New Expat Tax In China

A new social insurance tax on Expats working in China may threaten its status as a top destination for Expats.

London, UK (Pryce Warner International) September 21st, 2011 – The tax of 11% will come out of Expat worker’s salaries and will be required for them to be eligible to receive health and pension coverage from the Chinese government.

Companies will now also have to pay a tax of 37% on the salaries of foreign workers.

These new taxes could ultimately discourage international companies from opening offices in China as well as sending further employees there. Individuals may also become more reluctant to relocate to China for fear of the current tax levels progressively increasing, as the basic income tax rate for the highest salaries is already 45%.

With its rapid economic growth, China has been keen to attract as many foreign workers as possible. The new tax is part of this approach, as it will offer Expats several perks, including; pension cover, unemployment benefits, injury compensation and medical and pregnancy insurance.

However, some are questioning the logic behind the tax, as many of the above benefits are already provided as part of companies Expat packages. The pension element has especially been called into question, as most foreign workers only work for a few years in China, and therefore do not need to pay pension contributions. As many already have pension schemes with their company or a private provider, the Chinese pension seems dubious and it is not clear whether the accrued assets will be transferable to another scheme when an individual leaves the country.

Some analysts have suggested that this may become another factor in driving more Expats and companies to relocate to India instead of China.

Though China has hogged the headlines on rapid economic growth, India has been right behind China for some time. Many major cities in India have also recently improved their infrastructure, making them more appealing to companies and Expats. With economic growth just behind China’s and the manufacturing market tipping towards India’s favour, some have suggested that India may soon become one of the most popular destinations around the world for Expats.

David Harra, a Senior Market & Investment Analyst with Pryce Warner International, a Financial Services Provider for Expats, commented: “Though the tax on individuals does not seem that high, when added to the basic income tax rate and considering that the supposed “benefits” of the tax are already enjoyed by most Expats, it is hard to see how it will not drive people out of China. With Hong Kong and Singapore, not to mention India, being relatively close and having much lower tax rates, it seems highly likely that companies and Expats will come to favour other countries over the next few years."

Pryce Warner International Group provide International Asset & Investment Management, Independent Financial Advice & QROPS Overseas Pensions.

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By: Aneil Fatania
Financial Editor
Pryce Warner International Group
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