Pensions for Expats in China

China has a tax-efficient contribution-based private system, where contributions to pension funds are not subject to tax. Pension payouts also attract concessional tax-treatment, if not full exemption.

Any individual working in China, regardless of nationality, must contribute towards Chinese social insurance. Pension contributions are made along with other Chinese national insurance contributions.

Many expatriates are unlikely to get any money back from Chinese social insurance. Expats may view Chinese social insurance as an additional tax burden if they have good reasons to believe that this is lost money.

Mandatory Pension Schemes in China

Employment in China is subject to mandatory contributions to the Basic Pension Insurance Fund (BPIF), no matter if you are subject to foreign social security legislation. Be wary of double superannuation coverage.

BPIF contributions must be made by the employer as well as the employee, up to a maximum limit specified by law. BPIF contributions rates are also specified by law, but they may vary from one province to another.

BPIF contributions are normally not taxable. However, any amount above the maximum limit is a deemed fringe benefit, and is taxed accordingly (up to 45%).

You cannot draw on your Chinese pension benefits unless you have at least 15 qualifying years of contributions. However, you can withdraw your accumulated pension benefits once you are no longer resident in China.

Expatriates and Chinese social security system

A social security agreement may protect you from double superannuation coverage. In addition, it may “totalise” your number of contribution years, so you are not discriminated against. As of 2013, China has entered into such agreements only with Germany and South Korea.

The good news is that this system has been in force since 15 October 2011 only. This means that China may expand its social security agreement network in the future. Totalisation agreements may apply retroactively, i.e. they may take into account Chinese contributions made before the relevant social security agreement is in effect.

International matters

International superannuation planning

BPIF schemes are tax-efficient products in China. Thus, they are heavily regulated in order to avoid any undue tax base erosion. The same fundamental principle is likely to apply to foreign equivalents. Thus, you should check:

• how your foreign pension arrangements (payouts and capital growth) are taxed whilst you are in China, and
• how your Chinese pension pot may be taxed in your home country. Generally, this only affects payouts, but there is no guarantee that capital growth will be untaxed in your home country (e.g. under foreign investment fund rules)

Your home country may have a tax treaty with China to avoid double taxation on your foreign pensions. As a general rule, pension payouts are only taxable in your country of residence. You should check your tax treaty to make sure you don’t fall under an exception.

Retaining your foreign pension arrangements may be the most practical option if you don’t intend to stay in China. Nevertheless, cross-border superannuation planning is always on a case-by-case basis. It is strongly recommended to use specialist advice regarding this matter.