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China Work Contracts, 五险一金 and Income Tax

Operations
Jul 5, 2026
Printed contract document with signature fields and a fountain pen, illustrating a China work contract before signing

Your China work contract is the single document that turns a job offer into real, legal employment — so read it before you sign. Many new arrivals skim it, trust the recruiter, and only later wonder where a chunk of their salary went each month. Yet the answers sit right there, split across three things: the written employment contract, the social insurance line called 五险一金, and monthly income tax. Understand those three, and your payslip stops being a mystery. This guide walks each one in plain terms, so you know what to check and what to expect.

What Your China Work Contract Must Contain

First, the basics. Chinese law requires a written employment contract — the 劳动合同 — for full-time work. A verbal promise does not count. Your employer must sign a written contract with you within one month of your start date, and you both keep an original (Dezan Shira & Associates, 2025a). If a company drags its feet on paperwork, treat that as a warning sign, not a formality.

So what should the document actually spell out? Read every clause, but pay special attention to these:

  • Salary: the gross monthly figure, plus any bonus, allowance, or overtime rate. Make sure it matches what you were promised verbally.
  • Working hours: the standard is 40 hours a week. Check how overtime is defined and paid.
  • Job title and duties: vague duties let an employer reassign you later.
  • Contract term: the start and end dates, and whether it is fixed-term or open-ended.
  • Termination: notice periods and the grounds for ending the contract, on either side.
  • Non-compete: if present, it must state a compensation payment for the restricted period — otherwise it may not hold.

One more thing. If the contract is bilingual, confirm which language version governs in a dispute. Often it is the Chinese text. Get a trusted translation before you sign, not after.

Fixed-Term or Open-Ended: Your China Work Contract Type

China recognises three contract types: fixed-term, open-ended (non-fixed-term), and project-based. For most foreigners, your China work contract will be fixed-term. That is not an accident. A Foreigner’s Work Permit runs for a set period — usually up to five years — and many local authorities want the contract term to line up with it (Dezan Shira & Associates, 2025a). So an open-ended contract, common for local staff after two renewals, is unusual for expatriate hires.

Probation matters too. The law caps it by contract length. A one-to-three-year contract allows at most two months of probation; a contract over three years allows up to six. An employer can only set one probation period per person, and it must be written into the contract. If your “probation” keeps getting extended, that is not legal.

五险一金: The Five Insurances and One Fund

Now the part that surprises people on their first payslip. 五险一金 (wǔ xiǎn yī jīn) literally means “five insurances and one fund.” It is China’s social security package, and it explains a good slice of the gap between your gross and net pay.

The five insurances are:

  • Pension (养老保险) — retirement income.
  • Medical (医疗保险) — healthcare cost coverage.
  • Unemployment (失业保险) — support if you lose the job.
  • Work-injury (工伤保险) — for accidents on the job.
  • Maternity (生育保险) — pregnancy and childbirth costs.

The “one fund” is the housing provident fund (公积金), a savings pool you can draw on to rent or buy a home. Contributions split between you and the employer. For pension, medical, unemployment, and the housing fund, both sides pay a percentage of your salary. Work-injury and maternity, though, are paid by the employer alone (Dezan Shira & Associates, 2025b). Your share comes straight out of gross pay, before tax.

Are foreigners in? Since the 2011 Interim Measures issued by MOHRSS, foreign employees are legally required to join the social insurance scheme. That said, enforcement is managed city by city, so the practice genuinely varies by location — some cities enrol foreigners fully, others apply the housing fund only on a voluntary basis (Dezan Shira & Associates, 2025b). Do not treat it as optional; instead, confirm the exact rules with your employer’s HR and your local social security bureau. If your home country has a bilateral totalisation agreement with China, you may be exempt from certain contributions.

Individual Income Tax on Your China Work Contract Salary

Next comes individual income tax (个人所得税, IIT). China taxes salary on a progressive scale, from 3% up to 45%, across seven brackets (PwC, 2025). Higher income means a higher marginal rate — but only the income inside each band is taxed at that band’s rate. You are not taxed at 45% on your whole salary just because part of it reaches the top bracket.

Before the rate applies, everyone gets a standard deduction of 5,000 yuan a month (60,000 yuan a year). Your social insurance contributions also come off first. Then the brackets apply to what is left. Your employer withholds the tax monthly and pays it to the State Taxation Administration on your behalf, so it is already gone by the time your net salary lands (State Taxation Administration, 2026). You usually do not file it yourself each month, though an annual reconciliation can apply.

Two rules matter a lot for foreigners. First, the 183-day rule: if you spend 183 days or more in China in a tax year, you generally become a tax resident. Second, the fringe-benefit break. Foreign employees can still choose tax-exempt allowances — housing rent, children’s education, language training and more — instead of the standard additional deductions. China extended this preferential policy to the end of 2027 (Zhou & Huang, 2023). You pick one system or the other for the year, not both, so run the numbers.

Reading Your Payslip: Gross vs Net

Put it together and your payslip makes sense. Start from gross salary. Subtract your 五险一金 share. Subtract the 5,000 yuan deduction and any allowances. Apply the tax brackets to what remains. What is left is net pay — the number that actually reaches your bank account.

This is why the offer number and the take-home number differ. When you negotiate, always ask whether a figure is gross or net. A “20,000 a month” gross offer is not 20,000 in hand. For a fuller picture of typical pay and living costs across cities, see our guide to what foreigners actually earn in China, which puts these deductions in context. And for the practical first-week steps — opening a bank account, registering with the PSB — read your first month working in China.

Legal Work Behind Every China Work Contract

None of this holds without legal status. A valid work contract sits on top of three permits: a Z visa (or an R or K visa in some cases), a Foreigner’s Work Permit, and a Residence Permit. That is the lawful chain. Working on an L (tourist) or M (business) visa is illegal, and it is actively enforced — penalties reach fines, detention, and deportation. There is no shortcut around this, so never let an employer talk you into “starting now, sorting the visa later.” Our walkthrough of the Z visa to work permit to residence permit chain lays out the correct order.

Common China Work Contract Mistakes

A few errors show up again and again. Avoid these:

  • Signing without a translation. If the Chinese version governs, you need to know what it says.
  • Confusing gross with net. Ask which one every quoted salary means.
  • Assuming social insurance is optional. It is required; confirm how your city applies it.
  • Ignoring the probation cap. Repeated or over-long probation is not lawful.
  • No written contract at all. If you have worked over a month with nothing signed, push hard — the law is on your side.

If a dispute does arise, you have real protections. Learn them in our guide to foreign worker rights in China, which covers unpaid wages, wrongful termination, and how arbitration works.

Where This Fits in Your Work Journey

Your contract sits in the middle of a longer path. Here is what comes before and after:

Frequently Asked Questions

Does my China work contract have to be in writing?

Yes. Chinese law requires a written employment contract for full-time work, signed within one month of your start date. You and the employer each keep an original. A verbal agreement does not satisfy the law.

Do foreigners have to pay into 五险一金?

Since 2011, foreign employees are legally required to join China’s social insurance scheme. Enforcement is managed locally, so the exact contributions vary by city. Check with your employer’s HR and the local social security bureau.

How much income tax will come out of my salary?

It depends on your income. Rates run from 3% to 45% across seven brackets, after a 5,000 yuan monthly deduction and your social insurance share. Only income within each band is taxed at that band’s rate.

What is the 183-day rule?

If you spend 183 days or more in China during a tax year, you generally count as a tax resident. Residence affects how your income is taxed, so track your days if you travel in and out often.

Can foreigners still claim tax-exempt allowances?

Yes. The preferential policy on foreigners’ fringe benefits — housing, education, language training and others — runs to the end of 2027. You choose either these allowances or the standard additional deductions for the year, not both.

References