A Foreigner’s Guide to the New (Mandatory) Social Insurance System

Oct 09, 2011
By Christopher Myer

In June of 2011, the draft of the "Provisional Measures for Foreigners Working in China regarding Participation in the Social Insurance Scheme" was publicly released, stating that starting from July 1st, foreigners would have to pay into the Chinese social security system, and consequently sparked worries about what that exactly meant and whether or not we could opt out of it. Just a few months later, on September 6th, 2011, despite our hopes that it would simply disappear, the China’s Ministry of Human Resources and Social Security issued the "Final Provisional Measures" which will take effect starting on October 15th, 2011. While the "Final Provisional Measures" cleared up a few of the initial ambiguities about how exactly foreigners would pay into China’s social insurance system, many foreigners are still very sceptical about the actual benefits they can derive from contributing, and since this final draft still leaves many questions unanswered, it does little to quell anyone’s resentment. Given the complexity of the situation, and though it remains to be seen how this policy will take shape or form, it is important that foreigners working in China understand the "who, what, when, why etc." of what is about to happen.

A Foreigner’s Guide to the New (Mandatory) Social Insurance System
Photo: photophoto.cn, 3lian

What is it?

The "Provisional Measures for Foreigners Working in China regarding Participation in the Social Insurance Scheme", "Social Insurance Law", or simply "The Law" for short, mandates that all people employed in China have the same right to enjoy China’s social insurance system, which consists of five types of insurance:

1) Basic pension
2) Basic medical
3) Unemployment
4) Maternity
5) Work-related injury

Who does it affect?

Chances are, if you are reading this article and are not a full-time student (or working illegally), this policy will affect you. According to "The Law", all foreigners employed by either Chinese or overseas-funded businesses, foundations, organisations, social groups etc., who have worked in China for longer than six months must participate in the social insurance system, i.e., pretty much all foreigners working in China (in the current version of "The Law", it remains unclear whether or not this includes Hong Kong, Macau and Taiwan residents who work in mainland China). Those hoping for some sort of "opt-out" option are also out of luck, as is stated numerous times through the various legislation and press releases… this is mandatory. Having an international insurance will not get you a ticket to bypass "The Law". The only chance you have at opting-out is if you are a foreign employee from one of the nations which has entered into a social insurance treaty with China, which is currently a very short list: Germany and South Korea. Even then, only under certain circumstances will you be given permission to opt-out.

When does it start?

When the first draft of "The Law" was released in June, it stated that starting July 1st, foreigners would begin paying into the social insurance system. After a few months of official silence on the matter, it was announced on September 6th that the "The Law would be taking effect starting October 15th." Also currently unclear is whether or not foreigners will owe back-pay for July, August and September.

How much is this going to cost?

Monthly social insurance fees will be paid by both the foreign employee and by the employer in accordance with the regulations set by "The Law". The fee will vary depending on the average salary in the city where you work. As such, expect to pay more if you live in one of the Tier 1 cities. For example, foreigners living in Beijing, Shanghai and Guangzhou must all pay about 11 percent of the first 12,000 RMB of their monthly salaries. Oddly, earnings above that amount are not taxed, which means that any foreigner living in Beijing, regardless of whether they pull in 10,000 RMB per month or 100,000 RMB per month, are all going to pay about 200 USD for social insurance (low-level teachers are no doubt pretty annoyed with this). In addition to this, employers are required to contribute even more to the social insurance system – double or triple the amount (up to three times the average salary in the city):

Beijing = about 32 percent of the foreigner’s monthly salary
Shanghai = 37 percent of the foreigner’s monthly salary
Guangzhou = about 24 percent of the foreigner’s monthly salary

Why?

And now for the big question that is on every foreigner’s mind: Why? The official line is that this policy will help foreign workers enjoy the same social security benefits in China as Chinese nationals do! While for many foreigners who already had insurance, this seems unnecessary, but this is exciting news for foreigners employed in China who currently have no insurance policy. But what about the rest of us? Expat criticisms to this plan have ranged from rationally upset: this plan punishes teachers and other "low wage" foreign employees in China while turning a blind eye to the millionaire businessmen and consultants; to overtly derogatory: the government is tired of foreigners working in China stealing all of the good jobs and earning a king’s ransom.

Although it is unlikely to be reported as such by the Chinese media, many people believe that the underlying intention of the new policy is to use this influx of cash to alleviate some of the pressure on China’s social safety net that is likely to occur in the near future as more and more Chinese reach the age of retirement. The numbers behind "The Law" seem to support this notion: according to one estimate, the new regulations mandating foreigners contribute to the social insurance system are expected to raise as much as 1.5 billion USD a year. As a foreigner working in China, I am obviously not thrilled about this idea…but I’ll be damned if that isn’t a brilliantly masterminded scheme!

Other Problems

So let's hypothetically say that the goal of this policy was not to use foreigners' money to pay for China’s soon-to-be massive wave of retirees… does the social insurance system actually benefit foreigners? Experts who have already studied "The Law" in depth seem pretty concerned about its ambiguities, vagueness and inability to provide details: the specifics of how to actually reclaim a pension after leaving the country, if it is 100 percent reclaimable, whether or not it is taxed and other questions remain unclear; how and where foreigners can use their medical insurance in China, i.e. in the international sections of Chinese hospitals or in international clinics, is also unknown; how foreigners can take advantage of the unemployment insurance, if as is often the case, visas do not allow them to live in China long-term without employment etc. The overarching concern however is what "The Law" will do to the job market prospects for foreigners in China. Besides the irritation that every foreigner employee in China just took a mandatory pay-cut of about 1,000 RMB per month, will employers still be willing to hire foreigners if they have to pay an additional social insurance contribution fee of 3,000-4,000 RMB a month? Time will tell.
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Expat pension deductions not set

By Jin Jianyu Share

Beijing has yet to detail the regulations on how to include expatriates in China's social security system.

Foreign employees in China and local companies who employ expatriates will be asked to put into social security insurance, including the pensions, medical insurance, work injury insurance, unemployment insurance and maternity insurance. Deductions started October 15, according to a notice issued by the Ministry of Human Resources and Social Security on September 8.

All non-Chinese nationals legally working in China and paying the insurance could acquire a social security card issued by local authorities just as Chinese citizens have, the notice said.

Companies, units, foundations, firms and social groups registered in China will face a penalty if they did not cover the insurance for their foreign staff, the notice said.

"We have not yet stipulated the details of the regulation," said an employee from the public relations office of the Beijing Human Resources and Social Security Bureau who refused to identify herself.

She said the bureau will further illustrate the details of the regulation at an upcoming press conference, the date of which has not yet been set.

The South China Morning Post said, according to an authority in Beijing, the government may have to delay the regulation taxing expats while it develops a system to do so.

The source also said foreign workers might have to pay up to 11 percent of their monthly salary for the insurance, adding that citizens from Hong Kong Special Administration Region (SAR), Macao SAR and Taiwan Province are exempt from the new tax.

"I'd like to pay for the insurance as I can draw the money out when I retire," said Thierno Dious, a French man who works in Beijing.

Dious said that having a social security card makes him feel more like a citizen in China.

Employers in China are asked to register the names of their foreign employees for social security insurance within 30 days after preparing their work permit, according to the notice.

The personal inheritable insurance account of a foreign worker, who leaves China when they can draw their pensions at retirement, could be reopened and their premium payment years could be accumulated if they work in China again. They can also hand over a written application to terminate the deduction, the notice said.

Mo Ting contributed to this story
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How to Transfer Money From China to Canada

Joanne Cichetti

Thanks to e-commerce, sending money from China to Canada has become a lot easier than it used to be. Money-transfer companies such as PayPal, MoneyGram and Western Union allow you to send money at reasonable rates. These companies allow you to determine the money transfer fee using their fee calculator tools. In this way, you will be able to pick the most economical option for transferring funds from China to Canada.

Difficulty:
Moderately Easy

Instructions

Through PayPal

* 1
Register for a new account on PayPal website. You can find the registration form in the "Resources" section. If you already have an account, log in by entering your password and username.
* 2
Click the “Send Money” button on the homepage once you’ve logged into your account.
* 3
Enter the recipient’s email ID in the “To” field.
* 4
Enter the amount that you want to send as well as whether you want to send it in Yuan or Canadian dollars.
* 5
Click “Continue” on the next page.
* 6
Review the information you entered. If everything is correct, click “Send Money.” The money will then be transferred to the recipient’s PayPal account. If he doesn’t already have an account, he will get an email notification asking him to sign up with PayPal.

Through MoneyGram/Western Union

* 1
Find the nearest agent location of MoneyGram or Western Union. You can find company agent offices in your local area on their websites.
* 2
Visit the agent office of the company you chose. Provide all the information regarding the recipient, including name and contact details.
* 3
Pay the transfer amount and transaction fee (you can calculate fees on the companies' websites). The agent will process the transaction and give you an Money Transfer Control Number (MTCN)/Reference number.
* 4
Share the reference number/MTCN with the recipient. Tell him to visit the nearest agent location of the company in Canada. Usually, the funds are available for pickup within 10 to 15 minutes of the transaction.
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China's Banks Compared: Which Offer the Best Accounts for Foreigners?

Mar 01, 2011
By Andrea Scarlatelli

Banking in China can be nothing short of a headache, especially if you’re an expat – long lines, rare English service, and the confusion over paperwork is just the beginning. But the simple fact is that some banks really are better than others. We take a look at China’s “Big Four” state-owned banks – the Industrial and Commercial Bank of China (ICBC), Bank of China (BOC), China Construction Bank (CCB) and the Agricultural Bank of China (ABC) to see how they stack up in terms of prestige, customer service, and online banking services. So while banking in China may never quite feel like a walk in the park, staying informed of your options can make the whole experience just a little less stressful.

Banking in China- Best Accounts for Foreigners

The basics

First of all, there are some things that all the banks will require when you open an account with them, as well as a basic procedure you can expect to follow no matter where you go. When you arrive to open an account, all the banks require a valid passport and, if applicable, a residence permit. A minimum of 1 RMB deposit is needed if you are opening an RMB (as opposed to a foreign currency) account. After you have filled out an application form, you will be asked to create your six digit PIN number (which is different from the usual four digit PIN number found elsewhere in the world, such as in the United States). You will then be issued a “passbook” in which you can record your withdrawals and deposits, along with a debit card which you can use at any of the bank’s branch ATM’s in China. Be warned, however, that if you withdraw money from an ATM outside of the city or town in which you opened your account – even if the bank branch is the same – you will be charged a fee of 4 RMB.

Also, a quick word about online banking: Most banks offer online banking, where you can gain access to your account statements, transactions, and account balance. This can be a great and convenient form of banking – if you don’t expect too much. Expats often wonder why their online banking service doesn’t cover foreign currency and bank-to-(overseas) bank transfers. Well, unfortunately, you can get the best bank in China and this whole process will still be impossible. Why? You cannot convert RMB directly to a foreign currency through online banking. Period. Nor can you send RMB out of China directly.

If you wish to transfer RMB from China into an overseas account, you will have to physically go to a bank branch (all of the banks discussed below offer this service) with your passport, your work permit and a contract from your employer vouching your employment and income. You will also need a letter on your company’s letterhead (and with your company’s stamp) verifying the taxes that you have paid on your income. This is a mandatory requirement, as you are not allowed to transfer any Chinese income for which you haven’t been taxed. In addition, you must bring your monthly pay slips, with your company stamp and government issued tax receipts. All of this is just to change your RMB into foreign currency. Next you will have to actually wire the money to your foreign bank, which is a lot easier – just provide the foreign bank’s details, including its routing number and your account number. This service will cost you some money (around 200vRMB) and take some time, but hey – nothing in life (or China) is easy!

Another big issue expats have is finding banks that offer English service. Unfortunately, it’s simply a “hit-or-miss” situation, with a vast majority of “misses.” The best thing to do is get a Chinese friend or co-worker to come with you and explain the process. Once you’ve done the same transactions a couple of times, you’ll know which documents you need and which forms to fill out.

1) Industrial and Commercial Bank of China (ICBC)
Of the Big Four branches, the Industrial and Commerical Bank of China is the most popular choice when considering customer service and online banking. The word most often used to describe their website is “streamlined,” although personally I have found that Bank of China’s website is not too far behind. The website has full English text, although the wording can get a bit convoluted (for example, a FAQ question asks: “Can we realize the functions that staff of ministry of personnel submit payroll payment orders and the finance director is not able to view details of the payment via Corporate Internet Banking?” Um, what?). You are able to do the usual online activities, however, including paying bills online and viewing your account balance.

Founded in 1984, ICBC is the largest of China’s state-owned banks with assets of over 11 trillion RMB in 2009. You shouldn’t have a problem finding an ATM outlet, even if you’re traveling outside of China, as there are over 18,000 mainland branches and 106 overseas branches.

Opening an account for foreign currency is never an easy task here in China, but ICBC has some of the strictest rules of the Big Four banks. To do so, you must bring your passport and, if applicable, your residency permit. You must also bring a notarized translation of your English name into Chinese, and fill out a basic application form. The bank will then open the account under your officially approved Chinese name. Keep in mind that there is a minimum deposit for opening an account for foreign currency. For example, to open a USD bank account, you are required to put in at least $300USD.

2) Bank of China (BOC)
Another popular choice is Bank of China, which happens to be China’s oldest bank (founded in 1912). The website is relatively clear and concise, without the gluttony of flashing ads and random-facts clutter that abound on most of the other banks’ websites. This is the bank linked to The Great Wall debit or credit card, signs for which you will see in many institutions around the country. Customer service tends to get slightly lower marks for this bank, although I’ve never heard any legitimate complaints beyond the usual “Banking in China is horrible.”

As of 2010, BOC is the top lender in China to individuals with over 6,951 billion RMB in assets. This means that you can find a stand alone ATM or bank branch on practically every street corner. This is one of the best banks to choose if you’re looking for convenience within China. Beware, however, when using BOC overseas. Any money you deposit into the China branch account cannot be accessed in overseas accounts.

To open a foreign currency account with BOC, you need your passport and your residence permit (if applicable). You can then fill out an application, deposit the minimum amount required (for USD accounts, the minimum is currently $500 USD), and voila – you have a foreign currency account!

3) China Construction Bank (CCB)
China Construction Bank gained a major boost when Bank of America bought a 9% stake in 2005. It is currently the second largest bank in the world, which is not too shabby when you consider it was only founded in 1954. For all this, however, you would think their website would be a bit more internationally oriented. While the main online banking page is available in English, when you click on “Online Bank Services” under the “E-Banking” heading, the text switches back to Chinese, with no English language option. This can obviously be a major obstacle if you’re used to doing the majority of your banking online. I imagine that this issue is a pretty big obstacle in CCB not being more popular with expats.

It is fairly easy to find CCB stand alone ATM’s and branches, especially in the major cities. It is, however, a (relatively) smaller operation than, say, ICBC in terms of outlets. Currently, CCB “only” has about 13,629 branches throughout mainland China.

One of the major benefits that CCB has going for it is that it is a member of the “Global ATM Alliance,” which is a “joint venture of several major international banks that allows customers… to use their ATM or check card at another bank within the alliance with no transaction fees when travelling internationally.” According to the CCB website, other members of this Alliance include Bank of America (US), Barclays (UK), BNP Paribas (France), Santander Serfin (Spain and Mexico), Deutsche Bank (Germany), Westpac (Australia and NZ), and Scotiabank (Canada). This means that if you tend to be a world traveler, CCB just might be the most cost efficient choice overall.

4) Agricultural Bank of China (ABC)
The Agricultural Bank of China just recently went public in 2010, but when it did it certainly made a splash – it had the world’s largest initial public offering (IPO) ever. This may be one reason why their website has improved so much in recent years. The English is clear and the pages relatively uncluttered, meaning you won’t want to tear your hair out while trying to navigate the site.

Chances are you’ve run across at least one of these branches or stand alone ATM’s, as ABC has over 24,000 branches. This is a staggering number, especially considering that all these branches are limited only to mainland China, Hong Kong and Singapore. The abundance of ABC’s can be great for those who are living and working mainly in these three places, with little or no travel needs. For those who need a more flexible debit card and who wish to avoid those pesky foreign transaction fees, this may not be the bank for you.

If you want to open a foreign currency account at ABC, the requirements are the same as BOC – simply bring your passport, your residence permit (if you have one), and a completed application form. The minimum deposit requirement here is much less than anywhere else, however. For example, if you’re looking to open a USD account, you only need $100 USD to do so.
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How To: Set Up an Online Bank Account in China

May 24, 2010
By Jessica A. Larson-Wang

Opening up a regular bank account in China can be a daunting prospect, much less venturing into the world of online banking. Most foreigners in China sadly do not take advantage of the online banking services that their banks offer, mostly because of language difficulties and the lack of a bilingual interface for most banks. However, even those who are not adept in Chinese should find that getting started with online banking is not as difficult as it seems

How To: Set Up an Online Bank Account in China

Step One: Decide on a bank
Some banks offer easier and more convenient online banking than others. While many foreigners seem to opt for Bank of China, Bank of China is overall one of the less efficient and convenient banking choices. Popular online banks include China Merchant’s Bank, which is secure, easy to use and offers options like online currency exchange. China Construction Bank, another popular choice for online banking, is a bit more complicated, requiring customers to purchase a USB Key that they must plug into their computer when they make online purchases. While this key is a bit of a hassle, it ensures that your online bank account is secure since anyone without the unique USB key will be unable to access the account. When deciding on online banking options, keep both convenience and security in mind and choose a bank that has a healthy balance of both.

Step Two: Go to the bank and apply in person
Most banks do not allow you to set up online banking over the phone or computer. Instead, you must appear in person to fill out some forms and verify that you are the owner of the account. Bring your ID with you and be prepared to fill out forms in Chinese. If you cannot read the forms on your own ask the bank for an English speaking staff member to help you. Most large banks will have at least one English speaker, but when in doubt, find a Chinese friend or colleague to go along with you.

Step Three: Accessing your online banking account
The first time you use your online bank account it might be best to have a Chinese friend walk you through it, particularly if you can’t read Chinese characters. Later you will familiarize yourself with the different characters and what they mean. On your interface you will see options to check your balance, transfer money from one account to another, pay for things online, transfer currency, raise your online spending limit, change your password and view your interest accrued, among other options. You will not want to need to have a Chinese friend with you every time you check your balance, so write down the important characters for the options that you will use most often.

Step Four: Online shopping
The main reason why people get online banking is so that they can shop online. With an online banking account with a Chinese bank you will be able to make purchases on Taobao using Alipay (支付宝). Alipay allows you to pay for purchases online, but will hold your money in a sort of escrow until you have received your items and decide to release the money to the seller. Shopping with Taobao is one of the easiest ways to get access to certain goods in China and even if you live in a smaller town will give you access to things like English language books, larger sized clothing, and imported foods. You can now also connect your Chinese bank account to a PayPal account and as of later this year you should be able to use your Chinese bank account to pay for goods and services back home, as PayPal plans to begin accepting UnionPay (most Chinese bank cards have the UnionPay symbol on them) accounts at the end of the 3rd quarter. This means that with a Chinese bank account you will be able to use PayPal to pay your bills back home, or buy things on eBay.

Security
Many foreigners worry about the security of Chinese online banking accounts. Chinese consumers worry about this too, with the net in China being a notorious hackers’ playground. Because of these concerns most banks have installed safeguards to protect users. China Merchant’s Bank, for instance, will ask for cell phone instant message verification if money is transferred outside of Taobao, while China Construction Bank uses the previously mentioned USB Key. ICBC (The Industrial and Commercial Bank of China) uses a card with passkeys on it which must be used in order to make online transactions – without the passkeys, which are on an actual card, not provided online, money cannot be moved from the account. You will find that because of the high amount of hacking going on in China that banks take extra measures to protect their online customers, so that online banking in China is safe. However, you should also protect yourself – try not to access your online bank from a computer at an internet cafe, where keyloggers are rampant. Don’t give your card or USB key to others. Choose a password that is difficult to guess, including a combination of letters and numbers and remember that the bank will never ask for your password in e-mails or over the phone.
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China: New Rules Impact Individual Income Tax Liabilities in China

04 July 2011

Article by Maarten Roos

On 30 June 2011, China's National people's Congress
announced some major changes to the collection of individual income
tax (IIT). These will undoubtedly have a large
impact on employees but could also influence the payment practices
of foreign-invested companies in China. The new rules will be
implemented after the summer, on 1 September 2011.

1. The minimum threshold for IIT payments by Chinese employees
has been raised from CNY 2,000 to CNY 3,500.

The minimum threshold was raised from CNY 800 to CNY 1,600 in
2006, then to CNY 2,000 in 2008. The new threshold means that
Chinese employees who earn less than CNY 3,500 (approx. USD 540)
will not pay any IIT, and employees that earn more will see their
taxable income decrease as well. The biggest beneficiaries are
low-income Chinese employees, though their employers who calculate
wages on a net-basis will also see their costs reduced.

Despite suggestions in earlier drafts
of these rules, the minimum threshold for IIT payments by foreign
employees was not altered and remains CNY 4,800.

2. The current 9-bracket progressive tax rate system is
replaced by a 7-bracket system, with the 15% and 40% brackets
removed.

The level of IIT is calculated based on the individuals taxable
income (after deduction of the first CNY 3,500 or CNY 5,800, see
above). The amendment will impact high-income earners, especially
those earn approx. CNY 19,000 or more. Companies that commit to a
net salary in a contract will also be directly effected.

Below we compare the applicable tax rates before and after 1
September 2011:

New Regime (after 1 September 2011)			Old Regime (before 1 September 2011)
	Monthly Taxable Income (i.e. after deductions)	Tax Rate (%)		Monthly Taxable Income (i.e. after deductions)	Tax Rate (%)
1	Income of CNY 1500 or less	3	1	Income of CNY 500 or less	5
2	That part of income in excess of CNY 1500 to CNY 4,500	10	2	That part of income in excess of CNY 500 to CNY 2,000	10
3	That part of income in excess of CNY 4,500 to CNY 9,000	20	3	That part of income in excess of CNY 2,000 to CNY 5,000	15
4	That part of income in excess of CNY 9,000 to CNY 35,000	25	4	That part of income in excess of CNY 5,000 to CNY 20,000	20
5	That part of income in excess of CNY 35,000 to CNY 50,000	30	5	That part of income in excess of CNY 20,000 to CNY 40,000	25
6	That part of income in excess of CNY 50,000 to CNY 80,000	35	6	That part of income in excess of CNY 40,000 to CNY 60,000	30
7	That part of income in excess of CNY 80,000	45	7	That part of income in excess of CNY 60,000 to CNY 80,000	35
			8	That part of income in excess of CNY 80,000 to CNY 100,000	40
			9	That part of income in excess of CNY 100,000	45

Comments
Designed to benefit low-income earners
in particular, company's HR departments and pay-roll providers
will have to ensure that the right amount of IIT is paid and
deducted from salaries starting from 1 September 2011. Where
employees – especially senior managers – are
affected, employers should consider whether to provide additional
compensation to cover any loss of actual income. In addition,
companies that determine wages based on a net (after-tax) salary
should ensure they are aware what addition burdens or savings the
new rules will bring.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

Specific Questions relating to this article should be addressed directly to the author.
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Official exchange rate of Ukrainian currency against foreign currencies

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