Government signs international agreements for social insurance
September 12, 2012 | BY
clpstaff &clp articles &The Social Insurance Law received a mixed reception from foreigners worried about increased tax burdens. Many provinces have yet to issue implementing regulations, but new international agreements to end double contributions could change that
So far the government has only signed deals with South Korea and Germany, but more agreements are expected.
“China needs to move forward in this direction, given the number of expatriates is increasing,” said Zhou Bo of Fangda Partners in Shanghai. “Cities are likely to require expatriates to participate in the social insurance system as more agreements are signed,” he added.
The PRC Social Insurance Law (中华人民共和国社会保险法) became effective in July last year and requires foreigner employees to participate in the government schemes for pension, medical care, work-related injury, unemployment and maternity.
The Law has received mixed reviews among foreigners. Many complain that it is an additional burden, as they will not remain in China to enjoy the benefits. In some cases, it also means they are contributing to schemes in their home country and in China. Employers are also at a disadvantage, as they have to make contributions for each foreign employee.
Enrolment depends on whether the relevant province has implemented regulations. Beijing, Chongqing, Xiamen and Suzhou have so far all issued implementing regulations, but the city with the most foreigners, Shanghai, has yet to issue mandatory contribution regulations.
International agreements between foreign countries and China could end double contributions, as foreigners would then only be required to contribute in their home country.
The agreement with Germany relieves employees from contributing to pension and unemployment schemes. For Korea, the agreement only covers pension schemes.
Similar agreements are likely to be signed in the future. “We have held three rounds of talks with Japan and one round with France, and we have also held initial discussions with Sweden and Belgium," said Xu Yanjun, deputy director of the Social Insurance Administration, in an interview with China Daily.
The contributions are substantial. For example, foreigners have to pay 8% of their wages to pension schemes. Employers have to pay 20% of an employee's monthly salary to the same scheme. Contributions must be made for 15 years, before employees are eligible to collect after retiring.
It is not yet clear whether other cities will require mandatory contributions to social insurance schemes. As China negotiates more international agreements, it shows that social insurance is on the agenda, at least at the national level.
The extent to which the government will enforce social insurance is not yet certain. Until now, enrolment has been voluntary and is entirely dependent on the province.
In addition, there are no reports of fines for non-compliance. Under the Law, companies are subject to interest fee penalties of 5% for failing to participate.
By David Tring
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