China has reduced employers’ maximum share of basic pension premiums for urban workers from 20% to 16% nationwide with effect from 1 May 2019. The State Council also directed local governments to assess their existing social insurance funds and lower the premiums if required by circumstances in their respective areas.
The current policy of reducing unemployment and work-related injury insurance premiums would be extended to 30 April 2020. The total unemployment insurance payment by the employer and employee must not exceed 1% of the contribution base. If the location’s work-related injury fund is able to cover payments for the next 24 months or longer, the local government can cut premiums by 20% to 50%. In addition, local governments cannot increase the social insurance payment obligations of small and micro enterprises or force payments in arrears.
In recent months, some national and local policies were implemented to reduce the cost pressure on companies and support employment. For example, eligible companies can claim a 50% reimbursement for unemployment insurance expenses. In Guangdong, eligible local companies can enjoy a 30% reduction in work-related injury insurance premiums.
More policies are expected in the future to further help companies save costs. Companies should utilise such policies where relevant to save social insurance costs and be careful to avoid illegal actions. The following methods of paying salaries to full-time employees are illegal:
- Paying part of the salary through the company’s bank account and the rest through a private bank account;
- Paying part of the salary as reimbursement;
- Paying part of the salary as a service fee;
- Paying part of the salary as a tax-free allowance; and
- Registering full-time employees as part-time workers to avoid social insurance payments.
Following the recent amendments to the Individual Income Tax (IIT) Law, China’s Ministry of Finance and State Taxation Administration jointly released Caishui  No. 35 (or Circular 35), which explains new tax residency regulations as follows:
Wage and salary income sources
|Incomes sourced from China/
Incomes from working period in China
|Incomes sourced from outside China/
Incomes from working period outside China
|Enterprise undertaken within China (A)||Enterprise undertaken outside China (B)||Enterprise undertaken within China (C)||Enterprise undertaken outside China (D)|
Durations for non-resident individuals and those without residence but deemed as resident individuals
|Non-resident individuals||Individuals without residence in China but deemed as resident individuals|
≤ 90 days
|90 days ˂ Without residence ˂
|183 days ≤ Without residence ≤ 6 years||Without residence ˃ 6 years|
|Non-senior executives||Senior executives||Non-senior executives||Senior executives|
|A & C
(Taxable incomes for A & C calculated separately)
|A & B
|A, B & C
|A, B & C
|A, B, C & D|
Under avoidance of double taxation agreements (DTAs) concluded between the China and Hong Kong/Macao authorities, an individual who is a tax resident of the other contracting party may enjoy tax treatment according to that specified in the DTA and relevant regulations of the Ministry of Finance and State Taxation Administration.
Taxable income calculation methods for wages and salaries
|Formula 1||Taxable income from wages and salaries in the current month = Total domestic and overseas wage and salary amount in the current month * (total wage and salary amount paid in China in the current month / total domestic and overseas salary amount in the current month) * (number of domestic working days in the work period which wages and salaries in the current month are attributable to / number of calendar days in the work period which wages and salaries in the current month are attributable to)|
|Formula 2||Taxable income from wages and salaries in the current month = Total domestic and overseas wage and salary amount in the current month * (number of domestic working days in the work period which wages and salaries in the current month are attributable to / number of calendar days in the work period which wages and salaries in the current month are attributable to)|
|Formula 3||Taxable income from wages and salaries in the current month = Total domestic and overseas wage and salary amount in the current month * [1 - (total wage and salary amount paid overseas in the current month / total domestic and overseas salary in the current month) * (number of overseas working days in the work period which wages and salaries in the current month are attributable to / number of calendar days in the work period which wages and salaries in the current month are attributable to)]|
All foreign-invested enterprises (FIEs) legally established and registered in China before 2019 are required to log in to the government’s ‘National System for Joint Reporting of Information on FIEs’ Annual Investment and Business Operations’ website (www.lhnb.gov.cn) from 1 April 2019 to 30 June 2019.
They have to provide details of their investments and operations in 2018 through the site and relevant information will be shared among the Ministry of Commerce, Ministry of Finance, State Taxation Administration, National Bureau of Statistics and State Administration of Foreign Exchange.
FIEs that are incorporated in 2019 are required to do the same for investments and operations this year during the same period in 2020.
With effect from 1 April 2019, the average salary index, minimum monthly wage and minimum hourly wage in Shanghai is RMB7,832, RMB2,480 and RMB22 respectively, according to Shanghai Municipal Human Resources and Social Security Bureau.
Local employers are required to pay full-time employees no less than the minimum monthly wage, excluding social insurance, the housing fund, overtime pay and all kinds of allowance.
For part-time employees, local employers have to pay no less than the minimum hourly wage, excluding social insurance and the housing fund.
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