New Social Benefits Tax in China Targets Expats and Employers

Beginning October 15, 2011, foreigners and the companies that employ them will now pay into many of the social insurances currently offered to the local population. These include: basic pension insurance for employees, basic medical insurance for employees, work-related injury insurance, unemployment insurance, and maternity insurance. In theory it all sounds great. Why not pay in and get all the benefits of a socialized system of medicine? When in China, right? However, in practice the new policy isn’t all its cracked up to be. In order to solicit public opinion, China’s Ministry of Human Resources and Social Security released “Interim Measures for the Participation in Social Insurance of Foreigners Employed in China” on June 10, 2011, and the solicitation period ended one week later.

“As with all new policies the Chinese government lays out, there is a launch period followed by enforcement. In the short term, we don’t expect our business to be dramatically impacted, but in the long term the impact could potentially be quite great.” says Michelle Jang, head of human resources for the British International School Shanghai (BISS). As one of the many businesses that rely heavily on foreign staff, BISS has a particular interest in the new social welfare programs and foreign involvement therein. “We pay huge costs in order to employ high quality teachers and provide a high quality education for our students. This is our first priority, and when the tax takes effect that will not change.”

The rumor mill has been churning out many estimates for what this social insurance will actually cost foreign staff and their employers. Shanghai’s expats are estimated to contribute 11 percent and 37 percent of an employee’s monthly salary paid by the employee and employer respectively. Suffice it to say, all parties are concerned about where this is heading. As a general rule employers are looking at paying anywhere between 16-37 percent of an employees salary, while the employee may contribute between 9-12 percent based on the Shanghai Tax Bureau’s implementation of the tax.

Your average expat isn’t exactly thrilled or devastated by news of more tax. Eric has been living in Shanghai for a year now and has actually experienced the Chinese medical system first hand. He suffered from a lung infection and was directed to the tuberculosis wing of Shanghai Changning Central District Hospital. “I can’t say I’d recommend the experience and if my Chinese friend hadn’t been with me it would have been nearly impossible to get the help I needed.” When ask how he felt about paying into the new social benefits program he stressed, “If I’m paying into it I’d expect to see the level of service increased for expat patients. That’s for sure.”