The provisions of a tax treaty, to which the People’s Republic of China is a contracting party, provide that both foreign tax residents and PRC tax residents can enjoy the various tax benefits available. These are benefits like tax exemption, tax reduction, and tax relief. China’s social security agreements, also known as totalization agreements, generally aim to ensure no double taxation of income, majorly concerning social security taxes
Simply put, the totalization agreements seek to streamline the taxation of income to ensure that a foreigner is not taxed twice on the same income, that is, by the host country, which is the PRC, and their home country. This primer focuses on the social security exemptions available to foreigners and how applicable they are. In addition, Moore MS Advisory can help you sort your financial obligation as they are experienced in handling foreigners’ taxation and sound financial advice
A Quick Review of China’s Social Security System
The issuance of the Social Insurance Law in 2011 saw the full implementation of China’s social security system framework. This social security system is premised on five essential social insurances plus the housing benefit/provident plan. The five primary categories of social insurance upon which China’s social security system is premised are:
Pension
Medical Insurance
Unemployment Insurance
Work Injury Insurance
Maternity Insurance
Under this social security plan, as it is in China, Pension, Medical, and Unemployment insurance funds are contributed to by the employer and employee. But Work-related injury insurance and Maternity Insurance are funds for which the employer is solely required to pay
Understanding the Social Security Obligations for Foreigners in China
Foreign individuals working in China must understand their social security obligations as stipulated by law. Article 97 of the Social Insurance Law stipulates that foreign individuals engaged in gainful employment in China shall have their part in social security as per the provisions of the law
The law renders that foreign individuals employed in China shall participate in all the five categories of social insurance mentioned above. Primarily, this points that foreign employers and employees shall be required to remit to the various social security and insurance funds as provided by legislation
The housing scheme is the only scheme that foreign individuals working in China will not be mandatorily required to pay. To this, a foreign individual working in China will choose whether to pay for it or not.
Worth noting is that in as much as the law is in force nationally, its implementation is done on a regional basis. Therefore, it shouldn’t surprise you when you realize differences in how these are enforced, looking at it from one locality to another. Shanghai, for instance, has not implemented foreign employee social security contributions. Thus, foreign employees in Shanghai will not be required by law to make their social security contributions. The same applies to employers in Shanghai who will not be legally required to ensure that they have made contributions for their foreign employees to the social security scheme.
Cross-country social security agreements
There is the issue of double taxation that may affect foreign nationals working in China. To help deal with this particular issue of foreign nationals working in China paying social security contributions in two countries simultaneously, China has entered an agreement with some countries, some of which have been put in force. In case you’re a foreigner and you would like to be helped to understand how these contributions are submitted you can consult MS Advisory for financial guidance.