Expats in China to pay more taxes

EXPATRIATES       TAX       SALARY       GOVERNMENT

China – Expatriates based in China will have to start paying social insurance if they want to be eligible for benefits such as pension and medical insurance.

The new scheme, which takes effect 15 October this year, will see expats paying the Chinese government 11% of their base pay while employers will have to contribute another 37%. The salary eligible for taxation will be capped at no more than three times the average salary at any given city.

The Chinese government said this new programme will allow expats to enjoy pension provision, unemployment benefits, occupational injury compensation, medical cover and pregnancy insurance.

Chinese nationals from Hong Kong, Macau and Taiwan are likely to be exempt from the new tax scheme, the South China Morning Post reported.

The Shanghai Daily added that expats from countries that have already signed a social insurance agreement with China will not have to pay the new tax.

However, foreign business groups have urged the government to reconsider the new policy or make it optional, as many expats already have insurance coverage from their employers.

Additionally, the move could discourage companies from relocating more expats to China as labour costs continue rising in the country. As it is, the current income tax for foreigners in some Chinese cities stands at 45%.

“This regulation will improve social security for foreign workers, but also raise the cost of hiring foreigners in China,” Lin Xinqi, director for human resources at the Renmin University of China, told the Global Times.

The American Chamber of Commerce in China have also questioned the motive behind the government’s new scheme. It added the programme was not practical as China’s regulations require foreign employees to contribute to their pension plan for at least 15 years before they can use it.

Most countries typically allow expats to opt out of such benefit schemes if they are already contributing to a similar programme in their home country.

For example, in order to qualify for a UK state pension, British expats can continue paying their National Insurance Contributions while working overseas.

Similarly in Singapore, foreign workers only need to contribute to the Central Provident Fund if they are permanent residents of the city-state.

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