HK listing: Social insurance and housing fund issues

Enterprises involving domestic equity often encounter problems when they go public on the Hong Kong market, one of which is non-compliance with the provisions on payment of social insurance premiums and housing provident fund (HPF).

According to the Stock Exchange of Hong Kong, 28 out of 39 enterprises (excluding those transferred from the GEM to the main board) listed on its main board from January to April 2019 involved domestic equity.

According to their prospectuses, 13 of the 28 domestic enterprises failed to comply with the provisions on full payment of social insurance premiums and HPF for all employees. These non-compliant enterprises were mainly private enterprises engaged in asset-light strategy services and processing production. Several were foreign-funded enterprises.

These enterprises were found to have violated: articles 58, 84 and 86 of the Social Insurance Law (revised in 2018); article 10 of the Provisional Regulations on Collection and Payment of Social Insurance Premiums (revised in 2019); and articles 14, 15, 16, 37 and 38 of the Regulations on Management of HPF.

Though enterprises seek different resolutions for such non-compliance, they share some common ideas:

Explanation of reasons. The main reasons for failure to pay social insurance premiums and HPF for all employees, as per their actual salaries, are disclosed in their prospectuses, and included: (1) the employees were not familiar with applicable regulatory provisions and the governments in mainland China were inconsistent in implementation or interpretation of applicable regulations; (2) some employees were migrant workers, and very mobile; (3) employees were unwilling to pay their contributions to social insurance premiums/house provident fund and voluntarily waived their payments; (4) some non-local employees were not willing to participate in the social insurance initiatives of the cities where they temporarily lived; (5) some employees had participated in the New Rural Pension Scheme and were unwilling to buy social insurances and pay the HPF; and (6) compulsory requirements for payment of social insurance premiums and HPF in full amounts may raise the risk of employee turnover.

Confirmation by the competent authority. An enterprise may obtain written confirmation from local social insurance authorities and administrations for HPFs that: (1) the enterprise is not subject to any administrative litigation or punishment for violation of laws and regulations on social insurances/HPF as from the date of establishment/during the reporting period; (2) the authority understands and recognizes the base pay of the enterprise and will not impose any punishment or require payment of any unpaid social insurance premiums/HPF, or the enterprise may pay its contribution to social insurance as per current rates.

Most enterprises may obtain the first above-mentioned written confirmation. The second confirmation, however, depends on the local competent authority. It is worth noting that all social insurance premiums originally collected by the social security bureau will be uniformly collected by the tax authority as from 1 January 2019, according to the Plan for Deepening the Reform of the State Tax and Local Tax Collection Administration System.

Some provinces, such as Guangdong, shifted the power of collection of social insurance premiums to the tax authority before promulgation of the plan. Among the enterprises listed on the main board of the Stock Exchange of Hong Kong from January to April 2019, some consulted their local tax authority on compliance with the provisions on payment of social insurance premiums. Most, however, applied to social security bureaus for issuance of compliance certificates/interviews.