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Will tax breaks boost Private Health Insurance?

Will tax breaks boost Private Health Insurance?

In 2017 Chinese authorities begun offering tax incentives to encourage middle-class families to purchase private health insurance. Beginning July 1, individuals who buy eligible insurance products can reduce person income tax by up to 2,400 yuan a year.

 

 

The tax cuts fall under a host of reforms aimed at rethinking health care provision for the nation’s vast and aging population. For most people in China, health care means public hospitals; treatment is partly paid out of pocket and partly reimbursed through compulsory insurance provided by their employers or state pension. Reforms aim to give patients more choices and ease the burden on the public purse.

 

 

Market solutions are playing an increasing role in health care: According to state news agency Xinhua, the number of private hospitals in China more than doubled from 2010 to 2015. By the end of 2015, there were 14,500 private hospitals, accounting for 52.7 percent of total hospitals in the country. The government hopes that greater uptake of private health insurance, alongside the rapid growth of private medicine, will reduce pressure on overworked, overcrowded public hospitals.

 

 

The private health insurance sector is thriving. From 2013 to 2014, total medical insurance premiums increased 41%, from RMB112.3 billion to RMB158.7 billion, rising another 52.5% to RMB241.1 billion in 2015. According to the China Insurance Regulatory Commission (CIRC), 5 insurance companies specialize in health insurance and another 100 offer health insurance products, including 28 foreign life insurance companies. CIRC reported more than 2,300 health insurance products in the market

 

 

But public awareness of and consumer confidence in private health insurance is low, even among those who can afford it — and most of the products eligible for tax cuts under the recent policy still only reimburse treatment at public hospitals.

 

 

There are two main types of private health insurance on the mainland: The more popular products are life insurance-like critical illness policies that pay out lump sums if the policyholder is diagnosed with certain conditions. If the holder makes no claims within a set period, their premiums will be returned with interest, meaning the policy operates as a form of investment or retirement plan in addition to offering indemnity. On the other hand, health insurance policies that reimburse treatment are often seen as a waste of money, as there is no return if the holder makes no claims — though these policies typically offer more comprehensive coverage.

 

 

Only about one in 20 people in China has a reimbursement health insurance policy, according to a 2016 joint report by global business consultancy Boston Consulting Group and reinsurance company Munich Re. Though the market for private health insurance saw consistent year-on-year growth of around 31 percent between 2010 and 2015, more than 70 percent of its 241 billion-yuan value in 2015 was made up of critical illness policies. But as indemnity policies for critical illness do little to support the growth of China’s burgeoning private hospital sector, authorities are working to promote private reimbursement health insurance that covers outpatient consultations as well as inpatient treatment.

 

 

Tax incentives for purchasing private health insurance were piloted in 31 cities including Shanghai and Beijing beginning Jan. 1, 2016, but only a handful of domestic insurance companies have offered eligible products. Most of the eligible insurance products target employers rather than individuals.

 

 

The report above forecasts that the market for private health insurance in China will increase fivefold between 2015 and 2020, and that reimbursement policies will see the fastest growth. Government tax incentives can help foster the mindset that health insurance is necessary and financially advantageous: once people buy the incentivized insurance, they are more likely to research and consider other private health insurance options in the future.

 

 

Chinese private insurers

The number of foreign companies in the Chinese market is increasing, but the dominant players in China’s private health insurance market are large domestic insurers. The three largest health insurers are Ping An Health Insurance Company, PICC Health Insurance Company and China Life Insurance. China Life is the largest domestic life insurance company (and the world’s largest life insurer), with 10% of its total premium income derived from health insurance. Other large Chinese health insurance companies include Hexie Health Insurance Company, which is part of the Anbang Insurance Group and Kunlun Health Insurance Company.

 

 

Expat Salaries in China 2011-12

Expat Salaries in China 2011-12

The following table shows typical expat salaries in China, for a variety of jobs and roles. Note that these figures are based on employment statistics from major Chinese cities – if you work in a more rural area, you should expect to earn less than what is quoted below. 


 

Table of Expat Salaries in China (2011 to 2012)

 

Industry

Job/Position/Years Experience

Annual Salary (USD)

Annual Salary (RMB)

Accounting/Finance Chief Financial Officer / 15+ Years 240K 1.5M
Accounting/Finance Finance or Accounting Manager / 8+ Years 48K 300K
Accounting/Finance Financial Analyst / 7+ Years 55K 350K
Advertising/Communciations Media Director / 10+ Years 110K 700K
Advertising/Communciations Account Manager / 3+ Years 32K 200K
Advertising/Communciations English Copywriter / 4+ Years 44K 280K
Banking/Financial Services Top-Level Positions / 10+ Years 190K+ 1.2M+
Banking/Financial Services Mid-Level and Junior Positions / 3+ Years 48 to 110K 300 to 700K
Education ESL Teacher / 0 Years 7K 44K
Education ESL Teacher / 3+ Years 8K 50K
Human Resources Manager / 6+ Years 80K 500K
IT/Telecommunications Project Manager / 8+ Years 80 to 140K 500 to 900K
IT/Telecommunications Developer / 7+ Years 95K 600K
Legal International Law Firm / 6+ Years PQE 205K 1.3M
Legal In-House Corporate Lawyer / 6+ Years 95K 600K
Property/Construction Architect / 5+ Years 80K 500K
Property/Construction Project Manager / 8+ Years 110K 700K
Property/Construction Engineer  / 5+ Years 22K 140K
Sales/Marketing Managing Director / 20+ Years 315K+ 2M+
Sales/Marketing Mid-Level Manager / 7+ Years 48 to 110K 300 to 700K
Sales/Marketing Front Office Manager / 5+ Years 36K 230K
*Note further that these are aggregated amounts of an average expat salary in the private sector in China: if you work for a small firm or company, expect to earn a little less; if you work for a large firm or company (or better yet, a foreign company), expect to earn a little more. The amounts quoted also assume a fair amount of relevant work experience – as a foreign worker in China, a minimum of 8 years is preferred. 

Saving potential for expats in China

 
For many expats, the question of whether or not to emigrate to China will depend on their saving potential – i.e. how much money they can 'bank' at the end of every month, after paying tax and  covering accommodation and living expenses. 
 
For highly qualified and skilled expats, this is not so much of a concern, with about 25 percent of expats in China earning in the region of USD 200K a year. For those seeking mid-level employment in China, however, the following factors should be taken into consideration: 
 
  • Although China's cost of living is famously low – with youthful ESL teachers known to live on about RMB 3,500 (USD 500) per month – your expat salary package remains very important. Try to negotiate the best possible deal for yourself, as often the 'perks' of your contract will decide whether a move to China is financially viable for you or not.
  • Although many Chinese employers won't provide an accommodation stipend, some will. You're doing well if they offer you something in the region of RMB 9,000 (USD 1,500) per month.
  • Health insurance for foreign workers in China is quite expensive, and if this is provided in your salary package, it will save you at least RMB 1,300 (USD 200) per month.
  • The issue of whether or not the company will provide for education expenses is often the 'deal-breaker' for expat families planning a move to China. The price of good-quality international education is astronomical – as much as RMB 1.2M (USD 200K) per year in the most extreme cases.
  • Bear in mind, too, that most expats will be taxed around 20% of their monthly salary in China, but that this can rise to 40% for high earners.
  • Note that as a foreign worker in China, you will be expected to work very hard for your money, and that the intensity of the Chinese workplace can be a bit overwhelming for some expats.
  • Remember that although working in China might not be as financially rewarding as working in other expat destinations, such as the Middle East or Russia, there are some wonderful cultural benefits to such an adventure. China is at the forefront of global economic development, and there are many exciting things happening within the country to attract ambitious professionals. Also, the opportunity to learn a bit of Mandarin is widely reported by expats to be one of the most valuable aspects of working in China. 
  •  
 

Getting Cash Money RMB Out of China

Getting Cash Money RMB Out of China

Nov. 11 – An issue that frequently crops up at this time of year is the question of getting earned income out of China. As many expatriates look to leave to go home for Christmas, those piles of RMB that have been stacking up nicely begin to look mouth-watering in terms of repatriating the readies. But here comes a catch – for expatriates legitimately employed in China, and paying tax here, there is not a problem. But for those working in China’s grey economy – there is.

China employs strict currency regulations that are designed to prevent large amounts of currency moving out of the country. Your small amount may not seem like a huge deal, but if everyone moved out a few thousand dollars, it would impact upon China’s economy. The movement of illicit cash both into and out of China is known as “hot money” and it can seriously damage a country’s financial stability if not regulated. China controls and monitors the amounts of money coming into and out of the country through a mechanism known as SAFE – The State Administration of Foreign Exchange. In order to legitimately take money out of China (typically wire transfer), an application needs to be made to SAFE (your bank would normally assist with this procedure) with proof of income taxes paid in China, and details of the overseas bank account the funds are to be wired to. The onus is on the applicant therefore to demonstrate the money was legitimately earned and taxes have been paid on it. If so, the money is permitted to be repatriated and there is no daily or annual ceiling limiting the amount an individual can transfer. This should not be a problem for expatriates in China with proper working contracts, visas and tax registrations.

 

However, many expats in China fall into a different category. Either by design or default (Chinese employers sometimes take advantage and do not fully explain this issue), there are expatriates in China who are not properly registered with the authorities, are not paying taxes, and who have nonetheless acquired a bundle of RMB. Here, there is a problem. Firstly, such individuals cannot meet the SAFE requirements, and this becomes a block. Chinese banks will not allow you to exchange and wire overseas any amount over the RMB equivalent of US$500 for you without SAFE approval, and if there is no tax paid receipts (employers should provide this) or no work permit or visa, this route is barred.

 

It should be noted, though, that foreign nationals can transfer any amount under or equal to the equivalent of US$500 once per day without providing proof that the money was legitimately earned or that taxes have been paid on it. Chinese nationals are able to transfer the equivalent of US$2,000 per day into a foreign bank account, however Chinese nationals face a US$50,000 annual ceiling when exchanging RMB into foreign currencies while foreign nationals do not face such restrictions.

 

Under these circumstances, the only practical ways to solve this are as follows:

 

  1. If you thought your employer has misled you over your status, you may have a case. In which case, you’ll need to find a local friendly lawyer to assist. However this may take time to resolve.
  2. China does permit the traveling outside of China with up to RMB20,000 or equivalent. You may pack up to this amount and be safe (any more and you face confiscation of all the money if caught). The problem with this is that RMB is not freely exchangeable, and it may be hard to convert it when back home. Hong Kong does provide such facilities – although be warned – the exchange rate issue will be a killer.
  3. If more than RMB20,000, you may divide the total up among friends to limit the amount each carries. But make sure they’re good friends!
  4. If you have a Chinese friend that you trust, you can transfer the money to their Chinese bank account and they can wire a maximum of US$2,000 per day to your overseas bank account. You can also do this yourself, but foreign nationals are limited to US$500 per day.
  5. If you intend to return to China, deposit the money into a bank and withdraw up to the legal amount each time you leave.
  6. Convert your RMB into a saleable asset that you can convert to cash back home. China does limit the amount of goods value being exported from the country, but are less likely to question personal belongings. Buying and shipping items from a reputable Chinese fine art dealer may be a solution.
  7. Next time, be aware that working in China without paying tax is illegal. It can impact on even realizing the money earned. If in doubt, get a friendly lawyer to look at your employment contract terms and ensure that hard won income can be readily – and legally – repatriated.

 

In terms of item (6), I can relate a recent anecdote. Admiring a hugely expensive diamond necklace in a Chinese jewelry store recently, I enquired about who was going to be lucky enough to wear it. The carefully worded reply was “Oh Sir! This necklace will never be worn.”

 

This article is by Dezan Shira & Associates. For further information please contact the practice at legal@dezshira.com, or visit the firm’s web site at www.dezshira.com.

 

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