Disabled Workers In China

The disabled are more able than they are given credit for, and employing disabled workers is useful for society

The fallout from China’s abolishment of its one-child policy has taken new and unexpected turns in recent weeks. Following protests from parents affected by the 36-year-old policy – most by having a single disabled or severely ill child 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 has been widely reported in Western media and has helped reenergize a discussion of the role that the disabled have in Chinese society, particularly in the workforce.

China has a host of national and provincial policies aimed squarely at incentivizing businesses to hire disabled workers. Awareness of these incentives among foreign companies, however, has remained generally low since their implementation, and many domestic companies choose not to use them – two factors in many that have seen a low employment rate for China’s disabled citizens.

What incentives exist for hiring disabled employees?
The 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 the location of the company. Below, we take a closer look at the three main preferential policies.

Awareness of these incentives among foreign companies, however, has remained generally low since their implementation, and many domestic companies choose not to use them

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 that they pay CIT on. For disabled employees, this amount is doubled. If a disabled employee’s annual salary is 100,000 RMB, for instance, then the company will be able to deduct 200,000 RMB from the amount that it pays CIT on.

In order to qualify for this benefit, companies must meet all of the following requirements:

  • The disabled employee must have a minimum one year labor contract or service agreement with the company;
    The company must pay the monthly social security costs for the disabled employee;
    The disabled employee’s salary cannot be any less than the lowest salary paid to a non-disabled employee in the company.

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. The deduction amount therefore varies from region to region, with the country’s more affluent areas tending to provide greater deductions.

VAT Exemption
The requirements to qualify for VAT exemption are extensive. Not only must 25 percent of a company’s workforce be disabled, but the company must also have a minimum of ten disabled employees. In practice, this means that the exemption is only available to larger companies. If the workforce of a small start-up with 16 staff were 50 percent disabled, for example, they would still be ineligible for the VAT exemption.

In addition to this provision, the conditions for qualifying for CIT exemption also apply for VAT exemption.

Quota for hiring disabled employees
The Chinese government has actually set a minimum quota of disabled employees that a company must hire. The national average is 1.5 percent of a firm’s workforce. The quota does not apply to companies under three years old and less than 20 employees.

Companies that don’t meet this quota have to pay into a fund called the Baozhang Jin (保障金). The necessary amount again varies according to location, but the majority of companies choose to pay into the fund rather than employ the requisite amount of disabled workers that would absolve them from a penalty. Reluctance to train disabled staff and integrate them into the company structure is a commonly cited reason for this, but the fact that few 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 (LPDP) 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.”

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, though China is still catching up with some of its international commitments regarding disabled employment.

Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at dongguan@dezshira.com. Further information about our firm can be found at: www.dezshira.com

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Category The Know How