5 Legal Risks for Chinese Companies to Recruit Foreign Talents

When Chinese companies recruit foreign talents, if they do not fully understand relevant laws and regulations, they may face the following five core legal risks. These risks not only lead to administrative penalties and economic compensation, but may also affect the reputation of the enterprise and even involve criminal liability, which should be highly valued:

1、 Work permit and visa violation risks

Core issues

Failing to apply for Foreigner's Work Permit and Visa Z (work visa) for foreign employees according to law, or failing to renew the expired certificate.  

legal consequence

-Administrative penalty: according to Article 80 of the Law on the Administration of Exit and Entry, illegal employment of foreigners can be imposed a fine of 10000 yuan per person, with a maximum fine of 100000 yuan in serious cases.  

-Criminal responsibility: If foreign employees are suspected of illegal residence, the company's leaders may be held criminally responsible.  

case

A technology company was fined 50000 yuan and its employees were deported for failing to renew their work permits for foreign engineers.  

Compliance recommendations

-Apply for a work permit to the local foreign experts bureau or science and technology bureau in advance to ensure that the post meets the Classification Standards for Foreigners Working in China.  

-Apply for an extension 30 days before the visa expires to avoid "illegal employment".

2、 Risk of Conflict between Labor Contract and Labor Law

Core issues

The terms of the labor contract do not comply with the Labor Contract Law or do not cover the special rights of foreign employees (such as family leave, cross-border social security, etc.).

legal consequence

-Invalid Contract: If the contract violates Chinese law (such as a salary below the minimum wage standard), it may be deemed invalid.  

-Compensation disputes: Failure to clearly stipulate termination conditions or non compete clauses can easily lead to high compensation lawsuits.  

case

A foreign executive sued the company for compensation of 12 months' salary after leaving due to the absence of a "unilateral termination clause" in their labor contract.  

Compliance recommendations

-The contract should be in both Chinese and English versions, clearly specifying the salary structure, work location, and termination conditions.  

-Include exclusive terms for foreign employees (such as annual home leave, international medical insurance, etc.).

3、 Personal income tax and social security payment risks

Core issues

Failure to withhold and pay personal income tax for foreign employees in accordance with the law, or failure to register for social security in accordance with regulations.

legal consequence

-Supplementary payment+penalty: According to the Tax Collection and Administration Law, failure to pay taxes in full may result in a penalty of 0.5-3 times the amount of outstanding taxes.  

-Credit punishment: Enterprises may be included in the tax blacklist, which may affect financing or listing.  

Compliance Points

-Personal income tax: Foreign employees can enjoy special additional deductions (such as housing subsidies and children's education expenses), but they need to provide legal proof.  

-Social security:  

-Starting from 2022, some cities (such as Shanghai) allow foreign employees to voluntarily participate in social security, but it must be clearly stipulated in the contract.  

-Uninsured areas need to purchase commercial insurance (such as accident insurance and medical insurance).

4、 Risk of restrictions on job and industry access

Core issues

Hiring foreign employees to engage in prohibited positions (such as tour guides, traditional Chinese medicine practitioners) or unapproved restricted industries (such as news publishing, education).

Legal basis

-The Regulations on the Administration of Foreigners' Work in China explicitly prohibits/restricts the employment of foreigners in the industries and positions.  

legal consequence

-The business license of the enterprise has been revoked, and foreign employees have been repatriated.  

case

A certain training institution hired foreign personnel to engage in Chinese language teaching (without obtaining a Foreign Expert Certificate), and the institution was banned and fined 100000 yuan.  

Compliance recommendations

-Check whether the target post belongs to the Negative List of Foreigners' Work Permit to China.  

-Education, healthcare and other industries require additional application for industry access permits.

5、 Dismissal Procedure and Dispute Resolution Risks

Core issues

Failure to terminate foreign employees in accordance with legal procedures, or failure to properly handle labor disputes.

legal consequence

-Foreign employees can file a lawsuit with the labor arbitration commission or court, and the company may face double the economic compensation.  

Compliance process

1. Basis for termination: It is necessary to prove that the employee has seriously violated the rules and regulations (such as attendance fraud, leaks), and that the rules and regulations have been publicly announced through democratic procedures.  

2. Notification Procedure: Provide written notice 30 days in advance and report to the local Human Resources and Social Security Bureau.  

3. Dispute resolution: It is recommended to agree on the jurisdiction of arbitration or litigation (with priority given to the court in the location of the Chinese enterprise).

Suggestions for risk prevention and control system

1. Establish compliance files for foreign employees, including work permits, labor contracts, tax records, etc., and regularly verify their validity period.  

2. Hire professional service agencies: Entrust foreign-related law firms or human resources agencies to review the entire employment process.  

3. Internal training: Conduct specialized training on the "Foreign Labor Law" and "Exit Entry Management Law" for HR and legal teams.  

summarize

The compliance core of foreign talent recruitment lies in: legalization of documents, refinement of contracts, transparency of taxation, compliance of positions, and proceduralization of dismissal.