FESCO China | What is FESCO in China?

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China is becoming an increasingly attractive option for foreign companies wishing to expand, but many businesses encounter complex obstacles that act as a barrier to entry. Many businesses lack a fundamental understanding of the stringent regulations of doing business in China, as well as local regulations and other requirements.

However, a FESCO (Foreign Enterprise Service Company) can provide the assistance that a business needs to establish a seamless transition into this new market. 

The Role of a FESCO China Solution

An important regulation in China is that a business must have a registered legal entity in Mainland China before it can legally hire local or foreign employees. This can be accomplished through more complex and complete business entities in China, such as a wholly foreign-owned enterprise (wfoe) in China or a joint venture, but these options are often expensive and time-consuming.

When a product or service has become global, businesses may not want to wait to pass all of the bureaucratic requirements before taking advantage of the expansion. A FESCO China platform can let your business emerge into a new market quickly, often in just a matter of days.

A fully established and licensed FESCO China solution like New Horizons Global Partners will have the legal entity necessary to employ local and foreign staff and to allow you to operate out of China. 

Additionally, FESCO China provides compliance with local, regional, and national bureaucracies. A FESCO can help your business grow and handle administrative procedures. 

How to Use a FESCO in China

A FESCO in China can be used in different ways and can be used for various business models. A FESCO can be used in the following situations:

  • To hire employees for a launch
  • Many foreign businesses only need employees during their initial stage. They may then have their key team handle operations. A FESCO can absorb the employment liabilities by hiring local and foreign staff. A FESCO in China can provide comprehensive employment solutions and handle mandatory benefits administration, visa processing, payroll, onboarding, and other human resources processes.
  • To scale up or down
  • China has strict laws related to employment contracts and termination procedures and benefits. A FESCO China solution can enable a business to scale up or down their business as their needs demand without having to worry about the stringent employment guidelines used in China.
  • To expand to the market while the entity formation is pending
  • Many foreign businesses do ultimately establish their own legal entity in the country. However, they may temporarily use the services of a FESCO while this process is pending. Once the new foreign entity is formed, the employment relationship can be transferred from the Chinese FESCO agency to the new business.

  • To act as a local partner
  • Foreign businesses that have already established a Chinese entity can use a FESCO in China to serve as a strong local partner. A FESCO can provide legal services to foreign businesses and advise them on how to remain compliant as the market changes.

The Role of a FESCO China Solution

An important regulation in China is that a business must have a registered legal entity in Mainland China before it can legally hire local or foreign employees. This can be accomplished through more complex and complete business entities in China, such as a wholly foreign-owned enterprise (wfoe) in China or a joint venture, but these options are often expensive and time-consuming.

When a product or service has become global, businesses may not want to wait to pass all of the bureaucratic requirements before taking advantage of the expansion. A FESCO China platform can let your business emerge into a new market quickly, often in just a matter of days.

A fully established and licensed FESCO China solution like New Horizons Global Partners will have the legal entity necessary to employ local and foreign staff and to allow you to operate out of China. 

Additionally, a FESCO China provides compliance with local, regional, and national bureaucracies. A FESCO can help your business grow and handle administrative procedures. 

How a FESCO Can Support the Human Resources Requirements of Foreign Companies

A FESCO in China can provide comprehensive services and solutions to help with various back-end functions of foreign businesses. Some of these services include:

Tax Administration

China has some of the most complex tax laws in the world. A strong FESCO can help with all aspects of tax administration including:

Individual Income Tax

China recently revised laws related to its Individual Income Tax in order to simplify tax rules and provide tax breaks to individuals who were having trouble keeping up with the rapidly growing cost of living in the country. These laws were also passed to incentive spending in the country. This has resulted in many individuals having a lower individual income tax rate.

However, the current tax system is not as generous with foreign companies or employees with higher incomes. For this group of people, the individual income tax may remain the same. 

The current tax rates and deductions based on annual income are as follows:

Taxable Income
Income Tax Rate
Quick Deception (RMB)
Less than 36,000
3%
0
36,000 – 144,000
10%
2,520
144,000 – 300,000
20%
16,920
300,000 – 420,000
25%
31,920
420,000 – 660,000
30%
52,920
660,000 – 960,000
35%
85,920
Greater than 960,000
45%
181,920

There are various elements of how the individual income tax is considered and that affect the overall tax structure of the business. 

Mandatory Contributions

Mandatory contributions are a significant factor in tax administration in China. Social security is divided into two different parts in China: social insurance and the housing fund. 

Social Insurance 

Mandatory social insurance contributions are made up of the following five parts:

  • Pension 
  • The employee and employer contribute to this portion of social insurance. The employee’s part is placed into a personal account. The pension funds can be removed after the person has worked at least 15 years.
  • Medical insurance
  • The employee and employer contribute to this fund that covers some of the employee’s medical expenses. The state also subsidizes this fund.
  • Maternity leave
  • The employer completely pays this fund, which covers medical expenses and lost earnings for at least three months.
  • Work injury insurance
  • The employer completely pays this fund, which covers work-related medical expenses and wages for up to one year. 
  • Unemployment insurance
  • The employer and employee both pay into this obligatory fund, which covers urban workers who are unemployed for up to two years. 

Housing Fund

Employees and employers contribute equally to this fund that is considered the employee’s personal fund. This is a mandatory contribution. Employers who fail to set up the obligatory fund or contribute to it will face serious fines. The contribution is 5% to 25%, depending on the region. The funds can be removed to purchase a home, but they cannot be used to pay rent. Once the employee retires, he or she is free to withdraw the funds and use them any way they want.

Special Deductions

The standard deduction for resident and non-resident taxpayers has increased from 3,500 to RMB 4,800, respectively to 5,000 RMB for both categories of taxpayers per month to a new annual deduction of RMB 60,000. 

Some special deductions that may be factored in include the following:

  • Rent
  • Between RMB 9,600 and 18,000, based on the city
  • Healthcare costs for serious illness – Based on a hospital bill of RMB 15,000 to 80,000 per year
  • Housing loan interest
  • RMB 12,000 per year
  • Education expenses for children
  • RMB 12,000 per child per year
  • Self-education expenses
  • RMB 3,600 or 4,800, depending on the city
  • Support for the elderly
  • RMB 12,000 to 24,000 per year, based on whether the support is individual or in conjunction with support from siblings
  • Charitable contributions
  • Up to 30% of the taxpayer’s income in an equal amount to what the person contributed to charities

New changes in the individual income tax incentivize certain types of income, such as income that derives from labor services, royalties or author’s remuneration, which receive a 20% discount before calculating a taxpayer’s pre-tax income. Author’s remuneration is subject to an additional 30% discount. 

Determining Taxable Income 

A FESCO China provider will be familiar with the different tax rates, contributions and special deductions to help employers accurately determine taxes, contributions, and payments to third parties. If they are the employer of record, the FESCO will be responsible for tax compliance and administration.

Visa Processing

A FESCO can assist with visa processing and the immigration system. Immigration laws in China are complex, so it is helpful to have the expertise of a local FESCO when hiring foreign workers. A FESCO can help obtain residence permits and work permits for foreign workers. 

New Horizons Global Partners Serves as a FESCO China Solution

Having the assistance of a FESCO in China can be a critical addition to a foreign business in China. Companies can outsource their human resources and administrative procedures to a company like New Horizons so that they can concentrate on their core competencies and expanding their business. 

A FESCO can ensure local compliance and minimize the risks that could arise when a foreign company is not familiar with the stringent bureaucratic requirements of Chinese governmental regulations.

New Horizons Global Partners serves as a FESCO in China, which has established itself as a leader in the Asian market. The company focuses on helping foreign businesses expand to the Asian market, beginning with the startup process and phasing into longer-term strategies. New Horizons has access to the top talent from around the world and can place key team members for a company even before it has a legal entity in the country. 

However, New Horizons can also provide services if the company does have an established legal entity by providing comprehensive human resource services, including handling the payroll process, disbursing monthly salaries, making social security contributions, and taking responsibility for payroll liabilities. Additionally, New Horizons can assist with the immigration process. 

New Horizons Global Partners can ensure that the proper legal structure is in place and that your company’s expansion into China is set up for success.

Contact us to learn more about how we can help. 

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