Need assistance with income tax and social insurance declarations?
If you need assistance with income tax and social insurance contributions, Hawksford can help.
In recent news reports amongst the international audience in China, social insurance contributions for foreigners in Shanghai have turned into a major focus given overall misunderstandings and unclarity in delivering updates.
With this article prepared by Hawksford’s HR and Payroll experts, we aim to help employers and foreign employees in Shanghai reaching a clearer strategy on how relevant policies will affect them and answering most of the frequently asked questions.
With the deadline of August 15th approaching, speculations started to spark on whether the Circular of the Shanghai Municipal Bureau of Human Resources and Social insurance on the Issues of Aliens, Overseas Permanent (Long-term) Residency Holders, and Residents from Taiwan, Hong Kong, and Macao Who Are Working in Shanghai to Participate in the Urban Social Insurance Scheme (also known as Document No. 2009-38) would be extended again after being extended once on August 12th, 2016. As it turned out the notice silently expired instead of being renewed for 5 more years.
Most of the international employers and employees in Shanghai mainly interpreted the situation in two different scenarios. Some believed that starting from August 2021, Shanghai had aligned its policy with other cities where foreigners are required to make social insurance contributions. Therefore, they began to submit materials and planned to start paying for social insurance starting from that very month. Others thought that the Shanghai government would have issued a new notice to update the social insurance exclusion for foreigners in the city. It is worth noting that both interpretations have certain misunderstandings.
Below we listed an overview of the relevant regulations for foreigners to abide to social insurance contributions in the Mainland:
According to Article 97 of the Social Insurance Law of the People's Republic of China (2018 Amendment), which was implemented on July 1st, 2011, and re-amended on December 29th, 2018, “Foreigners who work in China shall participate in China’s social insurance scheme by complying with the provisions of this law.”
According to Article 3 of the Interim Measures for the Participation in Social Insurance of Foreigners Employed in China (as shown below), which came into effect on October 15th, 2011, regulations on social insurance for foreigners were developed at the national level as early as ten years ago. “Foreigners legally employed by enterprises, public institutions, social organisations, private non-enterprise entities, foundations, law firms, accounting firms, and other organisations which are legally registered in China (hereinafter referred to as “employers”) shall participate in the basic pension insurance for employees, basic medical insurance for employees, work-related injury insurance, unemployment insurance, and maternity insurance according to law, and the social insurance premiums shall be paid by the employers and foreigners according to the relevant provisions.”
Document No. 38 (2009) issued by the Shanghai Municipal Bureau of Human Resources and Social insurance also contains relevant provisions for foreigners to pay social insurance in Shanghai (as shown below). “The aliens, overseas permanent (long-term) residency holders, and residents from Taiwan, Hong Kong, and Macao who come to Shanghai for work, having established labour (employment) relationships with the employing entities that are eligible for the Shanghai urban social insurance scheme, and completed the procedures of Foreign Expert Certificate, Shanghai Residence Permit (B), Alien Employment Permit, Employment Permit for the Residents from Taiwan, Hong Kong, and Macao, or Employment Verification Certificate for the Overseas Permanent (Long-term) Residency Holders in Shanghai as per relevant laws and regulations, may enrol in the urban pension insurance, medical insurance, and insurance for work-related injuries according to relevant laws and regulations, and the concerned parties may reach an agreement in the labour (employment) contracts.”
The Ministry of Human Resources and Social insurance abolished the Provisions on the Administration of the Employment of Taiwan, Hong Kong, and Macao Residents in the Mainland for employees from Taiwan, Hong Kong, and Macao on August 17th, 2018.
This means that residents from Taiwan, Hong Kong, and Macao who are employed in the Mainland will no longer have to apply for employment permits, and they will receive the exact same treatment as Mainland residents in terms of employment. In other words, residents from Taiwan, Hong Kong, and Macao working in Shanghai need to contribute to the Chinese Social Security System just as Mainland residents.
As mentioned above, during the validity period of Document No. 38 (2009), foreigners and employers could agree to participate in three insurances under the Urban Social Insurance Scheme, namely, the basic pension insurance, basic medical insurance, and work-related injury insurance. Starting from August 15th, 2021, when that very document expired, foreigners can no longer contribute to just three insurance funds upon agreement with the employer, but should automatically contribute to the five insurances (of which maternity insurance is now apart of the medical one) in accordance with national regulations. For the contributions that employers have previously made under the three insurances system, the social insurance agency will not accept appeals made by foreign employees who wish to have them corrected to the five insurances system.
Foreigners from the following 11 countries that have signed bilateral social insurance agreements with China on mutual exemption and meet the conditions stated in the agreements can be temporarily exempt from paying relevant social insurance premiums such as pension insurance and unemployment insurance in China. “Dual Contribution Avoidance” principles are also applicable to individuals who have made relevant social insurance contributions in Taiwan, Hong Kong, and Macao. With a certificate issued by the relevant authority, they may be exempted from participating in pension insurance and unemployment insurance in the Mainland.
*Countries exempt from pension insurance and unemployment insurance:
Germany, South Korea, Finland, Switzerland, the Netherlands, Spain, and the Republic of Serbia
*Countries exempt from pension insurance:
Denmark, Canada, Luxembourg, and Japan
After multiple rounds of inquiries and consultation with the human resources and social insurance bureaus in various districts of Shanghai, the indication is that no matter when a foreign employee signs a new employment contract, only the date of the relevant work and residence permit will set the starting month of social insurance contributions. In other words, if a foreigner signs a labour contract on May 15th, 2021, and the effective date of their employment permit is June 2nd, 2021, June shall also be the first month to start paying social insurance premiums.
It is important to point out that if the foreign employee fails to apply for an employment permit in accordance with the law, the employment relationship shall be deemed as non- existent. Therefore, the employer will not be obliged to, nor is able to, pay social insurance premiums.
Making up the outstanding social insurance premiums can cover 6 months. If the outstanding premiums exceed 6 months, additional materials such as original and photocopy of the salary slip (salary certificate) during the period for supplementary payment and employee onboarding information must be provided. For specific scenarios, requirements of the local Human Resources and Social insurance Bureau shall prevail.
Currently, foreigners that haven’t complied with relevant national regulations in terms of social contributions, are not required to pay overdue fines. It is recommended that employers and HR departments continue to closely follow the latest notices and guidelines issued by the relevant government agencies. If you wish to stay updated with HR and regulatory trends when doing business in China, you can follow Hawksford’s WeChat Official Account where we strive to keep our audience on top of the most pressing issues for foreign-invested enterprises in the Mainland.
Shall you need more information and overall guidance about the topics in this article or wish to understand how outsourcing personal income tax and social insurance declarations can help you hedge against risks, please contact Hawksford’s HR and Payroll Service Team in China and we’ll be happy to guide you through our service offering.
Back to top