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Are Foreigners in China Subject to Social Insurance Contributions?

Are you considering a job with a foreign company in China, or are you planning to send an employee on a job assignment to China? China offers great opportunities for you. But before doing so, it is crucial that you have a thorough understanding of the local and regional social security requirements.

This Pacific Prime article looks at what local and regional social security requirements are and the obligations of foreign employees and employers towards the social security system in China.

The Social Security System in China

China has a social security system in place to ensure that its people and foreign employees are protected against unexpected financial difficulties and health-related events.

The system consists of a set of rules and laws that every foreign and local employer in China has to abide by, which includes undertaking certain responsibilities to maintain and improve employees’ overall welfare.

The Social Insurance Schemes and Housing Funds in China

According to the 2011 Interim Measures for the Participation in Social Insurance of Foreigners Employed in China, the Ministry of Human Resources and Social Security requires foreign employees working in China to participate in the country’s national social insurance scheme.

This means any foreign worker employed by a legally registered entity or organization in China or any foreign employee assigned to a registered representative office of a foreign company must participate in the five mandatory insurance schemes.

China’s 5 Mandatory Insurance Schemes and Housing Fund

China’s social security system consists of five different types of mandatory insurance schemes plus one mandatory housing fund. The five mandatory insurances are pension, medical, unemployment, work-related injury, and maternity explained below.

1. Pension Scheme

As a foreign employee in China, you can receive a pension after retirement based on the amount accumulated from your contributions over the years. To benefit from this scheme, you need at least 15 years of contributions, which will vary depending on the jurisdiction you are in.

2. Medical Insurance Scheme

In the event of a severe illness or non-occupational injury, you can rest assured that part of the treatment costs will be covered by the social medical insurance scheme.

The medical insurance scheme works by reimbursing medical expenses directly to designated hospitals for treatment. This form of direct billing is convenient as patients will no longer need to pay for the treatment in advance.

Note: The social medical insurance scheme only covers treatment accepted and managed by government-approved hospitals, which are mainly public, and clinics, excluding international ones.

Therefore, foreign employees may want to consider supplementary insurance or secure comprehensive health insurance for foreigners in China to cover the cost of treatment at international hospitals and/or clinics.

3. Unemployment Insurance Scheme

In the event of redundancy and other circumstances, the unemployment insurance scheme provides financial support to individuals who have lost their jobs due to reasons beyond their control such as physical injury. You may claim unemployment benefits in China for a maximum of 24 months.

4. Work-related Injury Insurance Scheme

The work-related injury scheme in China covers the cost of medical treatment should an occupational injury or illness occur. Accidents at work can happen at any time. It also provides protection and compensation to employees who suffer work-related diseases.

5. Maternity Insurance Scheme

During your maternity leave, you are guaranteed to receive reimbursements from China’s maternity insurance scheme, provided you meet the full criteria, such as meeting the minimum contribution.

What’s more, your monthly payment from the maternity insurance scheme during your maternity leave period will be based on your average wage or salary. To obtain this benefit, you must pay three months of monthly funds, and related medical services must comply with China’s family planning policy.

Note: If you already have an existing private health insurance plan, why not add a maternity health insurance plan as a rider? You could include better options and limits, as well as choose your medical professional or hospital for when you finally give birth.

Please note that add-on benefits usually come with a waiting period, so be sure to read the fine print.

Are you Interested? If so, contact us and one of our health insurance advisors will reach out to you.

Housing Fund Scheme

China understands the importance of housing and the means needed to help people save on accommodation. The housing fund scheme helps minimizing their money spent to improve their quality of life in other areas.

Note: As a foreign employee, you are generally not required to contribute to the housing fund scheme. Nevertheless, many cities and provinces allow foreign workers to make housing fund contributions voluntarily, which is a measure to incentivize and attract foreign talent from abroad.

Who Contributes to What Social Insurance Scheme in China?

The premiums for pension, medical, unemployment insurance, and mandatory housing funds are jointly contributed to by both the employer and employee, while the premiums for work-related injury and maternity insurance are solely contributed to by the employer.

Note: The rate for each scheme varies depending on the local government/authority and jurisdiction.

There have been cases of employers and employees agreeing mutually to not contribute to the social security and housing fund schemes to minimize labor costs and maximize the employee’s net salary, but this practice is deemed illegal in the eyes of the local authorities.

Foreign employers and employees are encouraged to abide by the local laws to avoid complications and impact further down the line from the local authorities.

Social Insurance Contributions in China Vary Depending on Jurisdictions

Although China’s social security law was publicized by the central government in 2011, the actual processing and administration of the contributions are governed by local authorities in their respective provinces.

As a result, the employer and employee contribution rates for each type of insurance and housing fund differ across jurisdictions. More so, these rates are subject to annual changes and reforms.

This means foreign employees planning to relocate to China should bear in mind that their contributions will vary depending on where they are working. For example, Beijing, Shanghai, and Guangzhou have entirely different contribution rates as shown in the table below.

Beijing Contribution Rates for 2023

Type of Social Insurance Employers Rate Employee Rate
Pension 19% 8%
Medical 10% 2%
Unemployment 0.8% 0.2%
Work-related injury 0.4% N/A
Maternity 0.8% N/A
Housing fund 12% 12%

Shanghai Contribution Rates for 2023

Type of Social Insurance Employers Rate Employee Rate
Pension 20% 8%
Medical 9.5% 2%
Unemployment 0.5% 0.5%
Work-related injury 0.16% N/A
Maternity 1% N/A
Housing fund 7% 7%

Guangzhou contribution rates for 2023

Type of Social Insurance Employers Rate Employee Rate
Pension 14% 8%
Medical 7% 2%
Unemployment 0.6% 0.2%
Work-related injury 0.2% N/A
Maternity 0.9% N/A
Housing fund 5% to 12% 5% to 12%

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What are the Key Obligations of Foreign Employers in China?

As a foreign employer, running a business in China is a massive undertaking that requires transparency across all levels of operations. With that said, whenever you hire new employees under the social security system in China, you’ll need to register them in the system.

This form of compliance is necessary to ensure that businesses do not take advantage of employees, and promote employee satisfaction. Along with being compliant, you are also responsible for correctly calculating and withholding payments.

Potential consequences could include suffering repercussions, reputational damage, and even unnecessary labor disputes. The worst outcome is being put on a “name and shame list”, which could inevitably ruin your business and obscure future recruitment plans.

Can Employers and Employees Mutually Agree Not to Contribute?

As mentioned before, not contributing to the social security system is considered illegal, but in the case where the gross salary is low, this could be overlooked. However, if a court case were to arise between the employee and employer, the court would consider such an agreement to be invalid.

As a result, the employer might be required to repay the evaded social security or pay an extra severance payment to its employee in case of termination. Hence, it is advisable to understand how the system works and communicate with your employees in this regard.

What is the Obligation of Foreign Employees in China?

In all cases, foreign employees working in China are required to participate in China’s social insurance scheme. However, foreign employees are also eligible for social insurance exemptions if they come from countries that have social insurance exemption agreements with China.

12 countries have reached such agreements with China, and 11 such agreements have been implemented between China and the following countries:

Country Item Exempted
Germany Pension and Unemployment Insurance
South Korea Pension and Unemployment Insurance
Denmark Pension
Canada Pension
Finland Pension and Unemployment Insurance
Switzerland Pension and Unemployment Insurance
The Netherlands Pension and Unemployment Insurance
Spain Pension and Unemployment Insurance
Luxembourg Pension
Japan Pension
Serbia Pension and Unemployment Insurance
France* N/A

*China has signed agreements with France, but they have yet to come into effect until all necessary legal procedures have been completed. Pacific Prime will update once the exemption comes into effect.

If your company is based or headquartered in any of the above countries, you can discuss with them about your obligation to contribute to the schemes.

Learn More about Expat Life in China

The thought of working in China is an exciting prospect for many, but it can also be daunting for those who do not have prior experience when it comes to working abroad. At Pacific Prime, we are experienced in supporting global expats with their health insurance needs and knowledge of the system.

Further reading:

Our advisors are located in two offices: Shanghai and Beijing. The team consists of a number of local Chinese and expat advisors. You can expect to receive an impartial price comparison of health insurance plans from global insurance companies while keeping to your budget.

Would you like further guidance? Our complete guide to moving abroad as an expat will provide you with the details to consider and make your transition to China a seamless one.

Contact us to speak to one of our advisors today!

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Disclaimer: Pacific Prime solely represents, operates, and manages locally regulated insurance products and services in the territory of PR China. Any references to Pacific Prime Global Company or Group, the international services, insurance products, or otherwise stated written or verbally, is for introduction purposes about our overseas network only as each entity is fully independent.