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Personal Assets or Family Assets, Can You Tell?

February 14, 2019

One of our clients called recently, he said he was going to get married to his Chinese fiancé. He wanted to know what’s the Chinese Marriage Law’s provision about family assets and asked if there is anything like prenuptial agreements in China.

Generally speaking, a married person’s assets could be divided into family assets and personal assets. According to the Chinese Marriage law, if not otherwise agreed by the couple:

1. The following assets incurred during the marriage shall be family assets jointly owned by the couple, including:

a. wages and bonuses;
b. any income incurred from production or management;
c. any income incurred from intellectual property;
d. any property inherited or bestowed. However, if the deceased or donor failed to express specifically that the inheritance or bestowal will only benefit the inheritor or donee instead of their spouse, then the property only belongs to this specified person.

e.others.

So if there is no agreement between the couple specifying otherwise, most of the income during the marriage should be jointly owned by the couple, even if only the husband or wife make money while the spouse have no income at all. Both husband and wife shall have equal rights in the disposal of the jointly owned assets.

Besides, if the couple get divorced, the family assets will be divided between the couple fifty-fifty. But it could be a relief to most of the husbands, because there is no rule about alimony for ex-wives in China. Though the marriage law does say if one party has financial difficulty, the other party shall provide some assistance from his/her personal assets.

2. Personal assets:

a. the pre-marital asset that is owned by one party;
b. the payment for medical treatment or living subsidies for the disabled arising from bodily injury on either party;
c. the articles of living specially used by either party,
d. others.

3. A written prenuptial agreement will be binding to the couple.

Prenuptial agreement could specify what asset is family asset or personal asset

The marriage law makes a general rule about what assets will be treated as family assets and what assets are personal assets, but the marriage law also specifies that the couple could come to an agreement otherwise. In another words, prenuptial agreements are allowed in China.

The couple could specify in the prenuptial agreement if the assets during or prior to the marriage would be owned by each party jointly or separately. The agreement should be in writing, but not have to be notarized to be effective. If not all assets are jointly owned by the couple, it’s a smart move to draft a detailed list of assets and include the list as attachment to the agreement. Also, it’s highly recommended to specify clearly how to pay the family expenses when the assets are not jointly owned by the couple.

Useful Link:

Ministry of Civil Affairs of the People’s Republic of China

family asset, marriage law, personal asset, prenuptial agreement

Employment Contract—Specify Terms as Detailed as Could

February 12, 2019

As we mentioned in our previous blog: Employee Handbook-Important Fact…, an employment contract has to contain some “essential clauses” as the content has been provided by related laws, which emphasize protecting the employee.

However, in addition to the above mentioned clauses, employers could specify some clauses as to the probation period, training, confidentiality, Non-competition，supplementary insurance, welfare and treatment and other clauses as they deem important. Employers could take advantage of other clauses to protect their interest， such as specifying that the employee has to work a certain number of years after the employer has paid for his/her training.
What else could be included? The following are some tips:

1. Disclosure of rules and regulations

Employer may stipulate in the employment contract that all rules and regulations have been disclosed to the employee ( such as “employee confirms that it has understood the contents of the company’s rules and regulations”, etc.), in order to prevent disputes concerning the effectiveness of the rules and regulations.

There is some room for employer to specify some clauses in the employment contract to make sure a effective management over the enterprise

2. Address for service

Employer may stipulate in the employment contract that all written notices shall be deemed to have been given on the date the notice is received at the employee’s address which is listed in the employment contract and the employee has the duty to inform the employer of any address change. In this way, the employer could fulfill it’s “informing duty” ( you may check our blog: Can I Fire an Employee Absent from Work? for more information) prevent the situation where the employee is reluctant to cooperate by refusing to sign or accept the notice.

3. Attachments

Employer may add the following attachments to the employment contract, to make sure the employee understands the employer’s requirements and their duty as employees and consequences if they fail to meet the requirements:

(1) The company’s rules and regulations;

(2) Employee’s letter of undertaking (employee has to promise the authenticity of all background information he/she provides);

(3) Duty，job requirements and assessment criteria for the position (as detailed, objective and reasonable as possible in order to be used as evidence, in the event of a labor dispute if the employer wants to terminate the employment contract due to finding the employee unqualified ).

attachments to employment contract, employment contract, job requirments

Can I Fire an Employee Absent from Work?

February 6, 2019

Last week, one of our clients called me and asked: “An employee has been absent from work for three days, does that mean the employment contract has been terminated automatically and I can just let him go?”

That is a total misunderstanding. There is no such provision in labor law that the employment contract would be automatically terminated, no matter how long the employee is absent from work without any justification.

Of course, being absent from work is definitely a violation of the employer’s rules and regulations, but it doesn’t mean that the employment contract would be terminated automatically.

However, labor laws do specify that if employee seriously violate the enterprise’s rules and regulations, the employer is entitled to terminate the employment contract. But, as we repeatedly emphasized, in labor relationship, it’s very important to follow the procedural requirement, even it is obviously the employee’s fault.

In most labor disputes, such as dismissal, termination of employment contract, reduction of remuneration etc., the burden of proof rests on the employer. Employer is required to provide justification for all decisions. Otherwise, the arbitration committee or the court could make an award in favor of the employee.

Employee's Employment contract will not be terminated automatically

Generally speaking, the employer has to take the following steps:

1. Prepare Rules and regulations.

If the employer wants to terminate the employment contract based on the argument that “the employee has seriously violated the enterprise’s rules and regulations”, it obviously has to make sure rules and regulations are in place! The preparation of which has to follow the procedure strictly to ensure the effectiveness, which we will elaborate in a separate blog: employee handbook.

Also, please note that there is no law nor regulation that says how many days absent from work will constitute a “serious violation of rules and regulations”, so the enterprise has to specify clearly if absence is up to 3 or 4 days is a serious violation.

2. Timely reminding

Once the employee is found to be absent from work, the employer shall send a “reminder letter” to the employee’s pre-confirmed address for service by express, urging them to return to work immediately, specifying a deadline based on the above-mentioned rules and regulations for their return, and reminding them the consequences if the employee fails to do so.

3. Make a decision

If the employee fails to return to work before the specified deadline, the employer then may make a decision to terminate the labor contract, in accordance with the provisions of the rules and regulations of the enterprise.

4. Send notice of termination

Just like in #2, send the above mentioned decision to the employee, and inform the employee that the employment contract has been terminated in accordance with the rules and regulations of the enterprise and inform the employee to go through the handover formalities.

Two important things need to be paid attention to:

1. Pre-confirmed address

It’s very important for the employer, while process new employees’ enrollment, to ask the employee to provide their address for service of note from employer and inform the employer of any change in the above-mentioned address in time.

2. State the content of mail

Another important thing is when the employer send out reminder letter or notice of termination, the employer should state clearly the content in the envelop of the mail. That way, it will be the employee’s fault if they refuse to accept the mail.

In this way, the employer has fulfilled it’s duty as a manager of reminding and notification.

absent from work, employment law, fire employee

Foreign Judgment—Updated News

February 2, 2019

In our previous blog, we said China court hardly enforce foreign judgement. However, on June 30, 2017, the local court in Wuhan, China (“Wuhan Court”) made a verdict ordering the recognition and enforcement of a commercial judgment rendered by LA Superior Court of USA (“LA Court”). This is the first time for a China court to recognize and enforce a commercial judgment from a U.S. court.

This dispute involved an equity transfer agreement. Though a judgement has been made in favor of the plaintiff, the defendant did not comply with the U.S. Judgment after it became effective. The plaintiff therefore applied to the Wuhan Court to have the foreign Judgment enforced since the defendant had assets available for enforcement in Wuhan, China.

The grounds for Wuhan Court made the above verdict is as follow:

First U.S commercial judgment enforced in China

1. Procedural requirement is met

The Plaintiff had submitted a certified copy of the U.S. judgment and a Chinese translation, which satisfied the procedural requirement for applying for recognition and enforcement of a foreign judgment;

2. Reciprocal relationship exists

The Plaintiff had submitted evidence that precedent exists of U.S. courts (which we will elaborated in another separate blog) recognizing and enforcing civil judgments made by China courts, thereby confirming a reciprocal relationship between the two states;

3. China’s Principles not violated

The U.S. Judgment aimed to resolve an equity transfer dispute between the two parties, which was not in violation of the basic principles of PRC law and did not damage national sovereignty, national security and public interests;

4. The judgement was made in accordance with judicial procedures

Although the foreign judgment was made in the absence of the defendant, the evidence submitted by the Plaintiff certified that the LA Court had issued summonses to the defendant. The evidence included an investigation request lodged by the Plaintiff, an LA Court order requiring the summonses to be served by public notice and the notice as issued in newspapers;

5. Not a substantial examination

Since the verdict was made for the purpose of offering judicial assistance, the PRC court’s did not conduct a substantial examination of both parties’ rights and obligations. As a result, the Wuhan Court did not uphold the defendant’ arguments that the foreign judgment was flawed.

Obviously, the above-mentioned verdict sets an example for how to deal with similar matters, though in China, judgments made by local courts do not have the binding force as under case law system. But at least it demonstrates that it is possible to successfully apply to a China court for the recognition and enforcement of a foreign judgment

But still a long way to go, what do you think?

china court, enforce, foreign judgment

New IIT Law’s Impact on Foreigners

February 1, 2019

Since 1st of Jan, 2019, the new IIT law of PRC has come into effect. For foreigners working in China，what impact it will bring?

Except the general rule applies to everyone, the following points are important for foreigners:

1. Who should pay IIT? What kind of income is taxable?

1) Foreigners who have lived in China for accumulative 183 days or more in one tax year shall pay IIT on their income gained within or outside China. However, if this foreigner stays in China less than six consecutive years, even for each year accumulative 183 days or more, shall be exempted from IIT for his/her overseas income by filing with competent tax authority. Moreover, if during this six consecutive years, he/she leaves china for more than 30 days once, the consecutive years will be restarted.

For example, if he/she leaves China for more than 30 days in 2023, which is the fifth consecutive years for he/she lives in China, the consecutive years will restarted in 2024.

2) Foreigners who have lived in China for less than accumulative 183 days in one tax year shall only pay IIT on their income gained within China.

2. IIT exemption

In our previous blog: Individual Income Tax in China – How to Pay in 2019?, we have listed what kind of income is taxable income.

However, the following income are exempted from IIT:

1) Awards for achievements in science, education, technology, culture, public health, sports and environmental protection granted by foreign or international organizations;
2) Insurance indemnities;
3) Basic pension.

3. Tax deduction or preferential treatment?

Before this new IIT, foreigners working in China could enjoy housing, language training, children’s education subsidies etc., which are all tax-free. However, according to new IIT law, six items of expenses related to people’s livelihood could be deducted, such as children’s education, continuing education, housing rent etc. Then the question is: do foreigners have to follow the new law or what?

According to a notice issued by General Taxation Administration, from 1st of Jan, 2019 till 31th of Dec, 2021 (transition period), foreigners could choose to enjoy the original rule on tax-free subsidies or choose to follow the new IIT law for expenses deduction. But once he/she makes the choice, he/she has to stick to it in the whole tax year.

After the above-mentioned transition period, the original subsidies will not apply any more. Only expenses deduction listed in new IIT law will apply.

Employee Handbook-Important Fact…

January 31, 2019

Nearly all employers know that signing an employment contract is very important. However, not all of them realize that an Employment Handbook is actually more important.

Why?

The following is our analysis:

1) Content of Employment Handbook

Generally speaking, an employment contract is a standardized document, as it is should contain the following clauses:

(1) Both party’s names, residence of each party, and other salient information;

(2) Term and probation;

(3) Work Requirements/Job Description and location where work duties are to be performed;

(4) Work hours, rest and vacation/leave;

(5) Remuneration and Social Security;

(6) Labor protection and prevention of occupational harm.

All the above-mentioned matters have to follow PRC labor laws and regulations. Otherwise, the specification is invalid as it violates labor law. These issues are mandatory and are non-negotiable—the employer does not has any alternative when preparing employment contract, as these subjects must be included, according to Chinese Labor Law.

However, the Employment Handbook is different. It not only describes the enterprise’s culture, but also sets a specific standard of behavior for employees. In other words, it specifies what employees should do and what employees cannot do as an employee of the enterprise; it should also spell out the corresponding consequences for failure to comply with the requirements posted in the Employment Handbook. In this sense, it is a very important document to strengthen daily management of the enterprise.

2 ) Employment Handbook’s Function

A typical Employment Handbook could contain the enterprise’s management regulations, such as a statement of the enterprise’s culture and vision planning, among other things. Specific and detailed management regulations are very important for the smooth operation of the HR function and for the administrative management of the enterprise. For example, the basic requirements for employees, the recruitment procedure, probation period, leaves procedure, dissolution of labor contract, incentive system and discipline, confidential and proprietary information, code of ethical conduct, etc. The enterprise could specify every issue related to employee management in an Employment Handbook.

More importantly, the enterprise could specify clearly what kind of behavior is not allowed —what is forbidden. Any violation of these stipulations could lead to disciplinary consequences such as an oral or written warning, or even dismissal of the offending employee.

3. Procedure for an Effective Employment Handbook

In an employment handbook, the employer sets specific standard of behavior, thus make it an important paper in company management

Though the employer is the one who prepares the Employment Handbook, the employees’ involvement is also important for an Employment Handbook to be binding to the parties.

According to PRC Labor Contract Law, if any employer’s regulation/s pertains specifically and directly to the benefits of employees, such as remuneration, working hours, rest and vacation, work safety and health care, social insurance and welfare, training, work discipline or quota management, etc., the draft of such regulations shall be discussed at the employee congress or by all the employees, and shall be determined after consultation with the employer and its employees.

The employer shall publicize the Employment Handbook and make sure each employee understands the content once it is finalized.

Please note that it is very important for the employer to comply with procedural requirements in labor law. This principle also applies to enterprise regulations. Any above-mentioned regulations will not be authorized as effective if the employer fails to follow the procedural requirements as mandated by law. This is particularly important should there be a labor dispute wherein the enterprise cannot prove an employee’s involvement and/or awareness of the Employment Handbook. In such a case, the Employment Handbook would likely not be accepted by the Arbitration Committee (or court) to be binding upon the employee.

That is why we usually advise our clients to keep the minutes of discussion and consultation about the Employment Handbook and make sure each employee signs a statement that they clearly understand all the clauses in the Employment Handbook. Otherwise, it is possible that the employer will find they are in deep trouble someday.

employment handbook, employment law, HR management

Foreign Judgment-Enforceable in China?

January 25, 2019

In our previous blog: Tips on Preparing OEM Contract with China Factory, we mentioned that China court hardly enforce a foreign court judgment. Some readers asked us to share a link of such regulations, obviously, they want to check the authenticity of such saying.

China court hardly enforce foreign judgment

Unfortunately, there is no law says so.

Let’s see what the law says. According to the Civil Procedure Law of PRC, a foreign judgement could be recognized and enforced by China court if it:

1) meets the provisions of an international treaty concluded between or acceded to by the foreign state and China, or

2) accords with the principle of reciprocity.

Then the party concerned could directly apply for or the foreign court may request the competent court for recognition and enforcement.

Upon reviewing such application or requirement, if the court considers that such judgment neither contradicts the basic principles of the law of PRC nor violates State sovereignty, security and the public interest, then it shall rule to recognize its effectiveness and enforce it.

Actually, based on the above mentioned #1 provision, there are totally 34 countries which recognize and enforce each other’s judgement with China. Which are:

1. 12 Asian countries: Mongolia, Turkey, Kazakhstan, Cyprus, Kyrgyzstan, Uzbekistan, Tajikistan, Viet Nam, Laos, Korea, United Arab Emirates, Kuwait

2. 13 European countries: France, Russia, Italy, Spain, Poland, Romania, Belarus, Ukraine, Bulgaria, Greece, Hungary, Lithuania, Bosnia and Herzegovina:

3. 4 American countries: Brazil, Argentina, Cuba, Peru

4. 5 African countries: Egypt, Morocco, Tunisia, Algeria, Ethiopia

It’s not hard to see, few developed countries or few main trading partners of China are included in the list, such as the US, British, Germany etc. So recognition and enforcement of a judgment made in these countries may only be conditioned upon the existence of a reciprocal relationship between these countries and China.

However, PRC law fails to clearly specify the criteria for determining whether a reciprocal relationship exists.

Usually, a China court will determine that there exists a reciprocal relationship only if the PRC court confirmed there was a precedent of the foreign country’s courts recognizing and enforcing China court judgments.

In fact, PRC courts have quite rarely recognized foreign court judgments absent an international treaty, and have not confirmed reciprocity in order to enforce such judgments, as long as no this foreign court’s preceding recognition and enforcement of a PRC court judgment.

Useful link:

The Supreme People’s Court of The People’s Republic of China

enforcement, foreign judgment, litigation

Work Permit for Foreigners

January 24, 2019

Generally speaking, expats need to get an Work Permit to work in China, unless they hold a Foreign Expert Certificate. Enterprises must apply for an Employment License after submitting the necessary documents such as resumes, qualification certificates and health certificates. This is true even if the expatriate is the owner of the enterprise, such as a WOFE.

Work Permit is the document expats would need for working in China legally

Once an Employment License is issued, expatriates should apply for a Z visa (i.e. vocational visa in China) and then an Work Permit. Afterwards, foreigners should apply to the local public security authority for Residence Permits. With an Work Permit and Residence Permit issued, the expats can finally stay and work in China legitimately.

However, the Chief representative or representative of an overseas entity can apply for Work Permits directly, without first applying for Work Permit, just submitting their Z visa and the RO registration certificate.

According to related PRC regulations, the Employer shall complete an annual inspection of the Work Permit within 30 days before the expiration of the employment contract. Otherwise, the Work Permit will automatically expire.

Additionally, if the expat changes their employer or extends their employment term without permission, the labor administrative authority can withdraw their Work Permit and the public security authority could deprive their residence qualification too.

Another thing to know about the Work Permit is, it’s the prerequisite for an expat to work in China legitimately. It is illegal for foreigners to work without Work Permits, so they are not protected by law.

What does that mean?

Let’s put it this way-most expats know employment contracts are very important to protect themselves. However, few expats know that Work Permits are equally important. Without an Work Permit, the employment contract is meaningless. The employer could terminate the employment contract as they wish without paying any severance pay. The expats can only get remuneration for his/her job as specified in the contract, but they can’t get any compensation like their Chinese colleagues. This includes injuries during work that can’t be claimed for industrial injury compensation, or compensation if the employment contract expires, generally one month’s salary for each year when he/she works for the employer.

Useful links:

The Ministry of Public Security of the People’s Republic of China

Employment Permit, Labor law, Z visa