremely high risk. Company-to-company outsourcing is safer. Fapiao (official invoice) required for all commercial payments. EOR is strongly recommended for ongoing individual engagements. Rippling handles CNY payments.
China's contractor market is complex. Individual Chinese nationals typically cannot legally work as contractors for foreign companies without a Chinese business entity — they must either be employed, or operate through a Chinese company (getihu or company). Foreign companies engaging Chinese individuals directly as contractors (without a Chinese entity) face significant legal exposure: the arrangement may be treated as undeclared employment, triggering full social insurance, IIT, and Labor Contract Law liabilities. EOR is the strongly preferred structure for most China engagements. The only exception: engaging Chinese companies (not individuals) as subcontractors is lower risk.
Very high risk for individual contractors. Chinese labor tribunals are employee-favorable; single-client arrangements routinely reclassified. Consequences: double wages (for each month without written contract), full social insurance backdated, severance, and Labor Contract Law entitlements. Company-to-company outsourcing: lower risk but still scrutinized.
China's Labor Contract Law (2008) and labor arbitration tribunals apply a substance-over-form test. Employment indicators: work performed personally under employer direction, regular wages, work tools provided by client, integration into client's operations, exclusive single-client arrangement. Genuine contractors: operate through their own company (WFOE, representative office, or Hong Kong company), multiple clients, fixed-price project contracts. Individual freelancers in China operate through a special individual industrial and commercial household (getihu) registration.
May need to withhold IIT (20%) on payments to individual contractors. Fapiao required for all commercial payments. If reclassification: full social insurance, Housing Fund, IIT, double wages, and severance obligations. High financial exposure.
Chinese company contractors: 25% corporate income tax on profits; VAT at 6% (service) on revenues. Individual getihu contractors: IIT at 20% on service income; VAT if revenue above CNY 500,000/year. Engaging company may need to withhold IIT (20%) on individual contractor payments.
CNY via SWIFT. Foreign exchange controls apply — CNY payments to Chinese companies require proper documentation (fapiao and contract). Rippling supports CNY payments. USD payments to offshore contractors (e.g. Hong Kong company providing services) are simpler.
Converting to employment requires a Chinese WFOE or EOR. Written labor contract must be signed within 1 month of start date; failure to sign doubles monthly wages. Social insurance and Housing Fund enrollment from day one. IIT withholding registration.
Rippling Global Contractor for China: CNY payments, compliant fuwu hetong/chengbao hetong templates. thePeopleStack strongly recommends EOR for individual Chinese nationals in ongoing, integrated roles. Company-to-company outsourcing is lower risk but requires valid fapiao. Consult local counsel before engaging Chinese individuals as contractors.
China's Labor Arbitration system and courts are extremely employee-favorable. If a Chinese individual can demonstrate that their working arrangement has the characteristics of employment (exclusive client, client direction, regular wages), they can file for labor arbitration and obtain full employment entitlements retroactively — including severance, social insurance, and unfair dismissal compensation. The Labor Contract Law explicitly states that if no written contract is signed within 1 month, the employer owes double wages for each month without a contract. This makes informal contractor arrangements in China extremely high risk.
China's fapiao (official tax invoice) system requires that all commercial payments be backed by an official government-issued invoice. Contractors must issue fapiao for their services. Individual getihu contractors can obtain fapiao from the local tax bureau. Company contractors issue regular VAT fapiao. The engaging company must have a valid fapiao to deduct the payment as a business expense. Payments without fapiao are non-deductible and attract tax risk for the engaging company.
Engaging a Chinese company (rather than an individual) as a contractor significantly reduces labor law risk. A Chinese company providing services to a foreign company is a commercial contract, not an employment relationship. The individuals employed by the Chinese company are employees of that company, not the foreign client. This structure is common for outsourcing development, marketing, and professional services in China.
For engaging Chinese individuals in any ongoing, integrated capacity, EOR is strongly recommended. The risk of reclassification is very high for individual arrangements, the financial consequences are severe (double wages + severance + social insurance), and Chinese labor tribunals are employee-favorable. Reserve contractor structures for genuine company-to-company outsourcing.
