Social
Security
The contribution to various social security insurances is
one of the major operating cost elements to foreign investment
enterprises, and also the legal obligation of the employer.
These obligations include the contributions to pensions,
hospitalization, unemployment, work-related injury, and birth
planning insurances. In addition, the employer has to make
contribution to the housing provident funds for the employee.
Employers in China shall fulfill the social security
obligations for the employees, including the social security
registration, making payment of social security every month,
the withholding of employee's contribution and making payment
on their behalf. The administrative body will impose fines on
the enterprise and the legal representative for
non-compliance.
Certain contributions like pension and medical insurances
are computed on the basis of the "average wage" of the
preceding year. Each year the local Department of Labor and
Social Security will announce the amount of the said average
wage in the first half of the year.
For example, the social average wage in
Guangzhou for 2003 is RMB 2,092, the maximum amount of wage is
300% (RMB 6,276) of the average while the minimum is 60% (RMB
1,255). e.g. A manager is paid for RMB 10,000 per month, the
company can buy him the social insurance on the base of RMB
6,272; An office clerk has the salary of RMB 1000, the company
must buy him the social insurance on the basis of RMB 1,255.
The administrative practices are varied in the
implementations of the social security contributions
throughout the country. First, different contribution rates,
both for the employer and employees, are used according to the
living standards and wage levels. Second, it is also observed
that the application of those rules is varied from city to
city. In Shanghai, the municipal government has not required
the employer to pay work-related injury insurance. For the
employees without household registrations in Shanghai, the
employer has to buy him a comprehensive insurance (including
work-related injury). In both Dongguan and Shenzhen, the
employer has to pay work-related injury insurance. In both
Shenzhen and Beijing, the applicable rates for work-related
injury are varied depending on the type of industries and the
level of risk at the workplace. In Dongguan, flat rates are
adopted for work-related injury insurances. Third, both the
employer and the employee have to pay certain types of
contributions such as pension and hospitalization insurances.
For some other types of insurances, only the employer has the
obligation to do so.
The provisions for the above mentioned social security
insurances shall not apply to the foreign nationals working in
the PRC, and the resident staff who are employees of Hong
Kong, Macau, and Taiwan companies.
Individual Income tax
Under the PRC tax law, the employer has the withholding
obligation to deduct from the gross pay the income tax, and
pay them over to the local tax offices. The contribution to
housing provident funds and the social security are deductible
from the employee's gross pay, in addition to the statutory
deduction for the income tax.
Example: A manager working for a Shenzhen company has a
monthly income of RMB5,000. His housing provident fund, the
share of his social security contributions, and statutory
deductions for income tax are RMB650 (13%), RMB350 (7%), and
RMB 1,600 respectively. His income tax liability is calculated
in the following way: -
RMB5000¡]income before tax¡^- 650 - 350 - 1600 = RMB2,400
(taxable income), RMB2,400 x 15% - 125 =RMB235 (the monthly
tax is 235, where 125 is the quick deduction number as
provided under the PRC Individual Income Tax Law).
Social security contribution rates for
major cities
Shenzhen (2005) | 
