TSA Pre-Signing Review
Price the Chinese TSA before you sign.
We scope the data transfer and entity reality into the TSA while you still hold leverage. Fixed-fee proposal in 48 hours. The first conversation is always free.
A TSA carve-out in China runs on consent based employee moves, a city specific social insurance and housing fund system, and some of the strictest data transfer rules anywhere. The carve-out China plan belongs inside the broader carve-out advisory work, and in China the entity setup and the cross-border data regime set the timeline more than the technology does. The buyer that treats data transfer as a formality will not get the systems separated.
China has no automatic transfer of undertakings. Under the Labour Contract Law, an employment relationship sits between a specific employer and employee, so moving staff to Newco requires agreement. The common route is a tripartite arrangement among the seller, Newco, and each employee that ends the seller contract and starts a Newco contract while preserving continuity of service.
Continuity matters because statutory economic compensation on termination is calculated on years of service. If the move is structured as a clean break rather than a continuation, the seller may owe severance, and employees may demand it before agreeing to transfer. The buyer designs the transfer so prior service carries across, which protects both the cost position and employee goodwill.
Where a labour union exists, or where collective contracts apply, the employer consults as the law and the contracts require. Local labour bureaus take employee protection seriously, so a carve-out that pressures staff to sign risks disputes that slow the separation.
Because every move depends on individual agreement, the buyer plans retention around the people Newco cannot afford to lose and sequences the offers so the business keeps running through the transition.
Chinese payroll rests on the five social insurances covering pension, medical, unemployment, work injury, and maternity, plus the housing provident fund. Newco registers as a contributor, withholds individual income tax, and remits the employer and employee shares. The rates, contribution bases, and certain rules are set at city level, so the same role can cost different amounts in different cities.
That city variation is the part buyers underestimate. A business spread across several cities multiplies the registrations and the local nuances rather than repeating one national process. The buyer maps each city where employees sit and confirms the local contribution rules and the housing fund requirements early.
Because Newco often needs new registrations and a settled entity before it can run a compliant payroll, a Day One stand-up from scratch is rarely realistic. Most buyers take a seller run payroll TSA for several cycles and cut over once the entity, the social insurance registrations, and the housing fund accounts are confirmed.
The buyer holds the payroll TSA to cost-plus or fixed-fee with audit rights and a firm exit date, the same discipline applied in every jurisdiction.
China runs one of the strictest data regimes anywhere through the Personal Information Protection Law, the Data Security Law, and the Cybersecurity Law together. Moving personal information out of China can require a government security assessment, a standard contract filing with the regulator, or certification, depending on the volume and sensitivity of the data and the nature of the handler.
This reshapes the systems plan. A TSA that assumes the seller will keep serving Newco from systems hosted outside China, or that Newco data will flow freely to a global platform, runs straight into the transfer rules. The buyer designs the separation so Chinese personal data has a lawful basis and a clear path, and avoids a configuration where the seller retains access to Newco data after exit.
Some data and systems may need to remain onshore, which can mean standing up local instances rather than relying on a global rollout. The buyer treats data localisation as a design constraint from the start rather than a problem to solve at cutover.
Because the approvals take time, the data workstream often sits on the critical path. The buyer sequences the rest of the separation around it rather than assuming a fast technical migration.
Newco usually needs a registered Chinese entity before it can employ and trade, with a business license, tax registration, social insurance and housing fund accounts, and corporate bank accounts. Establishing or restructuring an entity in China is a sequenced process with several approvals, and the timeline is rarely short.
Foreign exchange control is a defining feature. Cross-border payments, including TSA charges, capital injections, and intercompany settlements, move through the foreign exchange regime and the banks that administer it. The buyer plans the cash flows, the registered capital, and the settlement currency so payments under the TSA do not stall at the border.
Documentation and official communications are expected in Chinese, and many filings are made in the local system. The buyer budgets for accurate translation and local execution rather than assuming an English language process will be accepted.
These dependencies are why the seller TSA in China tends to run longer than a buyer used to a European transfer would expect. The buyer prices that reality rather than assuming a fast exit.
The Chinese TSA scope typically covers payroll, IT and identity, finance, and local operations, each with a clear description, a service-level expectation, and a price held to cost-plus or fixed-fee. The buyer insists on line item pricing because seller cost allocations can bury group overhead that does not belong to Newco.
Cutover is sequenced and gated, and in China the data approvals and the entity setup are usually the gates that matter. Payroll cuts at a month boundary once registrations are confirmed, IT after a lawful migration that respects the data rules, finance at a period close. Each step has a reconciliation gate and a rollback path so a single failure does not spread.
Cost discipline depends on doing the work before signing. The buyer benchmarks seller charges, removes unjustified mark-up, and sets exit fees that decline across the term. Where the data and entity work extends the TSA, the buyer at least controls the price and the exit conditions.
A disciplined Chinese separation leaves Newco operating its own entity, its own payroll and statutory accounts, and its own compliant data estate, with the seller dependency closed on agreed terms. That outcome starts with a pre-signing review that scoped the TSA before leverage shifted to the seller.
China has no automatic transfer of undertakings. Employees move by agreement, often through a tripartite arrangement among the seller, Newco, and the employee that preserves continuity of service. Termination without agreement triggers statutory economic compensation based on years of service.
Newco registers for the five social insurances and the housing provident fund, withholds individual income tax, and follows city level rules that vary across China. Because rates and bases differ by city, most buyers run a seller payroll TSA until registrations and the entity are confirmed.
The PIPL, the Data Security Law, and the Cybersecurity Law impose strict controls. Sending personal data out of China can require a security assessment, a standard contract filing, or certification, and some data must stay onshore. A carve-out treats cross-border data as a primary legal workstream.
Newco usually needs a registered Chinese entity with a business license, tax and social insurance registrations, and bank accounts before it can employ and operate, alongside foreign exchange approvals for cross-border payments. These dependencies are a key reason the seller TSA in China runs longer than buyers expect.
Company split versus business transfer, social insurance, and the APPI.
Read the article →Automatic transfer under the Employment Act, CPF payroll, and the PDPA.
Read the article →The framework for sequencing a carve-out across multiple jurisdictions.
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We scope the data transfer and entity reality into the TSA while you still hold leverage. Fixed-fee proposal in 48 hours. The first conversation is always free.
Seven buyer-side moves to exit a Transition Services Agreement on time and below budget. The mark-up, the extension-fee curve, exit sequencing, and the 11-month calendar.
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