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published on october 9, 2018 / reading time approx.: 2 minutesAuthors: Kai Kang, Jing Wang, Ru You
As part of the local and national tax administration system reform, from January 1, 2019, the social insurance of Chinese enterprises will be uniformly levied by the tax authorities. Since the tax authorities have access to employees’ salary information and is more powerful in terms of tax collection and management, it is widely expected that the supervision on social security payment will become stricter in the future.
At present, some enterprises have already been investigated and even punished by tax authorities for outstanding social insurance payment.
Recently, it was discovered by the tax authority that an enterprise in Jiangsu Province failed to pay a total of more than RMB 2 million in social security contributions in the last ten years, and was sentenced to enforcement measures by the court. Furthermore, if some enterprises do not pay social insurance for employees during trial period, or if they try to evade social insurance payment by signing agreements on "voluntarily quitting social insurance contribution” with employees, huge risks will also arise regarding social insurance incompliance. It can be seen from this incident that the tax authorities, with their data resources and law enforcement powers, have strong supervision capabilities in collection of social insurance. Therefore, it is increasingly difficult to escape justice if an enterprise owes or pays less social insurance.
According to the provisions of relevant social insurance laws, if the employer fails to pay the social insurance in full amount and the outstanding payment is overdue, the administrative department has the right to enforce the fund transfer from the employer’s bank account, charge the late payment fee. And the employer will be fined one to three times of the overdue amount. In addition, the person directly responsible for the incompliance will also be fined.
In fact, in many provinces such as Guangdong and Zhejiang, tax authorities have always been responsible for the collection of social insurance. The nationwide implementation of this policy would have little impact on these areas. However, for other regions, this measure might mean a substantial increase in the strength of collection and management of social security. Currently, local tax authorities are setting up specialized social insurance collection departments, indicating that the issue of social insurance will become the focus of the tax authorities.
For enterprises that employ foreign employees or have foreign expatriates under secondment, in addition to complying with the general social insurance provisions (such as sticking to actual salary for determining payment base, etc.), they should also pay attention to the relevant provisions on expatriates’ social insurance payment in China.
As for German employees, according to the Sino-German Social Insurance Agreement, eligible German employees can apply for exemption from paying statutory pension insurance and unemployment insurance in China, and only need to pay basic medical insurance, employment injury insurance and maternity insurance. However, in practice, various provinces and cities in China have different requirements on foreign employees’ obligation of participating in Chinese social insurance. For example, in Shanghai, it is determined by mutual agreement between the enterprise and employee. However, in Beijing City and Zhejiang Province, foreign individuals who work in China with a work visa are obliged to participate in Chinese social insurance scheme.
After tax authorities’ takeover of social insurance collection, the supervision on social insurance payment will become stricter and the requirements on compliance for enterprises will also increase. Nevertheless, due to the differences in the current collection methods, the impact of this policy on different regions is also different. Enterprises should assess their own compliance risks regarding social insurance contributions according to the actual situation in the region. For the foreign employees, enterprises should pay attention to the latest regulations on social insurance collection in order to avoid missing or wrong payment of social insurance.
As the new amendment to the individual income tax law and the new social insurance collection method have been finally approved and announced, the social security payment base and individual income tax declaration base will be strictly unified. The increasing supervision on social insurance collection also means the rise of actual social insurance burden on the enterprises, which might adversely affect the operation and investment of enterprises. In response to this problem, the State Council has also made clear that it is considering lowering the social insurance contribution rates to ensure that the overall burden on enterprises will not be increased.
Vivian Yao
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