Thinking About Immigration When Setting Up a Business in China
July 31, 2014
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By: Becky Xia
Intending to set up a business in China but completely at sea about the immigration requirements? There are many key points to consider to help ensure both your business and your expatriate employees are compliant with Chinese business immigration policy.
When setting up your company
From an immigration perspective, only companies registered in China may sponsor foreign national employees. Chinese immigration law requires that the sponsoring company is registered in the city or locality where the foreign national will work and that the employee resides in the city or locality where his or her sponsoring company is based. It is also important to take into account regional differences when setting up a business in more than one location in China, as the process and requirements vary with the locality.
The type of company set-up can impact the entity's ability to sponsor foreign national employees. For example, entities registered as a representative office in China can generally sponsor up to four work permit holders only, including the chief representative. In Shanghai, regional headquarters offices are given immigration-related incentives such as faster processing times and longer validity periods for the residence permits of their sponsored employees.
When sponsoring foreign national employees
China’s new Exit-Entry Administration Law took effect on 1 July 2013, replacing an almost 30-year old law. The new statute changed the visa categories, dramatically enhanced penalties for non-compliant employers and employees, and created an information-sharing platform to facilitate enforcement among state and local authorities. The regulations to implement the new law, which took effect on 1 September 2013, emphasized the compliance enforcement message of the law by tightening procedural and eligibility requirements.
Navigating procedural and documentation requirements
To obtain work authorization, the company must apply for an employment license and a Z visa invitation letter for the foreign national employee. The employee then needs to obtain a Z visa from the Chinese embassy in their current country of residence to allow entry to China. A work permit and residence permit are obtained after entry, which allows foreign nationals to begin working in China as soon as these are approved. Applications for dependent family members are usually processed at the same time as those of the employee.
Certain locations now require a police clearance (known as a non-criminal record certificate in China) to be submitted with the employment license application. Beijing was the first major city to require this, followed by Hangzhou, Wuhan and several others. Applicants should allow additional time for this clearance, especially in countries where authorities may take several months for processing and where legalization by the Chinese embassy may be required.
Medical examinations are also a typical requirement, but the timing and location of the medical exam vary depending on the employment location in China. In Shenzhen, for example, applicants may be required to undergo two medical exams: one conducted abroad (for the employment license application), and one conducted in China (for the work permit application). However, some applicants may need only one exam, such as when they travel to Shenzhen before the employment license is applied for.
Special processes apply to permanent residents of Macao, Hong Kong and Taiwan, as well as Mainland Chinese passport holders who hold permanent residence outside of China.
Throughout the whole process, employers and employees alike must follow mandatory timeframes to avoid fines and other penalties. Foreign nationals must register with their local police station within 24 hours of their arrival. Amendments to work and residence permit details must be completed within the prescribed ten-day period. Residence permit renewals must be filed no later than 30 days before expiry of the permit, while visa extensions must be filed no later than seven days in advance of visa expiry.
Increased residence permit processing times (currently 15 business days for most cities) will limit foreign nationals’ ability to travel outside of China, as their passports are retained by the authorities during processing.
Employer sponsorship obligations
Employers must be aware of the conditions or undertakings that they commit to when they agree to sponsor foreign nationals. These obligations include meeting a minimum salary level (which varies by location), if the foreigner will be paid by the Chinese entity; ensuring work and residence permits are updated (for passport renewals, newborn children, or changes in office address); and ensuring that permits are de-registered once an employee's assignment or employment ends.
Employee eligibility criteria
In general, and depending on the employment location in China, work permit candidates must have at least a university degree and two to five years’ related work experience. Male applicants must be below age 60, and female applicants below age 55. Applications which do not meet the minimum criteria are unlikely to be approved, especially in major cities such as Beijing, Shanghai and Guangzhou.
When sponsoring business visitors
China permits foreign nationals to engage in business and trade activities on an M (business) visa for up to 90 days cumulatively within a calendar year. Business travelers must not be paid by or enter into an employment contract with a Chinese entity or generate revenue for that entity unless authorization has been obtained. As with work permit holders, companies should maintain detailed records and ensure that time spent in China on business visas is accurately monitored and recorded.
Risks of non-compliance
As mentioned earlier, the new Exit-Entry Law has much more stringent financial penalties, creating greater incentive for the authorities to enforce the new and existing policies more rigorously.
Employers face fines of RMB 10,000 (approximately USD 1,615) for each unauthorized foreign worker, up to a maximum of RMB 100,000 – a 100 per cent increase on previous penalties. Employers may also be required to forfeit any monetary gain resulting from illegal employment. In addition, employers found to have falsified information or documents submitted with immigration applications, including company invitation letters, will face penalties ranging from RMB 10,000 to RMB 50,000. Employers are also required to report suspected immigration and employment violations to the local police.
As for foreign nationals themselves, those who work without authorization are subject to fines as high as RMB 20,000 (approximately USD 3,230) which is 20 times the previous level. Employees working illegally may also be detained for up to 15 days.
Proactive planning
Amidst these heightened compliance measures brought about by the new immigration framework, employers are advised to take proactive steps to ensure compliance with the employment of foreign national employees. Companies need to work closely with their immigration advisor to fully understand the requirements Special care should be taken to communicate relevant requirements to employees and to meet mandatory timeframes for filings and registration. Finally, detailed records should be kept and audited in relation to the immigration status of frequent business visitors, foreign national employees and their families.
