The fallout from China’s abolition of its one-child policy has taken new and unexpected turns in recent weeks.
Following protests from parents affected by the 36 year old one-child policy – most of whom have a single disabled or severely ill child who will be unable to support them in their old age – the government stated that it would increase the monthly subsidy for families whose only child is disabled.
The announcement was widely reported in the Western media and has helped re-energise discussion of the role that the disabled play in Chinese society, particularly in the workforce.
When China hosted the Paralympic Games in 2008, then president Hu Jintao promised that the country would strive to make its disabled citizens “equal members of society”. This statement presaged a string of national and provincial policies aimed squarely at incentivising businesses to hire disabled workers.
But awareness of these incentives among foreign companies has remained generally low since their implementation, and many domestic companies choose not to take advantage of them – two factors out of many that have resulted in low employment rates among China’s disabled citizens.
What incentives exist for hiring disabled employees?
Preferential policies that exist for disabled workers in China mainly revolve around tax breaks or exemptions. However the ease with which companies can qualify for these benefits varies, with eligibility often hinging on either the size or location of the company. Below, we take a closer look at the three of the most preferential of these policies:
Corporate income tax
The way in which the CIT exemption for disabled employees functions is noteworthy. In China, companies can deduct a non-disabled employee’s annual salary from the profits on which they pay CIT.
For disabled employees, the amount is doubled. So if a disabled employee’s annual salary is RMB 100,000, for instance, the company will be able to deduct RMB 200,000 from the amount on which it pays CIT.
In order to qualify for this benefit, companies must meet all of the following requirements:
• Disabled employees must have a minimum one year labour contract or service agreement with it
• It must pay the monthly social security costs of disabled employees
• The disabled employee’s salary cannot be any less than the lowest salary paid to a non-disabled employee.
Individual income tax
While disabled persons employed anywhere in China are eligible for IIT deduction, China’s tax authorities have yet to implement a nationwide standard. This means that the deduction amount varies from region to region, with the country’s more affluent areas tending to provide greater deductions. Below, we provide an example in Guangzhou, Guangdong province:
VAT
To qualify for VAT exemption, the requirements are extensive. Not only must 25% of a company’s workforce be disabled, but it must also employ a minimum of 10 disabled employees too.
In practice, this means that the exemption only applies to larger companies. If 50% of the workforce of a small startup with 6 staff were disabled, for example, the organisation would still be ineligible for the VAT exemption.
In addition, the conditions for qualifying for CIT exemption also apply to VAT exemption.
“When China hosted the Paralympic Games in 2008, then president Hu Jintao promised that the country would strive to make its disabled citizens ‘equal members of society.”
Quota for hiring disabled employees
The Chinese government has actually set a minimum quota for the number of disabled employees that a company must hire. The national average is 1.5% of a firm’s workforce, but the rate can differ by province. The quota does not apply to companies under three years old and with a workforce of fewer than 20 staff.
Companies that don’t meet this quota have to pay into a fund called the Baozhang Jin .
The amount required again varies according to location, but the majority of companies choose to pay into it rather than employ the requisite amount of disabled workers.
Reluctance to train disabled staff and integrate them into the company structure is a commonly cited reason for this situation. But the fact that companies choose to take advantage of the Baozhang Jin’s exemption is one of the root causes of China’s low disabled employment rate.
How is ‘disability’ defined in China?
The Law on the Protection of Disabled Persons is China’s primary piece of legislation on disability rights. In its second Article, the Law describes a disabled person as someone who “suffers from abnormalities or loss of a certain organ or function, psychologically or physiologically, or in anatomical structure and has lost wholly or in part the ability to perform an activity in the way considered normal”.
The law further states that the term “disabled person” refers to those with “visual, hearing, speech or physical disabilities, mental retardation, mental disorder, multiple disabilities and/or other disabilities.” Importantly, it notes that the “criteria for classification of disabilities shall be established by the State Council”.
Looking ahead
The incentive framework that China has put in place for hiring disabled employees has been incremental since Hu Jintao’s speech at the Paralympic games.
Policies such as the Baozhang Jin have been revised and implemented as recently as October 2015, and China is still catching up with some of its international commitments regarding disabled employment. Such commitments include those contained in the International Labor Organization’s conventions on employment and education for the disabled that China ratified in 1985.
This situation suggests that more change can be expected in both the short- and long-term. For instance, China is developing a policy framework that supports its public and international backing of disabled employment and further incentivises China-based businesses to hire disabled workers.
-This article was first published on Asia Briefing.
Dezan Shira and Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asian markets. Since it was set up in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
For further details or to contact the firm, please email info@dezshira.com or visit www.dezshira.com.
The fallout from China’s abolition of its one-child policy has taken new and unexpected turns in recent weeks.
Following protests from parents affected by the 36 year old one-child policy – most of whom have a single disabled or severely ill child who will be unable to support them in their old age – the government stated that it would increase the monthly subsidy for families whose only child is disabled.
The announcement was widely reported in the Western media and has helped re-energise discussion of the role that the disabled play in Chinese society, particularly in the workforce.
When China hosted the Paralympic Games in 2008, then president Hu Jintao promised that the country would strive to make its disabled citizens “equal members of society”. This statement presaged a string of national and provincial policies aimed squarely at incentivising businesses to hire disabled workers.
But awareness of these incentives among foreign companies has remained generally low since their implementation, and many domestic companies choose not to take advantage of them – two factors out of many that have resulted in low employment rates among China’s disabled citizens.
What incentives exist for hiring disabled employees?
Preferential policies that exist for disabled workers in China mainly revolve around tax breaks or exemptions. However the ease with which companies can qualify for these benefits varies, with eligibility often hinging on either the size or location of the company. Below, we take a closer look at the three of the most preferential of these policies:
Corporate income tax
The way in which the CIT exemption for disabled employees functions is noteworthy. In China, companies can deduct a non-disabled employee’s annual salary from the profits on which they pay CIT.
For disabled employees, the amount is doubled. So if a disabled employee’s annual salary is RMB 100,000, for instance, the company will be able to deduct RMB 200,000 from the amount on which it pays CIT.
In order to qualify for this benefit, companies must meet all of the following requirements:
• Disabled employees must have a minimum one year labour contract or service agreement with it
• It must pay the monthly social security costs of disabled employees
• The disabled employee’s salary cannot be any less than the lowest salary paid to a non-disabled employee.
Individual income tax
While disabled persons employed anywhere in China are eligible for IIT deduction, China’s tax authorities have yet to implement a nationwide standard. This means that the deduction amount varies from region to region, with the country’s more affluent areas tending to provide greater deductions. Below, we provide an example in Guangzhou, Guangdong province:
VAT
To qualify for VAT exemption, the requirements are extensive. Not only must 25% of a company’s workforce be disabled, but it must also employ a minimum of 10 disabled employees too.
In practice, this means that the exemption only applies to larger companies. If 50% of the workforce of a small startup with 6 staff were disabled, for example, the organisation would still be ineligible for the VAT exemption.
In addition, the conditions for qualifying for CIT exemption also apply to VAT exemption.
“When China hosted the Paralympic Games in 2008, then president Hu Jintao promised that the country would strive to make its disabled citizens ‘equal members of society.”
Quota for hiring disabled employees
The Chinese government has actually set a minimum quota for the number of disabled employees that a company must hire. The national average is 1.5% of a firm’s workforce, but the rate can differ by province. The quota does not apply to companies under three years old and with a workforce of fewer than 20 staff.
Companies that don’t meet this quota have to pay into a fund called the Baozhang Jin .
The amount required again varies according to location, but the majority of companies choose to pay into it rather than employ the requisite amount of disabled workers.
Reluctance to train disabled staff and integrate them into the company structure is a commonly cited reason for this situation. But the fact that companies choose to take advantage of the Baozhang Jin’s exemption is one of the root causes of China’s low disabled employment rate.
How is ‘disability’ defined in China?
The Law on the Protection of Disabled Persons is China’s primary piece of legislation on disability rights. In its second Article, the Law describes a disabled person as someone who “suffers from abnormalities or loss of a certain organ or function, psychologically or physiologically, or in anatomical structure and has lost wholly or in part the ability to perform an activity in the way considered normal”.
The law further states that the term “disabled person” refers to those with “visual, hearing, speech or physical disabilities, mental retardation, mental disorder, multiple disabilities and/or other disabilities.” Importantly, it notes that the “criteria for classification of disabilities shall be established by the State Council”.
Looking ahead
The incentive framework that China has put in place for hiring disabled employees has been incremental since Hu Jintao’s speech at the Paralympic games.
Policies such as the Baozhang Jin have been revised and implemented as recently as October 2015, and China is still catching up with some of its international commitments regarding disabled employment. Such commitments include those contained in the International Labor Organization’s conventions on employment and education for the disabled that China ratified in 1985.
This situation suggests that more change can be expected in both the short- and long-term. For instance, China is developing a policy framework that supports its public and international backing of disabled employment and further incentivises China-based businesses to hire disabled workers.
-This article was first published on Asia Briefing.
Dezan Shira and Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asian markets. Since it was set up in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
For further details or to contact the firm, please email info@dezshira.com or visit www.dezshira.com.
