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Taiwan, Hong Kong and Macao residents no longer required to obtain work permit for employment in Mainland China

The State Council published on 28 July 2018 the Circular GuoFa [2018] No. 28 (the ‘‘Circular’’), abolishing 11 administrative licenses in China, among which the work permit for Taiwan, Hong Kong and Macao residents (‘‘THKM’’).

Under the Circular, THKM residents will be treated the same as local mainland Chinese residents and will thus no longer need work permits to work in Mainland China.

Previously, under the Administrative Regulations on Employment of Taiwan, Hong Kong and Macau Residents in Mainland, a Chinese company was required to obtain prior-approval from the city-level authorities before hiring a THKM resident. The would-be employer was required to submit various supportive documents, including but not limited to the business license, the employee’s health certificate, and his/her valid travel document.

In addition, THKM residents under the previous work permit system were required to (i) re-apply for a new permit when changing employers, or (ii) renew such permit upon expiration of its two-year validity period.

Although the process for THKM residents to obtain a working (which could take between 1 to 3 week(s)) was less stringent than the requirements imposed on foreign workers in Mainland China, many Chinese employers were reluctant to hire candidates from these three places due to complicated administrative procedures.

Under the new legislation, this permit requirement for THKM residents has been entirely dropped, thus streamlining approval processes for mainland Chinese employers willing to hire THKM talents. This change of immigration policy is seen as part of China’s objective to establish a ‘’unified China’’ by attracting and encouraging THKM residents to find employment in Mainland China. The new legislation is also seen as a measure to make THKM residents more “employable” on the mainland Chinese market. It is also believed that this new measure is expected to boost economic development and increase Chinese companies’ competitivity.

Besides providing employment rights to THKM residents, various incentives were put in place by the central Government to attract talents. As an example, measures were proposed by the provincial Government of Guangdong to give Taiwanese residents the same investment, employment and study rights as local residents.

Notwithstanding the above, THKM residents will still be subject to a different treatment than mainland Chinese working in certain areas, such as access to health care and pension funds. As a concrete example, a THKM resident will have to pay any medical services in public hospital on its own costs, before getting reimbursement from social insurance (if such insurance is provided by his/her employer).

Because some issues related to cross border employment remain unclear (e.g. whether THKM residents will be subject to PRC laws and regulations in relation to social insurance, statutory retirement age, unemployment registration etc.), the Ministry of Human Resources and Social Security has been instructed to strengthen the compliance and elaborate more specific rules and regulations for this category of workers.

Last but not least, it should be reminded that while it will be much easier for THKM residents to work in Mainland China, group companies must be aware of potential tax consequences, including increased risks of permanent establishments in China and potential employment tax exposures. More precisely, considering the proposed tightening of the tax residency rule under the new PRC individual tax reform (which intends to reduce the existing one-year personal tax residence rule to a 183-day test), companies are highly advised to monitor their cross-border workers’ activities to manage the increased tax exposures.

Masson de Morfontaine will closely follow the progress of this new legislation, including the implementation guideline details, and will advise you accordingly on any potential tax impacts (in light of the new PRC individual income tax reform), social security requirement, unemployment registration and labor law interpretations in relation to THKM workers.

For more information on services provided through Masson de Morfontaine Ltd, please contact us via contact form or at +852 3953 4880.

 

 

 

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