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Employing foreign staff in China: Tax and welfare contributions





Photo by Steve Wilson

As an employer in China you have legal obligations towards your foreign staff just as you do towards Chinese staff – and they are mostly the same. Read on to find out more.

 

Tax

Employees pay Individual Income Tax on their earnings. It is the employer’s responsibility to calculate and deduct each employee’s contribution from their wages or salaries every month. The company then submits the tax deduction to the tax authority. The company’s role in this is purely administrative. The company itself does not need to make a separate contribution on behalf of foreign employees; it comes directly from the employee’s wages.

 

Welfare contributions

China’s standard social insurance scheme comprises a system called the “Five Insurances” – the basic pension, basic health insurance, occupational injury insurance, unemployment insurance and maternity insurance – plus a housing fund. All of them are compulsory and intended to protect and benefit employees. According to Chinese law, foreign staff must be given the Five Insurances, but not the housing fund. 

 

The basic pension plan

What employer contributes: Varies from region to region, but usually equivalent to around 20 percent of employee’s salary.

How employer benefits: No direct benefits for employer.

What employee contributes: Eight percent of salary.

How employee benefits: Upon retirement, employees who have contributed to their personal pension fund for at least 15 years can receive a pension based on the total amount they have contributed personally in their working life. If the personal fund runs dry, the employee can receive a pension drawn from the public fund (which employer contributions are directed into). Foreigners are able to draw on the retirement if they put in the 15 years’ basic pension, and can withdraw the money in their personal fund when they leave the country. 

 

Medical Insurance

What employer contributes: There are regional variations, but it’s usually equivalent to between seven and 12 percent of the employee’s salary.

How employer benefits: No direct benefits for employer.

What employee contributes: Regional variations, but usually two percent of the employee’s salary.

How employee benefits: If the employee is sick or injured, a percentage of their treatment costs is covered by medical insurance (how much depends on what they are being treated for). Employees also carry a health insurance card; its value is equivalent to the total contributions they have made to their personal medical insurance fund to date. The money on the card can be used to pay for medicines and hospital out-patient costs. Unlike the pension this cannot be withdrawn as cash and can only be used to pay for medical care in a pharmacy or hospital. 

Industrial Injury Insurance

What employer contributes: Ranges between 0.4 and three percent of employee’s salary (varies based on type of work).

How employer benefits: If an employee is injured at work, their medical care is covered by this fund. However, the employer must continue to pay the employee’s salary for as long as they are unable to work (up to a maximum of 12 months).

What employee contributes: No contribution required.

How employee benefits: If the employee is injured at work, their medical care will be covered by the industrial injury insurance fund (as well as the medical insurance fund).

 
Unemployment Insurance

What employer contributes: Usually two percent of employee’s salary.

How employer benefits: No direct benefits for employer.

What employee contributes: Usually one percent of salary.

How employee benefits: Employee will receive unemployment benefits for up to 24 months if they are made redundant (but not if they quit their job). Employee must have been making contributions to Unemployment Insurance fund for at least one year continuously to qualify for benefits.

 
Maternity Insurance

What employer contributes: Usually equivalent to between 0.5 and one percent of employee’s salary.

How employer benefits: Employer does not need to pay employee’s salary during employee’s maternity leave (usually three months).

What employee contributes: No contribution required.

How employee benefits: Employee receives a fixed sum for each month (paid for by maternity insurance fund) during their maternity leave. Alternatively, they can receive a lump sum to help cover cost of birth. Fathers may also apply for compensation during paternity leave (up to 15 days, but allowance depends on region).

 

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2 Responses to Employing foreign staff in China: Tax and welfare contributions

  • Hi, I’m living in China and I want to discuss about company taxation including tax rebate in Guangzhou, China. Please contact with me on my mobile number… [mobile number removed]

    • Hi Rizwan. Thanks for getting in touch! Unfortunately we can’t communicate with you one-on-one except through the website. We are also reluctant to discuss or give advice on specific accounting details. The best we can do is suggest that you talk to an accountant in your area who can look at your specific case and give suggestions.

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