- Country Information
- China
Compliant Process for China Contractor Payments
Modified on: Tue, 9 Dec, 2025 at 9:14 AM
To our valued clients and China local contractors,
At Horizons, we are committed to operating with integrity and full compliance in all the markets we serve. To uphold this commitment and in direct response to recent guidance from the Chinese tax authorities, we are implementing an important update to our contractor payment process.
This article explains the why, the how, and the what it means for you.
Background: Why This Change is Necessary
Chinese tax law, specifically Article 19 of the PRC Invoice Management Measures, has always stipulated that individuals providing services must issue a VAT invoice upon receiving payment. This is a fundamental requirement for transparent and compliant business transactions.
《中华人民共和国发票管理办法》第十九条规定：所有单位和从事生产、经营活动的个人在购买商品、接受服务以及从事其他经营活动支付款项时，应当向收款方取得发票。取得发票时，不得要求变更品名和金额。
This update is driven by a fundamental principle of Chinese tax law: when an individual provides services and receives payment, they must issue a corresponding Value-Added Tax (VAT) invoice. This is not a new rule but a long-standing requirement under Article 19 of the national invoice regulations.
Recently, the tax authorities have emphasised the strict enforcement of this rule for all companies. As a responsible employer and partner, Horizons must ensure that every payment to a contractor is fully compliant, which means it must be supported by the correct VAT invoice from the contractor. This protects everyone involved—the contractor, the client, and Horizons—from future compliance risks.
Starting 1 January 2026, the release of contractor remuneration will follow a simple principle: Payment is made after Horizons receives and verifies the contractor's VAT invoice.
As contractor in China, Understanding Your Taxes position
As an independent contractor providing services in China, two main taxes apply to your remuneration:
- VAT (Value-Added Tax): This is your responsibility. You pay this tax directly to the tax authority at the time you issue your VAT invoice. The current estimated rate is around 1.12%, but the exact rate is always determined by the latest regulations from the State Taxation Administration.
- IIT (Individual Income Tax): This is our responsibility on your behalf. Horizons withholds and pays this tax for you when we process your payment. The amount is calculated based on your income.
Think of it this way: VAT is settled when you create the invoice; IIT is settled when you receive your payment.
Here’s what the new monthly cycle will look like for our contractors:
- Client Pays Horizons: The client settles the invoice from Horizons for the contractor's services.
- Contractor Issues Invoice:
- Notification: After your work is confirmed and the client has paid Horizons, you will receive a notification via email asking you to issue your VAT invoice for the period.
- Your Action – Issuing the Invoice: You will need to log in to the official tax portal and issue the e-invoice for your services. Once issued, you submit it back to us as instructed. This is your key step.
- Verification & Payment: Once we receive and verify your invoice, your remuneration is processed. Personal Income Tax (PIT) is calculated and withheld as required by law, and your net payment is released to you.
- The Golden Rule:Please aim to submit your invoice as soon as you are notified. This ensures you are paid promptly at the end of that same month.
You may find the attached guidance of VAT issuring process through China E-Tax form in the bottom of this article in pdf file.
- Horizons Processes Payment: After verifying the invoice, Horizons will releases the contractor's payment (net of Individual Income Tax(IIT), which is withheld and filed on their behalf).
The flowchart below illustrates the ongoing monthly cycle:
Key Points for Each Party:
- For Clients: Your process is largely unchanged. Please continue to pay Horizons' invoices as per agreed terms. Your timely payment is the trigger that allows us to request the contractor's VAT invoice and proceed with their payment.
For Contractors: You will receive a direct notification from our Finance team after client payment is confirmed. You must then issue your VAT invoice for the remuneration amount via the official tax bureau platform and send it to us. Your payment will be processed only after we verify your invoice. Your individual income tax (IIT) will be calculated and withheld .
Scenario-Based FAQ: Your Questions Answered
For Our Contractors:
Q: I’ve never done this before. How do I issue an invoice? A: Don’t worry! You may find the simple guides attached and support on how to use the official tax portal to issue your e-invoice. You are not alone in this process.
Q: What if I’m busy and issue my invoice late? A: We understand schedules can be tight. However, late invoicing can cause delays in your payment. More importantly, if your invoice is dated in the following month, it might combine with next month’s income in one tax period, which could inadvertently lead to a higher Personal Income Tax calculation. We strongly advise submitting on time to avoid this.
Q: What happens if my invoice is delayed into the next month? A: We will still process an advance payment for you, but it will be based on an estimated IIT. Once your actual invoice is received, we will reconcile the exact PIT in your next payment. It’s a bit more admin, but it ensures you aren’t left waiting.
Q: The individual tax part seems complex. Can you explain in simple terms why submitting my invoice on time is better for me?
A: Absolutely, and thank you for asking—this is the most important point for contractors to understand. Think of it like this:
- On-time invoice (e.g., for January work, issued in January): Your income is taxed separately each month. This usually keeps you in a lower tax bracket, meaning you keep more of your earnings.
- Delayed invoice (e.g., for January work, issued in February): The income from January and February gets added together and taxed as one large sum in February. Under China’s progressive tax system, a larger sum is taxed at a higher rate. This means a bigger portion is withheld as tax, leaving you with less net pay for that period.
- In short: Issuing your invoice monthly helps ensure your tax is calculated fairly and accurately, protecting your take-home pay.
For Our Clients:
Q: How does this affect our workflow and invoices to Horizons? A: Your core process remains unchanged. You will continue to receive and pay invoices from Horizons for contractor services as per your agreement. This change is an contractor facing process to ensure our contractors are compliant, which in turn protects our clients as well.
Q: Do we need to do anything differently? A: Not directly. The smoothest way to support your contractors is by ensuring your payments to Horizons are made on time. This allows us to notify contractors promptly to issue their invoices, enabling their payments to be released without delay.
We know that change can take a moment to get used to. Our goal is to make this transition as seamless as possible for you.This new process is a foundation for a long-term, compliant, and successful partnership. Thank you for your understanding and cooperation.
Thank you for your attention to this important update. By working together and adhering to this clear, compliant process, we ensure a stable, trustworthy, and professional environment for all engagements.
The Horizons Team
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