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China Hits Foreigners And Their Employers With New Social Benefits Tax

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China on Friday said it will impose a new tax on foreigners working in the country and require them to participate in the country’s social insurance programs.

The move will raise the cost of hiring foreigners in China and “may result in a decrease in the number of foreign workers in the long term,” according to the Shanghai Daily, the city-government published daily newspaper.

Rather than emphasize the higher costs and taxes, the state paper put a positive spin on the news in a headline saying: “Foreigners set for social benefits.”  The “benefits” start on Oct. 15, it said.

Foreigners will be required to pay the Chinese government 11% of their salary, while employers will contribute 37% of their salary to the state, the newspaper said.

The salary open to taxation will be capped at no more than three times the average salary in any given city, meaning that the ultimate burden will be lower for expats whose salaries exceed that that amount.

Foreign business groups suggested to the government recently that participation in the social programs be optional as a large number of expats have existing insurance coverage. The system may benefit those without coverage and are willing to be treated in China's healthcare system. 

Foreigners from countries that have signed a social insurance agreement with China will not have to pay the new tax, the Shanghai Daily said.

Chinese from Hong Kong, Macau and Taiwan are likely to be exempt from the tax, the South China Morning Post reported today in a front-page story, "Hongkongers May Dodge New Tax After U-Turn."

Big multinationals that do business in the country such as GM, GE and Ford will be better positioned to absorb the new tax than smaller foreign entrepreneurs, experts have said. 

China had 593,800 foreigners working in the country late last year, the Shanghai Daily said.