China may have dented its attractiveness as a destination for expats after announcing a social insurance tax on foreign workers.
From October 15, expats working in mainland China will be forced to pay 11 per cent of their salaries to the government in exchange for access to benefits such as pension coverage and medical insurance.
While employees will see a significant chunk of their tax-home pay disappear, their employers are also being hit by the new tax, as companies are forced to contribute a further 37 per cent of the foreign staff’s salaries.
The move could discourage multinationals from sending foreign workers to China in the future, while employees will be concerned about another raid on their salaries. Income tax in some cities in China is already charged at 45 per cent at the top tier.
Given China’s hunger for foreign talent, especially in cities such as Shanghai, it has been quick to promote the benefits for foreign workers.
The government states that expats will be able to enjoy five different programmes – pension provision, unemployment benefit, occupational injury compensation, medical cover and pregnancy insurance.
But some expats have questioned the relevance of these perks, as many already enjoy them as employee benefits. Ben Warner, who works for a multinational based in Shanghai, said: “Like many other expats, I already have more than adequate medical coverage from my employer, so for me it makes no sense to pay this tax. I’d rather keep the money than pay it to the government.”
And the American Chamber of Commerce in the People’s Republic of China has questioned the compulsory pension payments. A spokesman commented: “Foreign employees often work in China for short periods of time. China’s pension plan, however, requires that all foreign employees must participate in the pension plan for at least 15 years before they can draw on the pension. Such requirement is not practical for foreign employees.”
He added that it was also unclear what happens to any accrued pension once an expat returns to their home country.
Other countries allow foreign workers to opt-out of local social insurance payments if they are contributing into a similar scheme in their home country. British expats are allowed to continue paying National Insurance Contributions while living and working overseas to qualify for a UK state pension in retirement.
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