People's Republic of China Adopts Social Security System

On Sept. 6, 2011, the Ministry of Human Resources and Social Security (“MHRSS”) issued the final Provisional Measures for Foreigners Working in China regarding Participation in the Social Insurance Scheme (“The Provisional Measures”), which took effect on Oct. 15, 2011.

The key provisions of The Provisional Measures that affect U.S. law firms with a presence in China are summarized as follows:

• Foreigners hired directly by Chinese companies, or assigned by foreign (non-Chinese) employers to work at their Chinese subsidiaries, branch offices or representative offices and who have legally obtained work permits, resident permits or permanent resident permits in China are required to make Chinese Social Security contributions (which include pension, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance) effective Oct. 15, 2011. Chinese employers or China host companies are likewise required to contribute the employer's portion of the Social Security contributions as well.
• Chinese employers or China host companies should register their foreign employees for Social Security benefits within 30 days of applying for their work permit. (It may be more practical to register 30 days after the work permit is issued.)
• Foreigners participating in the new Social Security scheme will receive Social Security cards and can enjoy benefits similar to local Chinese residents. For example, the number of years of pension contributions by foreigners can be aggregated if the person returns to work in China after a previous employment in China. Foreigners are also entitled to receive a monthly pension payout after retirement if certain criteria ( i.e., minimum contribution years) are satisfied, or the cumulative balance of the individual Social Security account can be withdrawn upon written application for termination by the foreigner.
• Foreigners from countries that have entered into Totalization Agreements with China may be exempt from making Chinese Social Security contributions in accordance with the coverage of the relevant agreement. However, to date China has only entered into Totalization Agreements with Germany (for pension and unemployment) and South Korea (for pension).
• The Provisional Measures require the local labour bureau (which is the agency that issues work permits to foreigners) and the local Social Security bureau to establish timely and regular communications to monitor the compliant status of Social Security contributions of foreigners. Noncompliance in making required Social Security contributions will be subject to a penalty under the Social Security regulations.

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