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FINANCE: China-Japan Social Security Agreement
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China-Japan Social Security Agreement
Finally concluded to facilitate mutual economic and trade movement

BT 201807 Finance 01      2018 年 1 月,中国和日本众多企业和跨境个人欣喜得知 2011 年正式启动的中日双边社会保障协定结束了实质性谈判。2018 年 5 月 9 日,大家翘首以盼的中日社会保障协定终于落笔签署。

      最近几年,中国在签订双边社会保障协定方面取得了快速积极的进展,至今年 4 月签订的社保协定已从 2011 年时的 2 个增加到了 10 个,有效减小了协定双方国家跨境个人双重参保的影响。《中日协定》的签署为这一名单增加了新的成员。协定签署后,中日两国还将分别完成国内法所需法律程序。之后,双方将根据《中日协定》相关条款,确定其正式生效日期。

      对于派遣人员来说,协定待遇的首次申请应向派入国一方提交派出国一方经办机构出具的证明以享受协定待遇。对于派遣期限超过五年的,则需完成相关申请程序,经两国同意后延长协定待遇。

      参考已经实施的其他社保协定,《中日协定》中对于派遣人员首次申请的“五年”期限很可能并不以日历年为计算口径,派出国经办机构将根据《中日协定》确认派遣人员的具体免除期限。除了《中日协定》明确免除缴纳的社保险种,中日双方跨境人员仍需要按照两国国内法的规定缴纳其它种类的社会保险费。依照惯例中日双方还将签署相关行政协议,对《中日协定》有关内容进行具体解释、对其具体实施提供管理办法并确定《参保证明》等重要文件的内容。相关企业及个人应特别关注这些具体规定和流程,以确保及时准备和提交相关文件以顺利享受协定待遇。《中日协定》的优惠待遇是双边的。“走出去”到日本投资合作的中国企业也应对此加以关注。

      总体而言,《中日协定》的签署对于中日两国众多跨境投资的企业及其跨境工作的员工是利好消息,有利于减轻企业和个人的社保费用负担。由于作为《中日协定》实施细则的行政协议签署情况等尚未公布, 关于《中日协定》内容的具体解释和实务操作尚不明晰,企业应密切关注后续发展。

In January 2018, many enterprises and cross-border assignees in China and Japan were glad to learn that the negotiation of Social Security Agreements between the Government of the People’s Republic of China and the Government of Japan (the “China-Japan Agreement”) launched in 2011 had been substantially completed. On May 9th, 2018, the long-awaited China-Japan Agreement was finally concluded.
 

During recent years, China has made rapid progress in its conclusion of social security agreement with other countries. The number of social security agreements China concluded has increased from 2 in 2011 to 10 as of April 2018, including Germany, Korea, Denmark, Finland, Canada, Switzerland, Netherlands, France, Spain and Luxemburg.
 

These agreements effectively reduce the double social security contribution of cross-border assignees in the contracting countries. Now, with the conclusion of the China-Japan Agreement, this social security agreement list has a new member.
 

After concluding the China-Japan Agreement, China and Japan have to complete the legal procedures according to their respective domestic laws. Thereafter, the two countries will determine the official effective date according to the relevant provisions under the Agreement.

BT 201807 Finance 03Background

The China Social Security Law (the “SS Law”) implemented in 2011 has clearly clarified that employed foreigners in China shall be covered by China’s social security schemes. Being important partners in economics and trade, China and Japan share a very close relationship in terms of mutual investment and cooperation for years; both have large number of their people working and residing in the other country, including a large portion of personnel assigned by one country’s enterprises to their affiliates in the other country.
 

Generally employment relationship of employees under assignment arrangement remains with the home country enterprise and the employees continue to make social security contribution according to the relevant laws of the home country. At the same time, both the employees on assignment and their employers have to follow the social security laws of the host country. Having to make social security contribution in both China and Japan thus increases the cost of these assignees and their employers. The newly concluded China-Japan Agreement will protect the social security entitlement of each country’s people working in the other country, reduce the burden of social security related costs for both countries’ entities and their employees, and further facilitate cross-border exchange of economics, trade and talents.
 

Eligible Types of Social Security

The China-Japan Agreement mainly provides mutual exemption to mandatory pension of the two countries’ social security schemes; i.e., China’s Employees Basic Pension and Japan’s National Pension and Employees Pension (exceptions shall be noted).
 

Eligible Individuals

Eligible individuals are those that are subject to respective domestic legislations of the two countries’ types of social security mentioned above. For example, a Chinese enterprise’s employee assigned from China to Japan, who is not a national of either country but is a participant of China’s Employees Basic Pension as required by the SS Law, he or she can continue to make basic pension contribution in China and be exempted from Japan’s National Pension and Employees Pension during his or her Japan assignment according to the China-Japan Agreement.

BT 201807 Finance 02Relevant Provisions Applicable To Assignees

The China-Japan Agreement sets forth specific provisions for different types of individuals, and provisions applicable to assignees mainly include the following:
 

• Pursuant to the China-Japan Agreement, exemption from the assigned country’s pension contribution obligation may be claimed for the first five years of the assignment. For example, Chinese employee A is assigned by a Chinese entity to work in Japan from January 1st of Year 1, according to the China-Japan Agreement. He or she can participate in China’s Employees Basic Pension under the SS Law and does not need to pay Japan’s National Pension and Employees Pension during the period of Year 1 to Year 5. Likewise, if Japanese employee B assigned by a Japanese entity to work in China, he or she can continue to pay Japan’s National Pension and Employees Pension without participating in China’s Employees Basic Pension.

• For assignment period exceeding five years, an extension of the above exemption may be granted with mutual consent of both countries’ in charge authorities.

• The applicable assignment period will be calculated from the effective date of the China-Japan Agreement; i.e., there is no impact on how the “five-year period” is determined for assignments started before this effective date.

• For Chinese employees assigned to work in Japan, their accompanying spouse and children are also entitled to the exemption treatment under the China-Japan Agreement provided they meet the required conditions.
 

The Takeaway

• To the assignees, presentation of certificate issued by the assigning country’s authority to the assigned country is required for initial application of the exemption treatment. For assignment period exceeding five years, relevant application procedures should be completed for both countries’ mutual consent of extending the exemption treatment.
 

• By referring to other implemented social security agreements, the “five-year” period under the China-Japan Agreement may not be calculated on calendar year basis. The assigning country’s competent authorities will confirm the applicant’s exemption period according to the China-Japan Agreement.
 

• Except for social security types specifically exempted by the China-Japan Agreement, cross-border individuals of China and Japan still need to make other social security contributions as required by the two countries’ domestic laws.
 

• China and Japan, by convention, shall also conclude the relevant administrative agreement to provide interpretations, set forth administrative implementation measures and specify details to be included in the Certificate of Coverage and other documents. As such, enterprises and individuals shall pay close attention to these provisions and procedures to ensure timely preparation and submission of the required documents for claiming the China-Japan Agreement relief.
 

• Preferential treatment provided by the China-Japan Agreement is a mutual arrangement, and those “Stepping Out” Chinese enterprises investing in Japan shall also pay particular attention to this newly concluded agreement.
 

Recommendations to Enterprises

Overall, Chinese and Japanese enterprises with cross-border investments and assignees in either country will benefit from the reduction of social security cost provided to the enterprises and individuals through the conclusion of the China-Japan Agreement. As the administrative agreement for implementing the China-Japan Agreement has not been unveiled, it remains unclear how its content may be interpreted and implemented in practice. As such, enterprises shall closely monitor the subsequent development.
 

Accordingly, we recommend enterprises to take the following actions:
 

• Understand the relevant legislations and stipulations of Japan’s National Pension and Employees Pension plus China’s Employees Basic Pension, review the existing assignment model and employment arrangement (e.g., local hire, direct and indirect assignment, etc.), and determine whether the China-Japan Agreement applies to employees under those arrangements.
 

• In addition to the direct impact on social security related cost, the China-Japan Agreement may have certain individual income tax implications on cross-border assignees. Hence, enterprises should perform comprehensive analysis, adjust the employment/assignment cost projection timely and consider reconstructing their cross-border assignees’ compensation and benefit framework where necessary.
 

• Timely follow up on the local-level implementation rules and practices and complete the relevant procedures to ensure entitlement to the agreement benefits.
 

• The assigning and receiving enterprises should enhance cooperation for advanced and seamless internal deployment process, and manage each employee’s eligible period of agreement benefits effectively.
 

• Pay attention to the China-Japan Agreement’s transitional policy (e.g., the treatment of social security contribution made by assignees before the effective date of the China-Japan Agreement, etc.) for taking appropriate action.

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