13 January 2012

Shanghai delays controversial expat tax

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Despite legislation requiring all foreign workers and their employing firms to pay a proportion of their salaries to the Chinese government coming into effect in October 2011, governmental authorities in Shanghai are yet to implement the law.

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Shanghai has allegedly delayed the law through fear of losing its expat workers.

Although Beijing has already drafted guidelines as to how the money is to be paid into the funds, Shanghai have thus far not done so, leading many to speculate that the local government is concerned that many of Shanghai's expat workers will choose to forego their Chinese visa and leave the country.

The tax is split into five separate insurance funds covering pensions, health care, unemployment, maternity and work-related injuries. Enrolment in all five programmes is compulsory and can account for up to 11% of an employee's salary, and 37% of employers'.

The move has proved unpopular with the majority of Shanghai expats due to the common belief that they will not benefit from any of the services they will be funding. Expats do not typically use China's state-run health care facilities and as expats without jobs are expected to leave the country, will never unemployment benefits.

A spokeswoman for the Shanghai office of Paul Hastings LLP, K Lesli Ligorner confirmed Shanghai had issued no mandate for expats to enrol in the schemes, but added that this can be expected to happen soon.

"It appears that Shanghai is not yet ready to accept foreigners into all five schemes; 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 enrol" she said.

"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 enrol all of their foreigners. We expect this to take place by the end of the first quarter of 2012".

David King, Managing Director of Iris China and another Shanghai based expat speculated that the legislation was "an initiative that may have been announced by Beijing's central government without due consideration or consultation with the various regional governments".

Shanghai is one of the fastest developing cities in the world and, as it is home to more expats than any other city in China, according to Mr King, this is why the tax is yet to be mandated.

"If Shanghai is pushing back, it is primarily due to the fact that it is the international commercial capital of China and as such has the highest number of foreign employers and employees. It there has the most to lose from any exodus of expats whose employers are no longer able to justify the costs of employing foreigners in key roles".


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