International tax experts at Ernst & Young have analyzed the local tax code and international tax treaties with China to establish the following tax guidelines for RecruitiFi hires within China.
CHINA GENERAL CONSIDERATIONS
How does RecruitiFi supply its services to Employers in China?
Before diving into the FAQs, let’s clarify the legal tenets underpinning RecruitiFi’s business model:
RecruitiFi’s base of operations: RecruitiFi is a US-based entity with no physical presence beyond American borders.
Distinct legal relationships: In line with the terms and conditions outlined for our business operations in China, we establish two separate and exclusive agreements:
A service agreement between RecruitiFi and the Employer, for the supply of services by RecruitiFi to the Employer
A service agreement between RecruitiFi and the Recruiter, for the supply of services by the Recruiter to RecruitiFi
Payment process: The transaction process entails Employers paying RecruitiFi for the services rendered, and subsequently, RecruitiFi paying the Recruiter for its services.
Absence of direct interactions: There are no direct contractual or monetary exchanges between the Employers and Recruiters.
Recruitment procedure: Should an Employer decide to recruit a Candidate via the RecruitiFi platform, the employment process ensues without involvement from RecruitiFi.
Precedence of terms: In cases where an Employer and an Agency have had prior contracts, the terms stipulated by RecruitiFi will supersede these existing contracts for the period of engagement through RecruitiFi.
For more information, see Terms | RecruitiFi.
CHINA CONSIDERATIONS FOR EMPLOYERS
This section of the FAQ applies to Employers in China to that acquire services from RecruitiFi.
Will RecruitiFi charge VAT to Employers?
No, RecruitiFi will not charge VAT to Employers.
The services you receive from RecruitiFi will generally be viewed as being provided within China and will be subject to Chinese VAT at the rate of 6%. You as an Employer, will be responsible to withhold and pay VAT.
Legislative reference: Measures for the Implementation of the Pilot Scheme on Levying Value-added Tax in Place of Business Tax (Caishui [2016] No. 36):
Article 1: Entities and individuals engaging in sale of services, intangible assets or immovables (hereinafter referred to as the "taxable acts") within the territory of the People's Republic of China (hereinafter referred to as “in China“) are taxpayers of VAT. Taxpayers providing taxable acts shall pay VAT pursuant to these Measures and shall not pay business tax.
Entities shall mean enterprises, admin-istrative organs, public institutions, military entities, social bodies and other entities.
Individuals shall mean individually-owned businesses and other individuals.
Article 6: Where an entity or individual outside the People's Republic of China (hereinafter referred to as “overseas“) engages in a taxable act in China but has not established a business entity in China, the buyer shall be the VAT withholding agent, unless otherwise stipulated by the Ministry of Finance and the State Administration of Taxation.
Who will be responsible for collecting VAT on the services provided by RecruitiFi in China?
As RecruitiFi is a business established outside of China, an Employer, as the service recipient and purchaser, will be responsible for withholding/ paying VAT to the Chinese Tax Authorities.
VAT is calculated over the amount paid or payable to RecruitiFi.
RecruitiFi encourages Employers to consult their (indirect) tax advisor to obtain guidance on how to apply for a VAT number and whether you can credit VAT paid on RecruitiFi’s services.
Does it matter where the Recruiter, Candidate, or JobCast is located?
Generally, no. If the Candidate and the JobCast are located outside China, the services provided by RecruitiFi could be considered to have “occurred completely outside of China” and because of that, they could be viewed as outside the scope of Chinese VAT.
RecruitiFi encourages Employers to consult their (indirect) tax advisor to assess whether this may be the case.
Legislative reference: Measures for the Implementation of the Pilot Scheme on Levying Value-added Tax in Place of Business Tax (Caishui [2016] No. 36, AppendixI):
Article 12: Sale of services, intangible assets or immovables in China shall mean:
1. The seller or the buyer of the service (except for lease of immovables) or intangible assets (except for the right to use natural resources) is in China;
2. The immovables sold or leased are in China; and
3. The natural resources for which the right to use natural resources are sold are in China; and
4. Other cases stipulated by the Ministry of Finance and the State Administration of Taxation.
Article 13: The following circumstances shall not be deemed as sale of services or intangible assets in China:
1. Services sold by overseas entities or individuals to entities or individuals in China, which occur entirely outside China.
2. Intangible assets sold by overseas entities or individuals to entities or individuals in China, which are used entirely outside China.
3. Tangible movables rent by overseas entities or individuals to entities or individuals in China, which are used entirely outside China.
4. Other cases as stipulated by the Ministry of Finance and the State Administration of Taxation.
Is the service subject to any other taxes in China?
RecruitiFi encourages Employers to consult their (indirect) tax advisor to confirm whether RecruitiFi’s fee is subject to other taxes, e.g. withholding income tax and what should be the calculation method.
RecruitiFi’s Terms stipulate that all Fees that are agreed between RecruitiFi and Employers are net of any taxes to be withheld by the Employer i.e., Employer is responsible to withhold/pay all taxes where legally obligated and Employer should ensure that RecruitiFi receives the Fee agreed, after withholding of any applicable taxes.
CHINA CONSIDERATIONS FOR RECRUITERS
This section of the FAQ applies to Recruiters in China that supply services to RecruitiFi.
Will a Recruiter charge VAT to RecruitiFi?
A Recruiter located in China suggesting candidates to fill JobCasts in China (i.e., Employers are in China), needs to pay VAT for the services provided to RecruitiFi and local surtaxes will be levied on the VAT payable.
RecruitiFi’s Terms stipulate that any Agency Placement Fee payable to Recruiters is inclusive of VAT and other taxes. As such, Recruiters cannot charge any taxes in addition to the Agency Placement Fee agreed.
Does anything change depending on where the Employer, JobCast, and/or Candidate islocated?
Yes, if the Recruiter is located in China, but the Employer, the Candidate and the JobCast are outside of China, the Recruiter’s services may be eligible for a VAT exemption if the service can meet the condition of “occurred completely outside China.“ RecruitiFi encourages Recruiters to consult their (indirect) tax advisor to perform a further analysis and check with the relevant tax authority to assess whether this may be the case.
Legislative reference: Provisions on Zero VAT Rate and Tax Exemption Policies Applicable for Cross-border Taxable Acts (Caishui [2016] No.36, AppendixIV)
The following services and intangible assets provided to overseas organizations, which are fully consumed overseas:
a. Telecommunication services.
b. Intellectual property services.
c. Logistics auxiliary services (except for warehousing services, and collection and delivery services).
d. Authentication and consultation services.
e. Professional and technical services.
f. Business support services.
g. Advertising services where the advertisement is released overseas.
h. Intangible assets.
“Fully consumed overseas“ referred to in these Provisions shall mean:
1. The actual recipient of the services is overseas, and the services are unrelated to goods and immovables in China.
2. The intangible assets are used overseas entirely and unrelated to goods and immovables in China.
3. Other cases stipulated by the Ministry of Finance and the State Administration of Taxation.
Is the service subject to any other taxes in China?
Local surtaxes are associated with VAT. If the transaction is subject to VAT, local surtaxes such as construction tax, education surtax and/or local education surtax will be levied on Recruiter’s VAT payable.
RecruitiFi recommends Recruiters consult their (indirect) tax advisor to confirm whether the Recruiter should pay local surtaxes such as construction tax, education surtax and/or local education surtax.
The RecruitiFi Terms stipulate that any Agency Placement Fee payable to Recruiters is inclusive of VAT and other taxes, as such Recruiters cannot charge any local surtaxes, in addition to the Agency Placement Fee agreed.
GLOSSARY
Term | Definition |
RecruitiFi | RecruitiFi, Inc. |
JobCast | Job positions to be filled by Candidates that are submitted/suggested by Recruiters to RecruitiFi |
Recruiter | Recruiters and agencies that provides services to RecruitiFi by submitting/suggesting Candidates to fill JobCasts |
Employer | Employers that hire the services from RecruitiFi to receive the suggested Candidates by RecruitiFi to fill their JobCasts |
Employer placement fee and processing fees | Fees paid by employer to RecruitiFi — if certain conditions are met — upon hiring a Candidate |
Agency placement fees | Fees paid by RecruitiFi to Recruiter — if certain conditions are met — upon placement of a Candidate suggested by the Recruiter |
VAT | Value-added tax; please note “VAT” will be understood to include all non-US indirect taxes (e.g., VAT, GST, JCT) |
5. DISCLAIMER
The information in these frequently asked questions (FAQs) is intended to provide general guidelines regarding the indirect tax treatment of RecruitiFi Inc.’s (“RecruitiFi” or “we”) procurement of Services from Recruiters and supply of Services to Employers in the countries here covered.
The information in these FAQs is provided by Ernst & Young LLP (EY) and is solely provided for the use of RecruitiFi. The information that EY provided to RecruitiFi is to be understood based on a “should” level of advice regardless of any wording (such as “is“ or “will”) referenced in the information provided to RecruitiFi or as reflected in the FAQs.
The FAQs reflect how, in general, i.e., not in specific cases, RecruitiFi believes the local indirect tax rules apply to RecruitiFi’s business model and services supplied by Recruiters to RecruitiFi and services provided by RecruitiFi to Employers.
The FAQs for individual Member States in the European Union (EU) are not based on the individual Member State’s value-added tax (VAT) legislation. Instead, this information is based on VAT rules as included in Council Directive 2006/112/EC of 28 November 2006 on the common system of VAT (the EU VAT directive). As the implementation of the rules in the EU VAT directive into the legislation of an individual Member States may vary country by country and/or the interpretation and corresponding guidance in relation to these rules may also be different between EU Member States, it’s possible that the FAQs for an individual EU Member State may not fully reflect the VAT rules of that EU Member State.
Recruiters, Employers and/or any party other than RecruitiFi cannot, in any form, rely on advice provided by EY to RecruitiFi. Recruiters and Employers are encouraged to consult their own (indirect) tax advisor to confirm the indirect tax treatment as applicable in their specific case as the application and impact of tax laws can vary widely, from case to case, based upon the specific or unique facts involved that are not known to RecruitiFi and/or EY. If your (indirect) tax advisor’s advice does not correspond with the position as outlined in the FAQs, please reach out to RecruitiFi’s tax team.
While RecruitiFi used its best efforts in preparing these FAQs, RecruitiFi makes no representations or warranties with respect to the accuracy or completeness of the content in the FAQs. Neither EY nor RecruitiFi shall be liable for any damages in relation to the information included in the FAQs. Note also that inadvertent errors can occur, and tax rules and regulations often change.
Latest update: January 2025