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LEGAL: New Regulations on Foreign Employees who Participate in the Social Security System in China
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altBackground

According to Article 97 of the PRC Social Security Law which was published on 28 October 2010 and effective after 1 July2011, the obligation to participate in social security will be applicable not only to Chinese nationals, but also foreigners working in the territory of China, on a mutatis mutandis basis, will also be subject to the provisions related to social security in the new law.

To further implement Article 97 of the PRC Social Security Law, the Tentative Measures for Foreigners Working in China to Participate in the Social Securities (the “Measures”) was published by the Ministry of Human Resources and Social Security on 6 September 2011 and took effect after 15 October 2011. According to the Measures, all foreigners legally working in China and their local employers shall pay social security contributions including pension, medical insurance, occupational injury insurance, unemployment, and maternity insurance.

Who Shall Contribute to Social Security?


The Measures provide that all foreigners holding Foreigner Employment Permits, a Foreign Specialist Certificate or other types of employment certificates, or foreigners holding a Permanent Resident Permit legally employed in the PRC shall be enrolled in the Chinese social security system and contribute to pension, medical, occupational injury, unemployment, and maternity insurance. It shall be applicable not only to those foreigners directly hired by Chinese companies in China, but also to those who are employed by offshore companies and sent to work in China, such as foreign representatives of their employers offices.

For foreigners directly employed in China, their Chinese employers shall be responsible for withholding and contributing their social security premium. On the other hand, for employees hired by an offshore company and sent to China, the entity in China who receives such foreigners shall take the obligation of the employer as mentioned above.

As an exception, foreigners from countries that have signed bilateral or multilateral social security treaties with China will be subject to the relevant provisions of those treaties, and could be exempted from the contribution obligations under the RPC Social Security Law and the Measures. So far, only Germany and the Republic of Korea have signed such a bilateral social security treaty with China. However, along with the publishing of the PRC Social Security Law and the Measures, it is reported that more countries are interested in beginning negotiations with China to establish a social security treaty between them.

Contribution Base and Rate

The Measures do not provide the contribution base and rate for social security that will be applicable to foreigners. Therefore, when there is no national or local implementation rules specially regarding the contribution base and rate for foreigners, it is understood that the current contribution base and rate for Chinese employees will be applicable to foreigners as well.

Under Chinese law, the employers and their Chinese employees shall make contributions to the social security system based on the employee’s average monthly salary. The contribution base is subject to the minimum and maximum limits as annually announced by local governmental authorities. On the other hand, the contribution rate will also be different from place to place. For instance, the contribution base and rate of 2011 for Chinese employees in Beijing, Shanghai and Tianjin are summarized as follows:

In Beijing:

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In Shanghai:

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In Tianjin:

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Social Security Benefits

According to the Measures, if a foreigner leaves China before reaching the statutory age to receive a pension, his or her individual social security accounts will be retained and may be reactivated when he or she comes back to work in China again. As another option, the foreigner may also apply to terminate the social security relationship and retrieve the deposit in his or her individual pension accounts in a lump sum before leaving China; in case of death, the balance of a foreigner’s individual social security account could be legally inherited.

altThe Measures also provide that, in case the foreigner receives his or her PRC social security benefits on a monthly basis but resides outside China, a certificate showing that the foreigner is living shall be submitted to the relevant PRC social security authority at least once a year unless the foreigner will be able to enter into China and present himself or herself in person before the relevant social security authority. Such certificate should be issued by the overseas PRC embassy or consulate, or notarized by an overseas public notary and legalized by the relevant PRC embassy or consulate.

However, there are still several items not clearly answered by the Measures. For example, according to the PRC law, when the Chinese labor agreement of a foreigner is terminated, his/her work permit and residence permit shall be returned back to the authorities immediately and he/she shall leave China afterwards. Under this circumstance, how can the foreigner enjoy the benefit from his unemployment insurance? Another example is: in order to receive the benefit of maternity insurance, the female employee shall provide medical documents issued by public hospitals established in China. But in practice, foreigners usually will choose to have babies in their home countries; therefore the benefits of maternity insurance will not be available to these foreigners.

We understand these unclear issues need to be further clarified by additional regulations and rules issued by the Chinese government. This could also be one of the reasons that the implementation of the Measures has been delayed in some cities such as Shanghai.

Penalties

According to the PRC Social Security Law, the employer is obliged to withhold and submit the social security premium. Employers who fail to promptly submit social security premiums in the full amount shall be ordered by the social security premium collection agency to make or supplement the contributions within a stipulated period, and shall be subject to late payment interest of 0.05% per day; if the amount is still not paid within the stipulated period, the relevant authorities shall impose a fine ranging from one to three times the unpaid amount.

Conclusion

As to the effectiveness of the PRC Social Security Law, it is clear that foreigners working in China will be included into China’s social security system. Upon publishing of the Measures, it is even clearer that the Chinese government is determined to implement the provisions of the PRC Social Security Law.

Although there are still several practical issues that are not clearly explained and settled, it can be expected that these uncertainties will be further defined and explained by the implementation rules or local guidance issued by Chinese authorities in the future. Considering the obligation to withhold and remit social security premiums will be assumed by the employer and failure of performing such obligations might lead to later payment interest and even a penalty, it is advised for employers of foreigners to continue to pay attention to the latest development of laws, regulations, and local policies regarding social security in the near future.



By Manuel Torres (Partner) & Julian Yu (Junior), Garrigues, Shanghai.

Garrigues has over 13 years of experience in advising companies in their investments in China. The team of experienced Western and Chinese professionals at Garrigues Shanghai provides legal advice to foreign companies on a wide range of issues such as incorporation of companies and negotiation of joint ventures, commercial contracting, M&A, tax, real estate, employment, intellectual property, arbitration and infrastructures, as well as to Chinese companies with investments abroad.





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