Foreigners Can Get Some Money Back When They Leave China

Our previous article stated that China's new individual income tax(IIT) law seems to ease the burden for the middle-class and the grass-root resident taxpayers, but don’t throw the towels just yet. Regardless of your citizenship - Chinese national or foreigner - and your tax status, the new law affecting social insurance will be enacted on the same day as the new IIT law, which is expected to be released on January 1st, 2019. How much can money can you actually keep in your pocket with this new social insurance law?

According to an announcement recently published, the State Administration of Taxation will be the official institution to levy the social payment effective January 1st, 2019.

What makes it different? 

Your salary will be transparent to the tax authority, the company and employee can no longer pay social insurance according to the lowest standard as the IIT you paid is collected by the tax authority as well, and its payment is based on a formula involving your salary.

Will you/ the company pay more or less?

The average salary in Chinese first-tier cities is around RMB 10,000 per month, but it’s still under the bracket for middle-class taxpayers. So, assuming your salary is RMB 10,000 after tax each month, we can roughly calculate the tax and social insurance payment using the following formula: 

Monthly payment under the old system：

You pay RMB1,495 for IIT 

You pay RMB380.34 for social insurance 

Your company pays RMB890.38

Monthly payment under the new system：

You pay RMB790 for IIT 

You pay RMB1,020 for social insurance

Your company pays RMB2,269

Individuals with around a monthly income of RMB10,000 will not be affected that drastically by the new system, but companies do end up paying about RMB 1,000 more per employee.

China's social insurance program for foreigners

Legally speaking, it's been a long time since people kept on asking foreigners to participate in China's social insurance program. In fact, since the launch of the program in 2011, China has continued to revise the terms, from foreigners "can" join apply for social insurance to they "should" do it. And it eventually clarified that foreigners who work in China should buy social insurance the same way as locals.

Technically speaking, social insurance is still managed at a regional level, and its requirements vary from city to city. As a result, most major cities have implemented their own requirements with regards to foreign employees. For example, in cities like Guangzhou, Beijing, Tianjin, Shenzhen, and Nanjing, taking part in social insurance program is mandatory for foreign employees, who are expected to be treated the same way as local workers. Conversely, Shanghai does not currently require foreign employees to contribute towards social insurance.

In the past, foreigners in Guangzhou were getting errors when submitting their application for Chinese work permit, where the system of State Administration of Foreign Experts Affairs shows that they did not submit proof that they paid for their social insurance. 

You can never understand what is happening there, policies always change between cities, especially during the period of big national events.  Now, the social insurance system is under the administration of the tax authority and thus will become more regulated and standardized. We’ll see how China implements the new tax scheme step by step and builds up the relationship between work permit applications and tax payment.

Image：china.hket.com

Applying for social insurance exemptions

China has signed the international social insurance agreement with several countries. In consequence, foreign employees from these countries can apply for exemptions to avoid being double levied on social insurance and enjoy the benefit of social insurance internationally. So far, eight agreements have been implemented between China, and the following countries: Germany, Korea, Denmark, Canada, Finland, Switzerland, the Netherlands, and Spain. China has also made agreements with France, Serbia, and Japan, but these agreements are not yet in effect.

However, as we mentioned, not all regional authorities have implemented those rules in accordance with either the Chinese law or international social insurance agreements, this increases the difficulty for foreigners to obtain exemptions.

Receiving pension money monthly

Foreign employees who have accumulativelu paid social insurance fees for more than 15 years and have reached the statutory retirement age of China (60 years old for males and 55 years old for females), they can retire in China and receive basic pensions on a monthly basis.

If choosing to receive the monthly pension from abroad, they should annually provide survival proof to the social insurance organization that provides their pension. This proof should be issued by the Chinese foreign embassy or the consulate.

Claiming social insurance money back when leaving China

Foreigners who leave China before the statutory retirement age can claim back some of their social insurance money once, but only for their pension.

That amount is equal to the monthly pension per individual multiplied by the total amount of months when social insurance was paid for.

Go to your local Social Security Bureau (Tax bureau when the new law enacts) that your LAST company belongs to. If you’re moving to another city, we suggest you take out the pension before moving because as of today, the systems of the Social Security Bureau in different cities are not connected. That's quite inconvenient to go between cities for this issue. Here are three documents needed for the application:

• Confirmation letter 

  Provided by the local Social Security Bureau.
  

• Passport

  Both original and photocopy are needed.

• Debit Bank Card

  Only four banks are accepted: Bank of China; Industrial & Commercial Bank; Agricultural Bank of China; China Construction Bank

The total personal payment of pension will be transferred back to your debit card in one transaction in about 7 business days.

Source: gz.gov.cn, HiTouch

Supervisor: Crystal Huang

Editor: SC

Co-editor: Ed Bellin

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