Hongkongers may dodge new tax after U-turn

PUBLISHED : Saturday, 10 September, 2011, 12:00am
UPDATED : Saturday, 10 September, 2011, 12:00am

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Chinese nationals from Hong Kong, Macau and Taiwan are likely to be exempt from the mainland's new social security tax going into effect next month. But all expats from countries that have not signed bilateral agreements with Beijing will have to pay up to 11 per cent of their income to social security funds.

Employers will be required to pay an extra 37 per cent of a foreign employee's salary to the social security accounts under the rule published by the Ministry of Human Resources and Social Security.

The new rule represents an about-face by Beijing, which previously planned to apply the tax to residents from Hong Kong, Macau and Taiwan. Two people who saw a draft copy of the rule said the ministry deleted the clauses involving residents from the three places in the final version. The ministry could not be reached for comment yesterday. 'It's not clear why the rule was revised to exempt the Hong Kong workers,' said one corporate official who is close to the regulators.

'But the authorities have to clarify many details of the new policy since the impact will be huge on thousands of companies.'

The rule will take effect on October 15.

It is unknown whether non-ethnic Chinese who obtained ID cards in Hong Kong are exempt from the tax.

At least 10 countries - including the United States, Japan and Russia - have lobbied Beijing to sign bilateral agreements so that the rule could contain a waiver for their passport holders.

The ministry did not mention which countries had already signed the pacts.

Before, foreigners and Hong Kong people working on the mainland could voluntarily pay social security tax to local accounts if they hoped to receive pension income from the mainland accounts after retirement. The new rule 'is designed to protect the legal rights of the foreigners so that they can benefit from the domestic social security system', the ministry said.

However, businesses and individuals thought otherwise.

'It doesn't seem to be a wellconsidered rule,' said David Lore, an American journalist who has been working on the mainland for more than a decade. 'My concern is that our money would go into somebody's pockets.'

All of the company officials interviewed by the South China Morning Post were critical of the new rule and said they were confused about the motivations behind the policy.

'This is another fresh example of the Chinese government spoiling the business environment for foreign businesses,' said a human resources officer with a British consultancy. 'We would choose not to abide by it initially since there's no mention of a penalty in the rule.'

Hu Jingjing, a corporate lawyer at state-owned recruitment firm China International Intellectual Shanghai, said: 'The rule will certainly have a negative impact on both domestic and foreign companies.'