China Social Insurance Policy Updates

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The new year 2021 brings some changes in Chinese social insurance policies. Please find below an update of the most important changes.

Expiry of Covid-19 social insurance exemption policies

In 2020, due to the Covid-19 pandemic, the Chinese government has proactively adopted some measures to help businesses overcome economic difficulties. One of these measures is to reduce and/or exempt payments of social insurance contributions due by companies as employers. According to relevant national and local policies, during the period from February to December 2020, micro, small and medium-sized enterprises were exempted from paying insurance premiums for retirement, unemployment insurance and work accident insurance. work. The premiums for these three insurances, payable by large companies as employers, have been halved during the period from February to June 2020.

The aforementioned exemption policies for micro, small and medium enterprises expired on December 31, 2020. As of January 1, 2021, all enterprises are required to resume full payment of social insurance contributions. Therefore, enterprises, especially micro, small and medium enterprises, should take this into consideration and prepare relevant funds/budgets to ensure timely and full payment of social insurance premiums in 2021.

Tax authority responsible for collecting social insurance contributions

In October and November 2020, the tax administration and social insurance authorities of 15 provinces and cities, namely Beijing, Tianjin, Shanghai, Shenzhen, Jilin, Shanxi, Shandong, Qingdao, Jiangxi, Sichuan, Xinjiang, Tibet, Guangxi , Guizhou and Hunan, issued notices requiring that from November 1, 2020, social insurance premiums be levied and collected by local tax authorities. This results in the following changes:

  • Change of entity in charge of collecting social security contributions

    Previously, social insurance contributions were collected by the Social Insurance Administration. The decision to change the collecting entity to the tax authority dates back to March 21, 2018, when the Chinese central government officially announced that the tax authority should be the sole authority in charge of collecting insurance premiums. with the aim of improving the efficiency of the collection of social insurance contributions. The Chinese government has gradually implemented this decision nationwide. In the years 2018 and 2019, only certain places but not the whole country changed competent collection authorities. Until November 2020, the decision to change the tax authority responsible for collecting social insurance premiums has been fully implemented, and the tax authorities of the PRC become the sole entities responsible for collecting social insurance premiums. social insurance in China.

  • No change in the calculation of social contributions

    The change of competent collecting body does not bring any change to the existing calculation method and contribution rate of the social insurance premium. In China, the employee social insurance premium is calculated based on the average monthly salary of the respective employee during the previous year and the applicable contribution rates, but subject to the minimum and maximum amounts announced each year by local governments. When calculating the average monthly salary of the employee, basic salaries, allowances, overtime payments, bonuses and other benefits paid to the employee in cash must be taken into account. Therefore, for companies that have paid social insurance contributions for employees according to the legal norm, the change of competent collection entity will not increase their labor costs in relation to the contributions of social assurance.

  • Wake-up call for companies not complying with social insurance payments

Although the PRC Social Insurance Law has been implemented for nearly 10 years, in practice many companies still did not pay or did not fully pay social insurance contributions for employees as required by law. In addition, companies that hired foreigners or residents of Hong Kong, Macau and Taiwan often did not register these employees with the Chinese social insurance system and did not pay social insurance premiums for them. With the transfer of the collection entity to the tax authorities, which keep the data on the remuneration of the employees, it can be more easily detected whether the companies have paid social insurance contributions for the employees according to the law or not.

Given the impacts of Covid-19 on the economy as well as the Council of State’s instruction to local authorities not to actively order businesses to catch up on historical unpaid social insurance contributions and not to increase the burden companies in social insurance payments, we believe in the In the near future, just after taking over the collection rights, the tax authorities are unlikely to actively check whether companies have duly paid the contributions of social insurance and order them to make corrections in case of non-compliance committed in the past. However, in the long term, by holding the data on remuneration and social insurance in the system of the tax authorities, we believe that the tax authorities are inclined to check more actively whether companies have duly and fully paid the social insurance contributions. for employees (including foreigners and Hungarians residing in Kong, Macao and Taiwan) in accordance with applicable law, and will require companies to catch up on outstanding social insurance premiums (if any).

Conclusion

With the expiration of social insurance exemption policies related to Covid-19, from 2021, companies must pay social insurance premiums in full. From a long-term perspective, the Chinese government should impose stricter control over the collection of social insurance contributions. Under such a trend, companies doing business in China may need to take relevant measures to ensure their compliance in paying social insurance premiums.

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