- China signs bilateral social security agreement with Spain
- Beijing lowers local pension and unemployment insurance contribution rates
China’s State Council has released a revised “negative list” for the country’s 11 existing pilot Free Trade Zones (“FTZs”), which specifies industries where foreign investment is prohibited or restricted.
The latest negative list, which has been in effect since 10 July 2017, includes 15 categories broken down into 40 items and 95 special administrative measures.
It also removed 10 items and 27 special administrative measures from the previous edition released in 2015. The 10 items removed include the manufacture of railway transport equipment and pharmaceuticals, road transport, insurance businesses, accounting and audit, as well as other commercial services.
Some special administrative measures, such as the time requirement that foreign-funded banks approved to provide RMB services must have carried out business in China for at least one year, are no longer applicable.
The relevant authorities will also conduct a security review of foreign investments in the FTZs relating to national security to ensure compliance with relevant regulations.
We are of the opinion that the number of prohibited or restricted industries on the negative list may be reduced further in the future, allowing foreign investors to have access to more industries.
Employees who personally purchase qualifying commercial health insurance products should note the process for claiming deduction. The pre-tax deduction has a limit of RMB2,400 per year (or RMB200 per month).
The employees should submit copies of their health insurance policies to their withholding agents (employers) in a timely manner. The withholding agent shall deduct the corresponding amount within the deduction limit when calculating individual income tax the following month. Those who earn wages from two or more employers in China and purchase qualifying commercial health insurance products as individuals shall select only one employer for claiming the deduction.
Employers may also purchase qualifying commercial health insurance products for employees on a collective basis.
From 1 January 2017 to 31 December 2019, small enterprises with an annual taxable income of not more than RMB500,000 are entitled to a reduced enterprise income tax rate of 20%, according to a recent circular by State Administration of Taxation. The circular states that only half of the actual annual income of the small enterprise would be treated as its annual taxable income.
China’s statutory definition of a small enterprise is one that operates in an industry not on the negative list — which specifies sectors where foreign investment is prohibited or restricted — and satisfies either of the following conditions:
- For the manufacturing industry, the enterprise’s annual taxable income must be no more than RMB300,000. In addition, its headcount and total asset value must not exceed 100 staff and RMB30 million respectively; or
- For other industries, the enterprise’s annual taxable income must be no more than RMB300,000. Its headcount and total asset value also must not exceed 80 employees and RMB10 million respectively.
China signed a bilateral social security agreement with Spain during a G20 meeting of manpower ministers in Germany. The agreement is applicable to expatriates from a signatory country working in the other signatory country.
Under the agreement, if expatriates from Chinese companies work in Spain, both the employer and employee will be exempt from compulsory social security contributions in Spain, such as pension and unemployment insurance. Spanish expatriates working in China will enjoy the same treatment as well.
Besides Spain, the Chinese government has also signed bilateral social security agreements with Germany, South Korea, Denmark, Finland, Canada, Switzerland, the Netherlands and France.
Beijing recently lowered local employers’ and employees’ contribution rates for pension insurance to 19% and 8% respectively. The local employers’ and employees’ contribution rates for unemployment insurance were lowered to 0.8% and 0.2% respectively. Contribution rates for other types of social insurance remained unchanged. These are shown in the table below.
|Social insurance||Base range (RMB)1||Employer’s contribution rate||Employee’s contribution rate|
|Medical insurance||3,082–23,118||10%||2% + RMB32|
|Employment injury insurance||3,082–23,118||0.2% – 1.9%||N/A|
1If the employee’s monthly salary is less than RMB3,082, the company shall use RMB3,082 as the base to calculate the social insurance contribution. If the employee’s monthly salary is more than RMB23,118, then RMB23,118 shall be used as the base.
2Some cities allow employees to purchase supplementary critical illness insurance at a very low price every month. E.g. employees in Beijing can pay an extra RMB3 every month for such insurance.
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Ng Thiam Soon, Partner, China Practice
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Tan Lee Lee (Ms), Director, China Practice
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Yeo Lee Soon, Director, China Practice
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