With the "Interim Measures for Social Insurance System Coverage of Foreigners Working within the Territory of China" (hereinafter referred to as "Interim Measures") coming into force on 15 October 2011, foreign invested enterprises and foreign individuals are becoming increasingly concerned about the Chinese social insurance obligations for foreign individuals working in China. In order to help you get more accurate understanding on this, we set out as follows our insights for the relevant rules and provisions concerning the Chinese social insurance system coverage of foreigners working in China.
- Not all foreign individuals in China are obliged to participate in the Chinese social insurance system. A foreign individual who is obliged to participate in the Chinese social insurances refers to a non-Chinese national who is in possession of an employment permit in China, such as Employment Permit for Foreigners, Foreign Expert Certificate, or Resident Foreign Correspondent's Press Card, or the Permanent Residence Permit of Foreigners, and is lawfully working within the territory of the People's Republic of China.
- A foreign individual obliged to participate in Chinese social insurances does not have to complete the relevant procedures by himself. The Chinese employer of the individual (such as enterprise, public institution, social organization, foundation, law or accounting firm, etc.) or the Chinese subsidiary or representative office of a foreign company which the individual works for under assignment by the foreign parent company, is liable for completing the relevant procedures of Chinese social insurances for the foreign individual.
- A foreign employee covered under the Chinese social system shall participate in the Basic Old-age Insurance for Employees, Basic Medical Insurance for Employees, Work Injury Insurance, Unemployment Insurance and Maternity Insurance, with the basis and individual contribution of insurance payment same with Chinese employees.
- The start date for the Chinese social insurance payments: a newly employed foreign individual shall make insurance payments for the prescribed social insurances since the month of his employment; a foreign individual having been employed before the effective date of Interim Measures shall make insurance payments since the effective date on 15 October, 2012. Foreign individuals who are obliged to participate in the social insurances but fail to participate in or make insurance payments on time shall be subject to overdue surcharge.
- Residents of Hong Kong, Macao and Taiwan do not participate in the China social insurance system.
- Residents of Germany or Korea can be exempted from some of the Chinese social insurance obligations. Pursuant to the social insurance agreements between China and these two countries, German individuals employed in China do not participate in Basic Old-age Insurance for Employees and Unemployment Insurance; German individuals assigned to work in China do not participate in Basic Old-age Insurance for Employees and Unemployment Insurance within 48 months. Korean employees are excluded from Basic Old-age Insurance for Employees.
Residents of Germany or Korea shall provide certificates demonstrating that they have participated in the social insurance system of their own country within 3 months after being employed in China.
China has long been considering policies to cover foreign individuals working in China under its social insurance system. Most developed nations have required foreigners working within the territories of their countries to participate in their social insurances.
For the purpose of relieving the financial burdens of their companies and residents due to the participation in the Chinese social insurance system by their residents, countries which have large amount of investments in China have been speeding up the negotiation with the Chinese government on concluding social insurance agreements. If such agreements can be concluded, not only the Chinese social insurance costs of the enterprises and residents of these countries can be reduced, according to the principle of reciprocity, the social insurance burdens of the Chinese enterprises which invest in these countries will also be significantly lightened.
We suggest that both the Chinese enterprises investing in other countries and the foreign enterprises investing in China shall pay close attention on the progress of the possible conclusion of social insurance agreements between China and other countries. Once such a social insurance agreement is right in place, it is recommendable that enterprises shall apply for tax relief treatment according to the agreement, so as to reduce the costs arising from the social insurance obligations of the cross-border employees.
This article was published in March 2012, China Tax Highlights – a publication by RSM China