Shenzhen Housing Fund Regulations to Impact Foreign Companies

The Shenzhen municipal government issued the Interim Measures on the Administration of Housing Funds (Shenfu [2010] No. 176) (“Interim Measures”).  The  Interim Measures provide that all government agencies, public institutions, enterprises, private non-enterprise entities, social groups (collectively “entities”) and their on-the-job workers and staff with or without Shenzhen household registration in Shenzhen should pay housing fund monthly compulsively from December 2010. Foreign-invested companies and foreign companies also fall under the purview of the Interim Measures.

While the promulgation of the Interim Measures may lead to a significant increase in labor costs for some companies, the improvement in employees’ welfare may also increase the competitiveness of companies in Shenzhen over companies in other regions.

1. Calculation of Housing Fund Contribution

According to the Interim Measures, the amount of housing fund contribution follows the below formula:

Housing fund contribution = housing fund contribution base x housing fund contribution ratio.

The housing fund contribution base is set at the employee’s average monthly wage in the preceding year. It should not fall below the minimum monthly wage in the preceding year released by the municipal department of human resources and social security, nor exceed five times the average monthly wage of the employees at work in Shenzhen in the preceding year released by the municipal statistical department.

The entity should adopt a uniform contribution ratio for all employees, which should be between 5% and 20%. Employer and employee must make equal housing fund contributions.

2. Requirements for Employees

The Interim Measures provide that the entity shall designate a housing fund specialist in charge of the housing fund procedures. The employment contracts signed between entities and their employees should specify the entities’ obligation to make housing fund contribution for the employers in accordance with the regulations.

Newly set-up entities are required to conduct housing fund contribution registration at housing fund management centers within 30 days of establishment, whereas entities established prior to the implementation of the Interim Measures shall register within the time period stipulated by the fund management center. Entities shall then set up housing fund accounts for their employees with entrusted banks within 20 days of the fund management centers’ approval of their registration.

Entities that have suffered deficits for two consecutive years and thus have difficulty making housing fund contributions may, upon discussion and approval by the employee representative meeting or labor union of the entity, apply to lower their contribution ratio or to postpone the payment of housing funds with the housing fund center.

3. Penalties

If entities fail to complete housing fund registration or do not set up housing fund accounts for its employees, and fail to correct the problem within a time limit as ordered by the housing fund management center, the entity will receive a fine at RMB 10,000 to 50,000. If the company underpays or fails to contribute, the fund administration center may order the company to contribute and may apply for compulsory enforcement by the local people’s court if the company continues to refuse payment. If the entity’s violation of the Interim Measures is investigated and confirmed, the entity’s violation will be recorded in the housing fund supervisory system and the entity will be treated as a key target of investigation.

4. Implication for Employees

The Interim Measures provide that employees who have made housing fund contributions may apply for a housing fund loan when buying, building, renovating, and overhauling their self-owned and self-occupied houses.

For employees receiving minimum wages, entities are required to make housing fund contributions in accordance with the regulations, while the employees can be exempted from paying them.

On December 16, the Shenzhen local tax bureau issued the Circular on the Transition Issues of Individual Income Tax Deduction in the Housing Fund System (“Circular”), stipulating the maximum amount of housing fund which can be deductable for individual income tax purpose. Specifically, entities and individuals can deduct an amount not exceeding the smaller account between RMB 1402 and 12% of the employee’s monthly salary.

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