11 Aug 2020 China legal update: Legal News: 2019 Average Monthly Salary in Major Cities Released
1. 2019 Average Monthly Salary in Major Cities Released
(1) Ceiling amount of paying severance payment
According to article 47 of PRC Labor Contract Law, the employer shall pay the employee severance payment during the termination of employment contract based on the number of years that he has worked at the rate of one month’s salary for each full year worked. However, a ceiling amount is introduced for calculating the monthly salary of the employee, that is, if the employee’s average monthly salary is more than 3 times the average monthly salary in the location of city in the previous year, the amount shall be limited to the latter. That is why it is important to check each year on the average monthly salary of the city.
We summarize the following table of the 2019 average monthly salary of some major cities and corresponding ceiling amount for your reference1:
(2) Ceiling amount of maximum social insurance contribution
The average monthly salary is also important for calculating the ceiling amount of social insurance contributions. Employers and employees cannot make social insurance contributions higher than the ceiling amount, even if in reality the employee is paid far more than that amount.
Generally, the contribution base of the social insurance is capped at 3 times of the average salary of the city as well. For example, this year in Tianjin, the ceiling amount of paying severance and ceiling amount for social insurance contribution base are the same.
However, Beijing, Shanghai, Shenzhen and Guangzhou implemented special rules to decrease the ceiling amount of social security contribution base in order to reduce the burden on enterprises during the COVID-19 epidemic. Taking pension fund base for example:
In Beijing, 2019 average monthly salary for employees working in legal entities is RMB 11715 yuan/month, and this is the amount used for calculating ceiling amount of paying severance payment. However, for calculating the base of pension fund, HR Bureau stipulated that RMB 8847 yuan/month2 is applicable, which is the monthly average salary for employees working in all kinds of units (not only for legal entities).
In Shanghai, the social security contribution base will be gradually increased under a three-year transition plan. It means that 2019 average monthly salary RMB 9580 yuan/month shall not be used to calculate the 2020 pension fund base immediately. Under the three-year transition plan, as of July 1, 2020, RMB 9339 yuan/month3 was used instead.
In Shenzhen and Guangzhou, the social security contribution base was not calculated according to the average monthly salary in the municipal level in Shenzhen or Guangzhou but according to the average monthly salary of provincial level in Guangdong Province, which is RMB 6756 yuan/month4.
We summarize the following table for your reference:
2. Draft 2020 Foreign Investment Encouraged Catalogue Released for Public Comments
On July 31, 2020, the National Development and Reform Commission and the Ministry of Commerce jointly issued the draft Catalogue of Encouraged Industries for Foreign Investment (2020 edition) for soliciting public comments till August 30, 2020 (the “Draft Catalogue”).
The Draft Catalogue lists industries where foreign investment is welcome and aims to replace the 2019 edition. Specifically, the Draft Catalogue keeps consisting of two sub-catalogues mentioned in the 2019 edition, one of which is the national list applies to the whole country, and the other one of which is applicable to 22 provinces in China’s central, western and northeastern regions5. The major change of number of items is as follows:
In the Draft Catalogue, sectors such as manufacturing of high-end products, research and development and so forth are especially welcome foreign investment.
We highlighted few of the added items for your attention:
It is noteworthy that even for the encouraged catalogue, under certain industries, there may still be a set of examination and approval to be obtained by the foreign investors. For certain encouraged industries, if the domestic investors also need to obtain examination and approval from relevant governmental authorities, then the foreign investors shall be subject to the same examination and approvals.
Although not directly mentioned in the Draft Catalogue, but it is reported in many news that foreign investors engaging in the encouraged industries might be eligible for preferential tax treatment (tariff exemption for importing equipment, or preferential CIT rate) as well as preferential land prices and so forth. Before the investment, it is advisory for the foreigner investor to conduct a detailed updated check with its local tax advisor.
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1. By calling Human resources and Social Security Bureau (“HR Bureau”) in different cities, rules varied from city to city.
Beijing HR Bureau released an official notice on July 2, 2020, stipulating that ceiling amount of paying severance payment shall be based on the average monthly salary of employees working in legal entities in Beijing in 2019, which is RMB 11715 yuan/month.
Shanghai HR Bureau did not release an official notice to define the ceiling amount of paying severance payment. However, in practice, the ceiling amount shall be based on the number of average monthly salary of urban employeesin Shanghai, which is RMB 9580 yuan/month released by Shanghai Statistics bureau.
HR Bureau in Shenzhen and Guangzhou did not release an official notice neither. In practice, the ceiling amount shall be based on the number of average monthly salary of employees working in non-private sector, which are RMB 10646 yuan/month in Shenzhen and RMB 10292 yuan/month in Guangzhou respectively .
Tianjin’s monthly average salary of all employees is fixed at RMB 6323.
4. Guangzhou and Shenzhen http://hrss.sz.gov.cn/attachment/0/687/687493/7847466.pdf
5. 22 provinces include the following: Shaanxi, Inner Mongolia, Liaoning, Jilin, Heilongjiang, Anhui, Jiangxi, Henan, Hubei, Hunan, Guangxi, Hainan, Chongqing, Sichuan, Xinjiang, Xizang, Ningxia, Guizhou, Yunnan, Xizang, Shanxi, Gansu.
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