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After lifting of Covid restrictions, foreigners in China can return to business activities

As life in China has been restored to normal following the government’s lifting of pandemic restrictions, Chinese officials have made new efforts to boost domestic economic growth and reassure foreign investors and international companies that the country is once again open for business.

Last January, China lifted Covid-19 restrictions, including the elimination of mandatory quarantine for incoming travellers. The limit on the number of international passenger flights to China was lifted as well.

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However, after almost three years of some of the strictest anti-Covid measures and a tough zero-Covid policy, foreign investors and businesses are concerned over the health of the world’s second-largest economy.

It remains to be seen if China will be able to reactivate its economy and reach pre-Covid growth rates. The latest official data shows China’s economy expanded 3% in 2022, one of its slowest rates in decades.

In the meantime, foreign professionals, whose work had been affected by the pandemic, can return to the country, and resume their business activities.

There are a few important things foreigners should pay attention to, as China reopens its borders and welcomes economic activity again.

At the beginning of the Covid-19 pandemic, China issued temporary relief to the creation of Permanent Establishment (PE) tax risk to assist foreign business travellers who were unable to leave China due to travel restrictions.

Although there is no stated end date to the relief measure, it is generally understood that the relief is relevant only when public health measures are in effect.

With most Covid measures lifted, companies that have foreign employees in China (those who went to China using a business visa or Chinese nationals who originally worked outside China but returned during the pandemic) will need to evaluate their circumstances in light of PE tax risk if they have decided to relocate or otherwise remain in the country now that they have been there for an extended period of time.

Most companies have not given priority to service PE tax risk since the border closures were ordered almost three years ago. With people starting to travel again, it is important to revisit the basics of service PE—the counting of days, threshold of creating service PE, ways to avoid service PE (e.g., so-called secondment arrangements or using multiple special purpose vehicles), and the legal and tax consequences of service PE, among others.

One of the key factors in claiming tax treaty benefits that has been a focus of the Chinese tax authority even before Covid, is the tax residence of a company. The pandemic raised concerns about a possible change in the “place of effective management” or “tax residence” of a company because of a relocation, or the inability of board members or other senior executives to travel.

A company that has an uncertain tax residence status because of the pandemic should evaluate whether activities that require proving its tax residence need to be temporarily paused (e.g., receiving payments from China) before the tax residence issue is resolved.

There are a few allowances that foreign employees can claim in China, as non-taxable items (the Expatriate Tax Benefits). These benefits were originally set to expire on December 31, 2021, but as a result of the pandemic, the Expatriate Tax Benefits have been extended until December 31, 2023.

Many foreign professionals will want to relocate (or return) to China since most Covid-19 restrictions have been lifted. With the imminent change to the Expatriate Tax Benefits, new tax planning strategies will be required to minimize an expatriate's tax liabilities in China.

Though quarantine requirements have been cancelled, there are still some measures in place for incoming travelers, such as the 48-hour pre-boarding PCR testing. Professionals traveling from and to China should make the necessary arrangements ahead of time.

A Health Declaration (Negative PCR Testing Result) on the mobile phone is required upon landing in China. Many countries around the world are asking passengers traveling from China to present a negative PCR test and proof of vaccination before arriving.

After China announced the lifting of most measures, the CDC informed that it would implement a requirement for a negative Covid-19 test or documentation of recovery for air passengers boarding flights to the United States originating from China, Hong Kong, and Macau.

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The requirement applies to all air passengers regardless of nationality and vaccination status, and to persons traveling from China via third country transit and to passengers connecting through the United States onward to further destinations.

Another significant aspect to consider is the visa and resident permit process. Application procedures for Chinese visas are different from the pre-Covid era. Since 2021, most Chinese embassies and consulates require online applications followed by submission of hardcopies by mail or in-person after the online application is pre-approved. Processing time could take a few weeks.

Compared to the pre-Covid era, applications for work and residence permits are currently subject to more substantive reviews. Requests for additional evidence and in-person interviews with immigration officers will most likely be required, even for renewals.

Beijing is now betting on a robust rebound in economic activities as the recent wave of infections reaches its peak. Some government advisers say the central leadership likely will announce a growth target of between 5% and 5.5% for 2023 at the coming legislative sessions in March—the kind of rates needed for China to double the size of its economy by 2035, a long-term goal.


Woodburn Accountants & Advisors is one of China’s most trusted business setup advisory firms.

Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.


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