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2011-10-31 | All chapters

No going back on bungled expat tax
South China Morning Post, 29th October 2011

The central government has admitted local authorities are not ready to implement a social security tax on foreign workers supposed to take effect two weeks ago, but insists there is no going back despite widespread fears in the business community.

A press briefing was held in Beijing yesterday to clarify the new regulation, which is shrouded in obscurity and has never been clearly explained to foreign media before. But the effort ended in confusion, with the official tasked to brief reporters saying he did not have enough information to answer questions.

Under the law, foreign workers and their employers will have to make monthly contributions to a basket of social security funds - effectively meaning they will have to pay more tax. Businesses say the law is vague and lacks details. They are also concerned it will add an extra burden to doing business in China.

But the central government was adamant yesterday that the law would be enforced as planned, said Xu Yanjun, deputy head of the Ministry of Human Resources' National Social Security Management Centre.

Xu said foreigners working on the mainland would need to register with the authorities and, regardless of when they completed that process, start making contributions by October 15. Those registering late will have to make back payments.

The South China Morning Post has reported that local governments were caught off guard by the law and only the Beijing municipal government implemented it on time.

"Local governments have not made full arrangements yet for receiving the payments or registering people, that is the case," Xu said.

Local tax authorities have been asked to get the system running by the end of the year. "Maybe the legislation process has delayed the implementation ... local governments have had some difficulty implementing the measures at an operational level," Xu said. "It will take time." Chinese nationals from Hong Kong, Macau and Taiwan are exempt from paying the tax.

The 231,700 foreigners who hold work permits have to pay, though, and so do their employers. They will pay up to 11 per cent of their monthly salaries, and employers up to 37 per cent of these employees' salaries, with earnings of up to 11,688 yuan (HK$14,260) counting for tax purposes and the remainder, if any, exempt.

Foreign executives have complained about the extra financial burden, and that the plan is too vague and will be hard to implement.

Xu said China was simply protecting their rights. However, he was unable to say how foreigners would be able to access services such as unemployment benefits, since work visas are tied to jobs and become invalid in the event of being laid off, or if there would be a special visa issued to enable pension claims.

"We cannot at the moment address all questions," he said. "Some new problems have come up and we are working hard to address them and we need some time to do so, rather than answering yes or no to any question at the moment."

Individual contributions will be refunded upon workers leaving China, but Xu did not explain how that would work.

The European Union Chamber of Commerce in China said clarifications and legal changes would be needed regarding unemployment benefit. Moreover, language barriers meant foreigners might not be able to use medical services and would not be able to enjoy the benefits to which they contribute, yet no international hospitals were included in the plan, it said.

Germany and South Korea have made deals with Beijing to exempt their nationals from the tax. At least 10 other countries, including Russia and Japan, are negotiating similar deals. France and Belgium have also reportedly begun discussions.

Xu blamed other foreign countries, including the United States, for refusing or being unwilling to talk to China about bilateral tax exemption agreements, so employees who pay contributions at home do not have to do so again in China.