Published by ChinaMNC · Kongdong

Work Permits and Visas for Kongdong Founders: A Practical Guide

A guide for foreign founders in China on work permits and visas for Kongdong (controlled via contract) arrangements, covering legal structures, permit categories, application steps, and compliance tips.

Understanding Kongdong (Controlled via Contract) for Foreign Founders

In China, the term Kongdong (often translated as "controlled via contract" or "contractual control") refers to a business structure where a foreign-invested enterprise (FIE) or a domestic company is controlled through a series of contracts rather than direct equity ownership. This arrangement is commonly used in sectors with foreign ownership restrictions, such as value-added telecommunications, education, and media. For foreign founders, establishing a Kongdong structure raises important questions about work permits and visas: who can legally work in China, under what permit category, and how to maintain compliance. This article provides a practical overview for foreign founders setting up in China.

Legal Framework and Key Authorities

Work permits and visas in China are governed by the Exit and Entry Administration Law, the Administration of Foreigners' Employment in China regulations, and local implementing rules. The key authorities are:

• State Administration of Foreign Experts Affairs (SAFEA) and its local bureaus: issue the Foreigner's Work Permit (previously called the Foreign Expert Permit).
• Ministry of Human Resources and Social Security (MOHRSS) and local labor bureaus: issue the Foreigner's Work Permit for non-expert roles.
• Public Security Bureau (PSB) Exit-Entry Administration: issues visas and residence permits.

Since 2017, China has streamlined the work permit system into a single Foreigner's Work Permit with three categories (A, B, C). Understanding these categories is essential for Kongdong founders.

Work Permit Categories for Foreign Founders

Category A: Foreign High-End Talent

Category A is for top-tier talent, including scientists, entrepreneurs, and specialists in short supply. Founders of Kongdong structures may qualify if they meet criteria such as high salary (e.g., six times the local average wage), advanced degrees from top universities, or significant investment. Benefits include a streamlined process, longer validity (up to 5 years), and easier entry for family members. However, eligibility is assessed case by case, and local bureaus may have additional requirements.

Category B: Foreign Professionals

Category B covers professionals with a bachelor's degree or higher and at least two years of relevant work experience. Most foreign founders and key employees in Kongdong structures fall into this category. The permit is typically valid for one year and renewable. Applicants must have a clean criminal record, a valid passport, and a job offer from a legally registered entity in China.

Category C: Other Foreigners

Category C includes temporary workers, seasonal workers, and those in non-technical roles. Founders are unlikely to use this category unless they are involved in short-term projects.

Who Can Sponsor the Work Permit in a Kongdong Structure?

In a Kongdong arrangement, the foreign founder may not directly own equity in the domestic operating company (the OPCO). Instead, the founder typically holds shares in an offshore entity (often in Hong Kong or a tax-efficient jurisdiction) that controls the OPCO through contracts. For work permit purposes, the sponsoring entity must be a legally registered company in China that has a labor relationship with the foreigner. This could be:

• The domestic OPCO (if the founder is formally employed there).
• A foreign-invested enterprise (FIE) set up as a wholly foreign-owned enterprise (WFOE) that provides services to the OPCO.
• A representative office (though this is less common for founders).

It is crucial that the employment contract, work permit, and residence permit all align with the actual entity paying the salary and withholding tax. Mismatches can lead to compliance issues.

Visa Options for Kongdong Founders

Z Visa (Work Visa)

The Z visa is the standard entry visa for foreign employees. To apply, the sponsoring entity must first obtain a Foreigner's Work Permit Notification Letter from the local SAFEA or MOHRSS bureau. The founder then applies for the Z visa at a Chinese embassy or consulate abroad. Upon entry, the founder must convert the Z visa into a residence permit within 30 days.

M Visa (Business Visa)

The M visa is for commercial and trade activities, not for employment. Founders visiting China for short-term meetings or negotiations may use an M visa, but they cannot legally work or receive a salary from a Chinese entity while on an M visa. Working on an M visa is considered illegal employment.

R Visa (Talent Visa)

The R visa is for high-level foreign talent and may be available to founders who qualify under Category A. It offers longer validity and multiple entries, but the criteria are stringent.

Entrepreneur Visa and Start-up Visas

Some cities (e.g., Shanghai, Beijing, Shenzhen) offer special entrepreneur visas or start-up visas for foreign founders. These are often tied to local incentives and may require a business plan, investment, or incubator support. Policies vary by location and can change, so founders should check with local authorities.

Application Process: Step by Step

1. Establish the Chinese entity: Register the OPCO and/or WFOE, obtain business license, and set up tax and social insurance accounts.
2. Obtain the Work Permit Notification Letter: The sponsoring entity applies online through the SAFEA or MOHRSS system, submitting documents such as the founder's passport, degree certificate (authenticated), criminal record check (apostilled or legalized), and employment contract.
3. Apply for the Z visa: The founder submits the notification letter and other documents to a Chinese embassy or consulate abroad.
4. Enter China and apply for the work permit: Within 15 days of entry, the founder must apply for the physical work permit card.
5. Apply for the residence permit: Within 30 days of entry, the founder applies for a residence permit at the local PSB, which allows multiple entries and legal residence.

Processing times vary by city but typically take 4–8 weeks in total. Premium processing may be available for Category A applicants.

Key Documents and Requirements

• Passport valid for at least six months.
• Bachelor's degree or higher (authenticated by a Chinese embassy/consulate or apostilled).
• Clean criminal record check from the founder's country of residence (apostilled or legalized).
• Medical examination record (can be done in China).
• Employment contract with the sponsoring entity, specifying salary and position.
• Company documents: business license, organization code certificate, and legal representative's ID.
• Proof of relevant work experience (for Category B).

Documents in foreign languages must be translated into Chinese by a certified translation agency.

Compliance and Common Pitfalls

Foreign founders in Kongdong structures must be vigilant about compliance. Common pitfalls include:

• Working without a permit: Even if the founder is not on the OPCO's payroll, any work activity requires a work permit. Illegal employment can result in fines, detention, or deportation.
• Mismatched employer: The work permit is tied to a specific employer. If the founder's role changes or the sponsoring entity changes, the permit must be updated.
• Tax and social insurance: The sponsoring entity must withhold individual income tax and pay social insurance where required. Founders should ensure their salary structure complies with local rules.
• Contractual control risks: Kongdong structures rely on contracts, which may be challenged in disputes. Founders should seek legal advice to ensure the contracts are enforceable and compliant with Chinese law.
• Annual verification: Some work permits require annual verification or renewal. Missing deadlines can lead to penalties.

Practical Tips for Kongdong Founders

• Engage local professionals: Work with a reputable law firm or HR consultancy experienced in foreign employment and Kongdong structures.
• Plan the entity structure early: Decide which entity will employ the founder and ensure it has the capacity to sponsor work permits.
• Check local policies: Work permit requirements and incentives vary by city. For example, Shanghai and Shenzhen have pilot programs for foreign entrepreneurs.
• Maintain accurate records: Keep copies of all applications, approvals, and contracts. Authorities may audit compliance.
• Consider family visas: Dependents can apply for S1/S2 visas, but they cannot work without their own permits.

Disclaimer

This article provides general information only and is not legal advice. Immigration and employment laws in China are subject to change and vary by locality. Foreign founders should consult qualified legal and immigration professionals for advice specific to their situation.