Social insurance exemption for foreigners can be a valuable asset for employers and foreign employees to save on unnecessary costs. However, many companies hiring eligible employees are not aware of the benefits available to them, while those that do are often unsure as to how to go about applying.
China’s social security system consists of five different types of insurance, plus one mandatory housing fund. The housing fund contributions are included because the costs come from both the employer and the employee. The five “insurances” are:
- Occupational injury
While regional authorities manage the social insurance system, not all regional governments have enacted implementation rules for China’s international social security agreements. However, expatriates from Canada, Denmark, Finland, Germany, Korea, the Netherlands, Spain, and Switzerland are eligible for exceptions across China, and soon those from France, Japan, and Serbia will be as well. In this article, we look at who is eligible for exemption, and how to apply.
Social Insurance Premiums in China
The Ministry of Human Resources and Social Security requires foreign employees working in China to participate in its social insurance scheme, as detailed in the Interim Measures for the Participation in Social Insurance of Foreigners Employed in China, 2011.
According to Chinese labor law, any foreigner employed by a legally registered entity in China, or any foreigner dispatched to a registered branch or representative office of a foreign company, must participate in basic pension insurance for employees, basic medical insurance for employees, occupational (work injury) insurance, unemployment insurance, and maternity insurance.
However, since social insurance is managed at a regional level, a range of inconsistencies exists among cities. As a result, most major cities have implemented their respective requirements for foreign employees.
For example, in cities such as Beijing, Tianjin, Shenzhen, and Nanjing, among many others, social insurance payments are compulsory for foreign employees, who are treated in the same way as domestic workers. Contrarily, Shanghai does not currently require foreign employees to contribute towards social insurance.
While not all regional authorities have implemented rules in accordance with international social security agreements, increasing the difficulty in obtaining exemptions for eligible expatriates, employees from countries that have agreements with China are eligible for social insurance exemptions.
To date, eight such agreements have been implemented between China, and the following countries:
China has also made agreements with France, Japan, and Serbia, although these agreements are not yet in effect.
All existing agreements define the groups of employees eligible for exemption and lay out the categories of social insurance for which employees are exempt from paying. In turn, Chinese employees sent to the participating country will also be exempt from making the relevant social insurance contributions there.
Social insurance exemptions are only available to a defined group of labor categories, and not to all foreign employees. The eight bilateral agreements with China for social insurance payment exemptions that have been implemented can be seen in Table 1.
The agreement with Japan will cover the National Pension and Employees’ Pension Insurance. It will apply to dispatched personnel, employees on board ships and aircraft, civil servants, and diplomatic and consular personnel. The implementation date will be announced once China and Japan both complete the relevant domestic legal procedures.
Likewise, details on the agreements with France and Serbia, including their implementation dates and range of exemptions, will be announced once each country completes their respective domestic legal procedures.
Basic Process for Applying for Premium Exemptions
Exemption does not apply automatically, and companies with foreign employees are required to apply to related bureaus for exemption. Though the process of applying for insurance premium exemptions varies across regions, and according to the specific agreement under which it is performed, it follows a standard formula.
The entity that employs the foreign employee in China must submit an original certification of insurance issued by a relevant entity in the country of origin to the local Chinese social insurance bureau. This will then be verified and a copy will be held on record. Following verification of this documentation, and possible further verification and certification, the employee in question will be exempt from the relevant social insurance payments.
The time limit of the exemption period may vary. For employees from the Netherlands, for example, the maximum length of the exemption period is five years. If the dispatch period is more than five years, the time limit for exemption will not be extended for more than one year.
While social insurance exemption agreements offer cost benefits to enterprises based in China, businesses should act in caution regarding how they go about availing them. Although bilateral agreements for exemption are made at a national level, regional governments must implement the system locally. This invariably results in inconsistencies and varying levels of implementation at a local level, complicating the process for companies and foreign employees.
“Officers in social insurance bureaus are often unsure about how to implement foreign employee social insurance exemptions,” said Helen Kong, Manager of Human Resources Administration and Payroll Services at Dezan Shira & Associates. “Many cities have no local regulations relating to this topic, especially in second and third tier cities.”
Kong adds: “Cases exist where city-level regulation for insurance exemption is not at hand from the local bureau. In such cases, if a business makes the decision not to make social insurance payments for their foreign staff, they may be challenged by the bureau for non-compliance during a later insurance inspection.”
Failure to pay social insurance premiums when not in receipt of explicit consent from the local social insurance bureau bears inherent risk. Therefore, it is essential to consult both the local social insurance bureau, as well as relevant staff at the local labor bureau before taking any unilateral measures. Additionally, seeking the help of an advisor is highly recommended. If appropriate precautions are taken, these agreements can be beneficial tools for enterprises employing foreign staff in China.
This article was originally published on August 28, 2017, and has been updated with the latest regulatory changes.
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This article was first published on China Briefing.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll, and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India, and ASEAN, we are your reliable partner for business expansion in this region and beyond.
For inquiries, please email us at [email protected]. Further information about our firm can be found at www.dezshira.com.