How to Give Fapiao as a Freelancer
Until recently, the freelancer fapiao dilemma — having to provide official invoices to clients but not having the means to register as official businesses that are eligible to issue fapiao — has been solved by third-party companies issuing fapiao on behalf of the freelancer. Some people can do this through guanxi, with friends at registered companies helping to issue additional fapiao from their own printers, while others find ethically lax companies that charge them for doing the same thing. For advice on alternative methods, CH talked to Jason Xu, General Manager at Intertrust Group in Shanghai. Xu is a certified CPA who specializes in foreign-owned enterprise taxation and expatriate taxation, as well as foreign direct investments.
1. The most straightforward method of paying taxes as a freelancer is to have the client company deduct tax directly from your payment.
"A freelancer can pay tax through direct deduction, even if he or she is not employed by that company. In China, we have two main types of income related to employment of freelancers. One of them is the salary income. The other is the service income. For freelancers, it should be the service income, because they are providing services. So, the company using their services can legally withhold individual income tax from the service payment. The tax rate is the same in this instance, from 20% to 40% on service income. I think that if it’s not possible for freelancers to obtain invoice, this should be the best option to pay their income tax in China."
2. If you do this, remember to request documentation from the company that shows tax was deducted from your payment. Otherwise, you can receive a tax payment certificate at the local tax bureau.
"In these instances, the income is declared as a payment to an individual, so no fapiao is needed for that. But, the freelancer should make sure to ask the company for proof of taxes paid. The company can obtain the tax payment receipt from the local tax bureau* each month. Or, you yourself can obtain a tax payment certificate (完税证明, wanshui zhengming) from the local tax bureau. When the company withheld taxes [from your payment], they filed taxes for you under your name and passport number, so they will submit the information to the local tax bureau. You just take your passport or ID card, and get them to print the receipt from the machine."
3. Otherwise, if you need to provide original fapiao, your local tax bureau can tax you directly and issue the fapiao for you.
"If a fapiao is needed, then the freelancer should go to the local tax bureau to ask a tax official to issue a fapiao for him or her. The freelancer must bring the service agreement to the local tax bureau. With that, tax officials will judge what kind of taxes are to be levied, the individual income tax and VAT or business tax. Whether VAT or business tax is levied depends on the kind of services provided. Please note that if the service income is no more than 20,000rmb per month or 500rmb per payment, no VAT or business tax should be levied."
4. Freelancers are eligible for certain tax deductions.
"Basically, there are two taxes involved. One is the individual income tax. This depends on the income received each month. It’s progressive, from 20% to 40%. Depending on the monthly taxable income, if your monthly taxable income is up to 20,000rmb, then the tax rate is 20%. If the income is about 50,000rmb, then the tax rate is 40%. Of course, the freelancers are entitled to a statuary deduction—800rmb each time, if the gross income is below 4,000rmb. This amount stays the same whether it’s paid on a project basis or per month. If it’s higher than that, then the deduction is 20%."
5. If you need a long-term solution and want to do things by the book, then you’ll want to look into registering as a Wholly Foreign Owned Enterprise [WFOE] or Joint Venture [JV].
"The options for obtaining fapiao are very limited for freelancers. The other way is to register as a WFOE or a JV. The WFOE or JV can raise Fapiaos. Under this option, the WOFE or JV hires or engages freelancers to provide services. The WFOE invoices the clients or customers. Of course, the WFOE will still need to pay freelancers service fees and withhold taxes from the payments."
6. Giving clients invoices issued by Hong Kong or Taiwan companies isn't a viable alternative.
"If payments are made to the Hong Kong or Taiwan company, the tax procedures can be quite complicated. If payments are made to freelancers, invoices from the HK or Taiwan company will not match the payments and cannot be used for tax deduction."
7. Remember that if you plan to continue as a freelancer in China, you’ll need the Z visa.
"If you want to follow the regulations strictly, then a Z visa should be applied for if you want to work in China for 3 months or more. Only a Z visa is eligible for working in China, for freelance and full-time. There are some practical difficulties, because freelancers do not have employment in China but in order to apply for a Z visa, you need to have an employment contract to show them. Some foreigners obtain X (student) visas to stay in the country legally, putting in the minimum hours as a student as they pursue professional freelance work. Others obtain a Z visa by working part-time in other foreigner-friendly jobs like English teaching posts, then doing freelance work on the side for additional income." Editor’s Note: Read more CH Tips on getting a visa for long-terms stays in China on this page.
8. Know the consequences of getting caught working without paying income taxes.
"According to tax regulations, if you fail to pay taxes, then tax officials can ask you to pay a penalty in addition to the back pay in tax. The penalty ranges from 50% to 500% of the tax due. But, normally the tax official will not do that. In practice, a penalty payment of 50% is already harsh enough and is rarely administered. More often, they will just ask you to pay the interest for late payments. The interest rate is 0.05% for each day. [For those worried about visa status], tax officials do not have the right to revoke a visa. And they do not care about whether you are working in China with or without a Z visa as long as taxes are properly paid."
*Editor’s Note: The website that lists the city’s tax bureau locations is all in Chinese, so here are a few in central Shanghai:
188 Hongqiao Lu, Xuhui 徐汇区虹桥路188号 Tel: 6441 8888
991 Changping Lu, Jing’an 静安区昌平路991号 Tel: 3217 4988
1827 Tianshan Lu, Changning 长宁区天山路1827号 Tel: 2220 8000
313 Xietu Lu, Huangpu 黄浦区斜土路313号 Tel: 6302 1008
80 Xiang Cheng Lu, Pudong 浦东新区向城路80号 Tel: 5058 1122