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Legal Update

Update on Implementation of New Social Insurance Rules for Foreigners Employed in China

17 October 2011
Mayer Brown JSM Legal Update

The Interim Measures on Participation in PRC Social Insurance of Foreigners Employed in China ( the "New Rules") issued by the PRC Ministry of Human Resources and Social Security (see our email alert dated 14 September 2011) came into effect on 15 October 2011.

15 October 2011 came and went last week without any implementation measures having been issued by the State level authorities, nor by the local authorities of the major cities of Beijing, Shanghai, Guangzhou and Shenzhen. This update considers the current status of the implementation of the New Rules, and the PRC social insurance obligations of an employee who is a permanent resident of Hong Kong, Macau or Taiwan ("HMT Employee") working in Mainland China.

1. Local Implementation of the New Rules

As of the end of last week, no local implementation measures regarding the New Rules have been issued by the major authorities. As such certain key elements concerning implementation of the New Rules remain unclear..

Our understanding is that in Beijing and Shanghai the mechanism necessary for receiving contributions for foreign employees in accordance with the New Rules is not yet in place, and when and how to make the above contributions is subject to further local implementation measures.

However, labour authorities in certain cities, e.g. Shenzhen, where foreigners have already been required to make contributions to PRC social insurance scheme prior to October 15 (which generally only cover some of the five categories of the social insurance required under the New Rules) will almost certainly continue their existing practice until it is changed by future local implementation measures.

In addition, in some cities, e.g. Guangzhou, where the local tax authority rather than labour authority is responsible for collecting social insurance contributions, the local tax authority has advised that employers should make contributions for the foreigner as if he/she is a PRC employee without Guangzhou registered domicile (i.e. hukou), but such requirement may be modified by future implementation measures issued by the Guangzhou labour authority.

Therefore, it is important for employers to inquire with the relevant local authorities as to the status of their social insurance contributions obligation.

Questions employers are asking now include:

  1. Will the employer be fined for not commencing contributions where the local collection mechanism is not in place?

In our view while there is no express stipulation on this by relevant local authorities, it would seem unfair if employers are fined for violating something they have no means to comply with.

  1. When the collection mechanism is in place, will the local authorities require arrears of contribution dating back to 15 October 2011 to be paid?

Here again there is no express stipulation at this time. Some employers are considering paying into an internal reserve account with effect from October 15 based on the same rates as for Chinese nationals. While this may be easy to implement, the thornier issue would be the foreigner employee's contribution portion. Employers are required to deduct and withhold this portion from such employee's monthly salary and may meet objections from these foreigner employees if they deduct and withhold even before the collection mechanism is in place.

2. Exemption by Treaties

Germans and South Koreans employed in China and their employers are subject to the social insurance treaties ("Treaties") executed between their respective governments and China, and can be partially exempted from contributions to PRC social insurance scheme (i.e. pension and unemployment social insurance for Germans, and pension for South Koreans, can be exempted) if conditions required in the relevant Treaties are met.

3. HMT Employees (Hong Kong, Macau and Taiwan)

Currently, HMT Employees are exempted from the New Rules. Instead, they are subject to the 2005 Regulations on Employment of Taiwan, Hong Kong and Macau Residents in Mainland China, as well as the relevant local implementation measures.

If a HMT Employee enters into or exits from Mainland China upon his/her HMT Travel Permit (i.e. a travel document specifically issued to a Chinese HMT resident for entry into /exit from Mainland China, known as ??????????? and ???????????), then PRC social insurance contributions requirements applicable to him/her and his/her employer vary based on his/her employment arrangements as follows:

  1. For a HMT Employee employed outside Mainland China by a foreign/HK/Macanese/Taiwanese company and seconded to work in Mainland China, no PRC social insurance contributions is required.

  2. For a HMT Employee directly employed to work in Mainland China by a company registered in Mainland China, whether such contribution is required varies depending on local practice, e.g., currently compulsory in Shenzhen, but not compulsory in Shanghai.

If a HMT Employee enters into/exits from Mainland China upon his/her foreign (i.e. non-PRC) passport (even though he/she may simultaneously hold a HMT Travel Permit), he/she will be regarded as a foreigner and must make PRC social insurance contributions in accordance with the New Rules.

The table below summarises the PRC social insurance requirements applicable to foreigner employees and HMT Employees:

Categories of
Travel Document Used for Entry into/Exit from Mainland China Employment Arrangement PRC Contributions Requirement
Foreigner Employees Foreign Passport Direct Employment Required
Secondment Required
HMT Employees Foreign Passport Direct Employment Required
Secondment Required
HMT Travel Permit Direct Employment Required in Some Cities
Secondment Not Required

For inquiries related to this Legal Update, please contact Andy Yeo, Rachel Zhang or your usual contacts with our firm.

Learn more about our PRC offices and Employment & Benefits practice.

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