New policy still fluid

PUBLISHED : Wednesday, 28 March, 2012, 12:00am
UPDATED : Wednesday, 28 March, 2012, 12:00am

Foreign nationals working on the mainland are now required to pay social security tax, but there is still confusion over the interpretation and implementation of the new policy, which became effective last October.

According to the provisional measures issued by the Ministry of Human Resources and Social Security (MHRSS) in China in September last year, the effective date for expatriate employees to start contributing to social security in China was October 15, 2011, says Jacky Chu, a partner in the international assignment services at PricewaterhouseCoopers.

'Over the past two months, social security bureaus in major cities began implementing the scheme, though some others have yet to take any action,' Chu adds.

Sam Pang, partner of human capital at Ernst & Young, says: 'Based on our observation, cities such as Guangzhou and Shenzhen have yet to release specific, detailed measures regarding the contributions by expatriate employees to social security.'

Another point concerns whether employees from Hong Kong, Macau and Taiwan need to participate. Measures by several municipalities seem to vary.

For instance, Beijing seems to exclude employees from these regions from the scheme for the time being. 'The situation remains fluid,' Pang says.

China has passed the social security law to bring itself in line with the practice of other developed economies, requiring foreign nationals working there to contribute to social security. 'Many mainlanders working overseas are required to make contributions in their host countries,' Chu says.

Foreign employees from countries with which China has entered into Totalisation Agreements enjoy exemption. So far, China has signed this agreement with Germany and South Korea. 'However, there is only sketchy information on the mechanism of this exemption available from local social security bureaus,' Pang says.

The types of insurance covered in the scheme include: basic pension fund; basic medical insurance; work-related injury insurance; unemployment insurance; and maternity insurance. The amount of monthly contributions by the employees and employers vary from city to city, so do the proportions of contributions from both parties. The contributions are calculated based on the maximum pensionable income (MPI), which is three times the average monthly salary in an individual city and are reviewed and adjusted annually.

For instance, the MPI in Guangzhou last year was 13,623 yuan (HK$16,695), 12,603 yuan in Beijing and 11,688 yuan in Shanghai, Chu says.

'Depending on the city, monthly contributions by an expatriate employee are from 800 yuan to 1,500 yuan, while [those] by the employer [are] from 1,500 yuan to 4,000 yuan,' Chu adds. As the enforcement of the scheme affects many foreign employees in China, corporations should put in place specific administrative strategies and effective internal communications mechanisms for their staff, Pang says.

He notes that while some firms may not yet participate in the scheme, they should begin to include the additional expenditure for future contributions.


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New policy still fluid

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