NEW China Social Tax Rules for Expatriates

Begin Accounting For This New Tax Cost Now




Oct 21, 2011

As you may be aware, China is in the process of implementing a new PRC Social Security Law, which became effective July 1, 2011 but did not include finalized implementation guidance until October 15, 2011. As the Execution Date of this new law is effectively here, expatriates who are working in China will now be required to participate in the PRC Social Security system. Provisional Measures from the Ministry of Human Resources and Social Security in China have been issued recently providing some additional guidelines on how expatriates should participate in the PRC Social Security system in China.

Please find here a short summary regarding important immediate action steps and points of clarification for the new PRC Social Security Law: 

1)      Confirm which expatriates working in your office(s) are required to participate in the PRC Social Security system. All non-Chinese nationals working in China holding a work permit, resident permit or a permanent residence permit must participate in the social insurance system. The Chinese employers or China host entities are required to pay their respective employer’s share of the contributions.

2)      Complete the required registration procedures with the SSB on behalf of the expatriates, which will include receiving China social security cards. Within 30 days after obtaining a work permit, the unit in China which employs the expatriate should apply for social insurance registration for the expatriate. Expatriates working in China must participate in the same funds as Chinese employees. The calculation of the social insurance premiums is the same as for Chinese employees. The rates are determined by the local governments and will, therefore, vary from city to city. Contributions will be due on a monthly basis.

3)      Confirm whether expatriates should make contributions to the PRC Social Security system starting from July 2011 (retroactively) or from October 2011 or from November 2011 with the local social security bureaus. This again will be determined by the facts and circumstances of each employee as it relates to the local taxing jurisdiction. Note that upon departure from China, the company and expatriates would be allowed to withdraw the contributed amounts directly from the SSB. Expatriate employees are entitled to pension benefits at the statutory retirement age, i.e. 60 for men and 55 for women, but may apply for earlier payment of the balance in his or her personal social insurance account when he or she leaves the country.

 

For examples of current local social tax rates for both employees and employers, please see below:

Beijing

 

Employer

contribution

Employee

contribution

Pension

20.0%

8.0%

Maternity

0.8%

0.0%

Unemployment

1.0%

0.2%

Occupational Injury

0.3%-1.0%

0.0%

Medical Insurance

10.0%

2.0%

Sub-total

32.1%-32.8%

10.2%

The 2011 monthly ceiling amount for the salary contribution base in Beijing is RMB 12,603 = monthly max contribution for employee of RMB 1,289 and for employer of RMB 4,046 to 4,134.

 

Shanghai

 

Employer

contribution

Employee

contribution

Pension

22.0%

8.0%

Maternity

0.8%

0.0%

Unemployment

1.7%

1.0%

Occupational Injury

0.5%

0.0%

Medical Insurance

12.0%

2.0%

Sub-total

37.0%

11.0%

The 2011 monthly ceiling amount for the salary contribution base in Shanghai is RMB 11,688 = monthly max contribution for employee of RMB 1,286 and for employer of RMB 4,325.

 

Guangzhou

 

Employer

contribution

Employee

contribution

Pension *

12.0%

8.0%

Maternity

0.85%

0.0%

Unemployment

2.0%

1.0%

Occupational Injury

0.5%-1.5%

0.0%

Medical Insurance **

1.2%-8.0%

0.0%-2.0%

Sub-total

16.55%-24.35%

9.0%-11.0%

*Pension Note - Monthly salary Salary Cap = RMB 10,089.

**Medical Insurance Note - Non-Guangzhou Citizen = 1.2% Rate for Employer and 0% for Employee.

The 2011 monthly ceiling amount for the salary contribution base (except pension rate) in Guangzhou is RMB 13,623 = monthly max contribution for employee of RMB 943 to 1,216 and for employer of RMB 1,831 to 2,893.

 

Shenzhen

 

Employer

Employee

Contribution basis/Salary cap

Pension

Basic pension + local supplementary

11%

8%

Monthly salary. 3-Times Salary Cap: RMB 12,615 (Shenzhen Citizen)

Basic pension

10%

8%

Monthly salary. 3-Times Salary Cap: RMB 12,615 (Non-Shenzhen Citizen)

Medical

Comprehensive Medical Insurance (including local supplementary + maternity insurance)

7%

2%

Monthly salary. 3-Times Salary Cap: RMB 12,615

hospitalization Insurance (including local supplementary + maternity insurance)

0.80%

0.20%

Fixed at RMB 4,205

Unemployment

1%×headcount×40%

 

 

Work-related injury

0.25%,0.5% or 0.75%

 

Monthly salary

The 2011 monthly ceiling amount for the salary contribution base (except hospital rate) in Shenzhen is RMB 12,615 = monthly max contribution for employee of RMB 1,270 and for employer of RMB 2,336 to 2,525.

 

Currently, China has only concluded social security treaties with Germany and South Korea to avoid double payment of social insurance premiums.

GMT also recommends the following actions on the part of companies with expatriates in China in order to begin accounting for this new tax cost: 

1) Companies should start computing and accruing for this expense now. The social security contributions made by foreign employees & employers are deductible against employee’s Chinese IIT and employer’s Chinese corporate income tax, respectively.

2) There may be a financial impact to foreign employees that are in China as local hires under this new tax regime. Companies should start assessing this cost, notify their employees affected and plan for any employee subsidies for this additional tax burden, if applicable.  

3) Expatriate Assignment program policies should be re-visited to ensure this new tax is covered as desired.

As a matter of course, companies with expatriates in China should also be in contact with their local tax practitioners in China with respect to the implementation & rates for the new expatriate PRC Social Security requirement as the local tax officers in-charge of the PRC Social Security Bureaus (“SSB”) are charged with providing this information for each locale.