Tax and Social Security Contributions for Your Employees in China

Tax and Social security contributions for your employees in China-HROne

Being an employer in China, certain obligations have to be followed relating to tax and social security contributions for your employees in China. Read further to know more about them:
  • Individual income tax
  • Social security contributions (social insurance and housing fund)
  • Conditions and benefits of social security contribution in China
  • Pension
  • Medical insurance
  • Unemployment insurance
  • Work-related injury insurance
  • Maternity insurance

Individual income tax

Depending on their salary, all employees in China pay Individual Income Tax on their income. The employer is responsible for deducting the Individual Income Tax from the salaries every month and submit the tax deduction to the tax authority. This is only an employee contribution and applicable to both expat and Chinese employees.
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Social security contributions (social insurance + housing fund)

China’s social security law was promulgated by the central government but its administration and specific details are governed by local authorities. For example, employer and employee contribution rates and caps for each benefit vary according to local jurisdiction and are subject to annual changes and reforms. The contribution to China’s social security system is mandatory for Chinese employees and their employers as well as foreigners employed in China. Welfare Contributions consists of 5 mandatory insurance schemes (pension fund, medical insurance, industrial injury insurance, unemployment insurance, and maternity insurance) + a housing fund (only applicable to Chinese employees). The following explains the contributions in Shanghai in 2015, the rates vary from city to city: Pension Insurance Employer contribution: 21%, Employee contribution: 8%

  • Medical insurance

Employer contribution: 11%, Employee contribution: 2%

  • Unemployment insurance

Employer contribution: 1.5%, Employee contribution: 0.5%

  • Work-injury insurance

Employer contribution: 0.5%, Employee contribution: Not required

  • Maternity insurance

Employer contribution: 1%, Employee contribution: Not required

  • Housing fund

Employer contribution: 7%, Employee contribution: 7% (Equal contribution by both)

Self-employed individuals, part-time employees who do not participate in the social security schemes through their employers, and unemployed individuals can participate in the pension and medical insurance schemes on merely a voluntary basis.
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Conditions and benefits of social security contributions in China

For each of the social insurance, there are benefits, certain conditions and possible hitches for foreigners in China which we will cover in the following section.

Pension

Normally, it is essential for people to contribute to pension insurance for a minimum of 15 consecutive years before they claim their pension. The retirement age for employees is different for some industries but on an average, the age is 50 years for women and 55 years for men (if it is manual labor) or 55 years for women and 60 years for men (if it is professional labor). The retirement benefits are influenced by local protocols. When an expatriate employee leaves China before the age of receiving a pension, his / her individual pension account will be reserved. If later, the expatriate again returns to China for further employment, the payment period will be calculated on a cumulative basis. The expatriate can submit a written application, upon which, the social insurance agency can pay the expatriate, the amount accumulated in his individual pension account in one lump sum and terminate the pension relationship. in case of the expatriate’s death, the amount accumulated in the individual pension account can be inherited. The prerequisite of this regulation is that expatriate must leave China only with good intent or for a good purpose.

Medical insurance

Medical insurance contributions are required to be made every month by both employers and employees. The insurance fund will perform disbursement of medical expenses to selected hospitals that perform the medical treatment. Patients do not need to pay the fees for medical treatment anymore and wait for the reimbursement.

The prerequisite of this regulation is that the medical Insurance only covers medical treatment undergone in and managed by Chinese government-approved hospitals and clinics.
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Unemployment insurance

Unemployment insurance fund contributions are made only by employers Nevertheless, employees in specific local jurisdictions are required to make additional contributions to unemployment insurance fund Generally, unemployed people are eligible to get unemployment benefits for maximum 12 – .. 24 months if unemployment insurance has been contributed by their employers for minimum 12 months.

There are no unemployment benefits for expatriate employees, as a foreigner not working in China will not have a VISA to continue living in China.
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Work-related injury insurance

Work-related Injury Insurance fund contributions are made only by employers every month. The contribution amount may vary in some specific jurisdictions according to the industry. Normally, the insurance covers all work-related injuries and occupational illnesses.

The insurance fund normally covers the costs of medical treatment. The employer is still liable to pay monthly salary or a part of the monthly salary to the injured employee. The injured employee can still claim the medical treatment and have the treatment paid for via the insurance, even if the employer has not made the essential monthly contributions. The fund administrator will perform the assessment of the same and will perform the required follow-up with the employer so as to receive full compensation.

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Maternity insurance

Maternity insurance contributions are made by employers every month. The monthly contribution to the insurance fund for women employees during their maternity leave is dependent on the average monthly salary of the woman employee. It means that a woman employee could get more salary during her maternity leave if she works at a company where other women receive a higher salary than her. To be eligible for these benefits, the female employee’s employer must make maternity fund contributions every month for at least 3 months and the applicable medical treatment must be in compliance with China’s birth control policy.

How HROne can be beneficial to your business

HROne’s service can handle the complete employee benefits for your company in compliance with the local policies and also can take care of the visa for your company’s expatriate employees. We can directly hire employees for a company not having a legal entity in China by our specialized Employee Leasing / Talent dispatching services.

The information contained in this article is valid on June 30th, 2016. For updated information, please contact us via email at info@hrone.com.