Shanghai’s controversial social security payment scheme may be delayed as a result of the reactions of expats and businesses.
The scheme, which came into effect on October the 15th2011, orders the payment of social security tax for all foreign workers and their employers. Expatriates face new taxes of up to 11 percent of their salaries, while firms employing them are expected to pay up to 37%. However, The South China Morning Post has recently reported that a lack of organization regarding the implementation of the plans means that expatriates in China have yet to be mandated to make the payments.
Although, at present, expats are required to voluntarily pay the tax towards five insurance funds, covering pensions, health care, unemployment, maternity and work-related injuries, the lack of information regarding how the money should be paid means that very few are meeting such requirements.
The new tax has met with a great deal of resistance from expats and their employers as many of the individuals impacted feel that they will not personally benefit from the funds to which they are being expected to contribute. According to The South China Morning Post, the current delays in formally mandating the tax may have been purposely instigated by officials in Shanghai, who are concerned that the measures may impact the attractiveness of the city to foreign investment.
Speaking to UK newspaper, The Telegraph, a spokesperson from Paul Hastings LLP, confirmed that Shanghai had not yet mandated that expats enroll in the new tax scheme but did point out that there is a requirement to make voluntary payments:
“It appears that Shanghai is not yet ready to accept foreigners into all five schemes, [and] the government has not released an official announcement or reason as to why there is a delay or as to when foreigners can expect to have to enroll,” she said.
“Most companies did not budget for the additional expense in 2011, and they have already enrolled their expats into the home country pension and international medical plans.
“As soon as the national government mandates that all localities comply with the national regulations, then Shanghai will follow suit and mandate that all companies enroll all of their foreigners. We expect this to take place by the end of the first quarter of 2012.”