The tax man cometh in China

On June 10, China’s Ministry of Human Resources and Social Security released two measures for public comment: “Interim Measures for the Participation in Social Insurance of Foreigners Employed in China (Draft for Comments)” and the “Measures on the Administration of Social Insurance Record of Individuals’ Rights and Interests (For Comments).”

The comment period for both drafts ended on June 17. The two drafts signal the beginning of new measures which will bring foreign workers for the first time into China’s social services system, beginning July 1.

Previously, foreigners were not included in the system and as a result, any company that employed foreigners did not have to pay social services insurance taxes and contributions.

In essence, it is part of an ongoing program which is equalizing the playing field in China. Unfortunately, when you get used to things and they are taken away, you tend to feel a sense of loss, regardless of whether you deserved them or not.

For many seasoned expats who are watching the “good old days” disappear, it is another milestone on the road to wreck and ruin. For those just arriving, it may seem a bit odd, as most will never see any direct benefits, and for those who do, the benefits might appear to be rather meager.

But onwards; the Interim Measures provide that foreigners who are legally employed by private enterprises, public institutions, social groups, privately-owned non-enterprise units, foundations, law firms and accounting firms that have been legally registered or recorded will be required to participate in the basics: pension insurance, basic medical insurance, work-related injury insurance, unemployment insurance and maternity insurance. This means foreign employees and their employers will have to pay more fees and taxes. This will also apply to foreign owned entities and representative offices which had previously been exempt.

Like the decision to equalize the corporate tax rates for foreign and domestic companies, this is another step in what appears to be a massive, but gradual, normalization policy, which is erasing the favored treatment foreigners and their companies used to enjoy.

A couple of catches you should know about Chinese social benefits: you have to be in China to use and/or collect. Actually even getting access to services and funds you are “entitled to” could be a long and very tiresome process. On a misery loves company basis, it also applies to Hong Kong, Macau and Taiwanese working in China.

So, the bottom line, as estimated by The Wall Street Journal, is about $100 per month for employees and $300 a month per employee for employers. Like in the United States, the money is theoretically split between the employee and employer contribution. It is unreasonable? No. Will it impact the bottom line? That depends on the number of foreign employees you have. In the United States, we do the same thing, but we will at least send you a Social Security check wherever you want, assuming there is any money in the pot.

As a side note, as predicted, water is becoming a top burner issue. Estimates by the Chinese government say that more than half of the water in Shanxi is contaminated. The Three Gorges Dam is attracting a lot of attention as lakes and rivers dry up downstream. Record breaking droughts are having a severe impact on local crops and economies. What China is looking for is not only the ability to move water, but also solutions which reduce the amount of pollutants and cut the overall use of water in industry, offices and homes. Hopefully, the businesses in Wisconsin can answer this need.

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