New Social Security Rules for Expatriates in China

On 1 July 2011, the PRC Social Insurance Law came into effect. In its Article 97, the new law generally provides that foreigners working in China are able to participate in the Chinese social security system. However, from the law itself, it was not clear whether such participation is mandatory or not.

On 6 September 2011, the PRC Ministry of Human Resource and Social Securities promulgated the Interim Measures on Participation of Social Insurances by Expatriates Working in China (the "Measures"). The Measures will take effect on 15 October 2011. According to the Measures, basically all expatriates working in China will be required to participate in the PRC social security system in the future.

Below are the key issues stipulated in the Measures.

  1. Scope of Application

All non-Chinese nationals working in China by holding either a work permit for foreigners, a foreign expert certificate, a foreign journalist card or a permanent residence permit for foreigners must participate in the social insurance system. This means that the Measures apply not only to expatriate employees who are directly employed by entities established in China, but also to those who have concluded employment contracts with overseas affiliates and are seconded to work at subsidiaries or representative offices in China. Further, the obligation also includes foreign experts invited by Chinese government organisations or institutes to work in China and foreign journalists working at foreign media organizations in China.  

  1. Social Insurance Funds

Within 30 days after obtaining a work permit, the unit in China which employs the expatriate shall apply for social insurance registration for him or her. Expatriates working in China must participate in the same funds as Chinese employees, i.e. pension, medical, work-related injury, unemployment and maternity insurances. All foreign participants will receive their own social insurance cards.

The calculation of the social insurance premiums is also the same as for Chinese employees. The rates are determined by the local governments and will, therefore, vary from city to city. In Shanghai, the employer shall contribute social insurance premiums at a total rate of 37% of its total payroll, while the employee’s rate is 11% of the monthly salary. The calculation basis is capped. The cap is determined jointly by the local Labor Bureau and the Statistics Bureau every year. The current cap for Shanghai is RMB 11,688. That means that for expatriates in Shanghai with salaries above the cap, the annual extra costs amount to RMB 51,895 for the employer and RMB 15,428 for the employee.

  1. Entitlement to Pension Benefits

Expatriate employees are entitled to pension benefits at the statutory retirement age, i.e. 60 for men and 55 for women, provided that contributions have been accumulatively paid for 15 years. The benefit payment does not require that the employee is still resident in China.

If an expatriate employee leaves China prior to reaching the retirement age, his or her personal social insurance account will be reserved and can be revived when he or she works in China again. Alternatively, the expatriate may apply for immediate payment of the balance in his or her personal social insurance account when he or she leaves the country.

  1. Exemption based on Treaties

If a treaty to avoid double payment of social insurance premiums exists between China and the home country of the expatriate employee, the employee will be exempted from part of the Chinese social securities under certain conditions. Until now, China concluded social security treaties with Germany and South Korea only.

  1. Transfer of Social Insurance Relationship

According to the PRC Social Insurance Law, after an expatriate participates in the social insurance system, he or she will be allowed to transfer his or her pension, medical and unemployment insurance relationships when he or she moves to another city for employment. The social insurance contribution years in different cities will be calculated accumulatively.

  1. Conclusion

With the effectiveness of the Measures, the costs of employing foreigners in China will rise. We expect that in the near future, the local governments will stipulate their own implementing policies based on the Measures. It will be interesting to see how the Measures will be implemented in the different provinces and how much room there will be for local particularities.