New Social Insurance Law impacts foreign enterprises and foreign expatriates in China

The Standing Committee of the National People's Congress of the People's Republic of China (PRC) passed the Social Insurance Law (thereinafter refers to "the Law") on 28 October 2010. This Law consolidates existing regulations and builds up a framework of sound social insurance system based on the principle of "extensive, basic, multi-leveled and sustainable". It will come into force on 1 July 2011.

This article aim to provide a summary of the main features and its impact on foreign invested enterprises and foreign expatriates working in China.

Main Fearures of China Social Insurance Law

(1) The scope of the five social insurances: The basic pension insurance and basic medical insurance covers all residents in urban or in rural; work-related injuries insurance, unemployment insurance and maternity insurance covers  users of personnel and all the personnel;

(2) The social insurance of farmers on the requisitioned land: Farmers on the requisitioned land who work in the users of personnel, should participate in the five social insurance; Those who are not employed but turned to be urban residents may participate in urban residents social pension insurance and urban residents basic medical insurance; Those who maintain a farmer identification may participate in new rural insurance and new rural cooperative medical scheme;

(3) Cross region transfer: The new law allows migrant employees to transfer their basic pension insurance, basic medical insurance and unemployment insurance accounts from one region to another, the length of contribution could be accumulated;

(4) Medical payments in different locations: The new law will establish a new medical payments system to allow the personnel enrolled to enjoy the medical insurance benefits in different locations;

(5) Enforcement of the social insurance contribution to user of personnel: Users of personnel failing to make accurate or timely social insurance contributions will be subjected to a daily late payment interest surcharge of 0.05 percent of the underpaid amount and enforced by the social insurance collection authorities to make a supplementary payment within a limited period, if failing to pay after the stipulated period,  the employers are subjected to penalties ranging from 100 percent to 300 percent of the contributions due by the relevant administrative authorities.

(6) In accordance with Article 97 of the new law, the foreign nationals in mainland PRC should participate in the Social Insurance Scheme under the Social Insurance Law. The existing social insurance rules or local regulations has certain articles concerning the social insurance contribution of the foreign expatriates, but those have not been indeed implemented.

After the implementation of the law on 1 July 2011, foreign invested enterprise employers are enforced to pay the five social insurance above mentioned for their Chinese employees according to the local social insurance regulations like previously.

It is expected that the implementation rules would be introduced shortly after the Law become effective and by the answers to questions, such as "how to contribute", "how much to pay" and "when and how to terminate" would become clearer.

Social Insurance Laws and Regulations concerning the Foreign Expatriates in China

In accordance with the Law, theoretically, foreign expatriates who work for the foreign invested enterprises in China should make the social insurance contribution. We can draw a conclusion that the foreign expatriates should contribute the social insurance in China judging from the following existing social insurance regulations:

(1) In accordance with The Provision on Collection and Contribution of Social Insurance Premiums (State Council Order No. 259, hereinafter refers to ?The Provision? issued on 22 January 1999, the foreign invested enterprises should pay the basic pension insurance, basic medical insurance as well as unemployment insurance for their employees; “Employee?includes both Chinese employee and foreign employee;

(2) After implementation of the Social Insurance Agreement between the People’s Republic of China and the Federal Republic of Germany (from 4 April 2002, hereinafter refers to “The Agreement between PRC and Germany?, the General Office of the Ministry of Labor and Social Security issued the Notice of on the Relevant Issues concerning the Execution of the Social Security Agreement (LaoSheTingFa[2002]No. 2) on 22 March, 2002, which states: German nationals working in China, who can provide the Certificate in accordance with Social Security Agreement between PRC and the Federal Republic of Germany (Hereinafter refers to "Certificate between PRC and Germany), are exempted from basic pension insurance and unemployment insurance for certain period; otherwise the German nationals are subjected to the contribution of these two items of social insurance according to the relevant regulations of "Provision" and "Agreement between PRC and Germany". According to Agreement between PRC and Federal Republic of Germany, with the German nationals?submission of the Certificate between PRC and Germany (issued by the Germany Medical Insurance Authorities or the Federal Employee Insurance Company in Berlin), German nationals working in PRC are specifically exempted from social insurance for first 60 calendar months after the first application; as required, the exemption period could be extended to 96 calendar months after approval.

(3) In accordance with The Agreement on the Provisional Measures for The Mutual Exemption of Pension Coverage between the Peoples?Republic of China and the Republic of Korea (Hereinafter refers to “Agreement between PRC and South Korea? issued on 28 February 2003, which came into force on 23 May 2003 as well as the Notice on Implementation of the Provisional Measures for the Mutual Exemption of Pension Coverage between the Peoples?Republic of China and the Republic of the Korea (LaoSheTingFa[2003] No. 12) promulgated by Ministry of Labor and Social Security on 4 June 2003, Korean nationals working in PRC are specifically exempted from basic pension insurance with the submission of the Social Insurance Enrollment Certificate issued by the Ministry of Insurance and Welfare of the Republic of Korea ( Hereinafter refers to ?Certificate of South Korea? within the validity of the Agreement between PRC and South Korea; otherwise the Korean nationals are subjected to contribution of basic pension insurance according to the Provision and the Agreement between PRC and South Korea.

(4) On 18 August 2003, Ministry of Labor and Insurance Security issued the Notice on the Relevant Issues concerning the Execution of the Social Security Agreement, which defines some detailed executive measure of the Agreement between PRC and the South Korea and Agreement between PRC and Germany, which includes:

- Personnel concerned: German & Korean nationals working in PRC without certificate for social insurance contribution, except for those who reach the retirement age (male over the age of 60 and the female over the age of 55), are subjected to contribution of social insurance in PRC;
- Social Insurance items: German expatriates are obliged to contribute pension and unemployment insurance; and the Korean expatriates are obliged to contribute pension insurance;
- Contribution date, proportion and base: The collection and contribution of the social insurance of German and Korean expatriates starts from the date of the implementation of the Agreement between PRC and Germany and Agreement between PRC and South Korea correspondingly. The proportion and base should refer to the relevant regulation of the location of contribution;
- Procedure: (a) German and Korean nationals working in PRC have to provide the certificate of identification such as Residency permit, valid Passport etc. and other proof material such as Alien Employment Permit of PRC to the local social insurance authorities of location of employment when applying the participation in the Social insurance Scheme;(b)The German and Korean nationals working in PRC, who terminate the employment with the employer may freeze the pension insurance account; or may apply to the social insurance authorities for the termination of pension and unemployment insurance relationship (The unemployment insurance the German expatriates paid previously could not be refunded) and the authorities shall pay a lump sum of the individual pension account accrual;
- Social insurance benefits: (a)The German and Korean nationals working in PRC may enjoy the basic pension insurance benefits in accordance with relevant regulations in the location of participation. ( viz: Those who reach the retirement age and meet the minimum contribution years as 15 years may receive the pension fund on monthly basis.); (b)The German nationals working in PRC enjoy the unemployment insurance benefits according to the regulations of the location of participation. (viz. receiving the unemployment fund and enjoy other unemployment insurance benefits.)

（5） In accordance with Article 11 of Provisions on the Administration of the Employment of Taiwan, Hong Kong SAR and Macao SAR Residents in the Mainland (Labor and Social Security Ministry Order No.26) issued by Ministry of Labor and Social Security on 14 June 2005, user of personnel shall sign labor contracts with the Taiwan, Hong Kong and Macao Personnel they employed, and pay social insurance premiums in accordance with the Provisions.

But there exists many differences between the implementation of the above mentioned regulations by social insurance authorities in different regions in practice; until now, over 90% of the social insurance authorities pay no attention to the social insurance contribution policies for the foreign expatriates. After the promulgation of the new law, especially the issuance of the Article 97 concerning the foreign expatriates, in our opinion, the circumstance may change.