In 2010, China passed a new social security law which came into effective on July 1, 2011. The law applies to Chinese citizens as well as foreigners who work or reside in China. Subsequently, on October 15, 2011, “provisional measures for foreigners to participate in Chinese social security scheme” became effective. According to the latest social security policy, all foreigners who work or live in China, including those employees who are assigned to China on secondment arrangements, are required to participate in PRC social security schemes. The scheme includes the following funds:
- Basic pension insurance;
- Basic medical insurance;
- Work-related injury insurance;
- Unemployment insurance; and
- Maternity insurance.
Although the new regulation was released nationwide, there is still some inconsistency in its implementation. For instance, in Beijing, the social security payment is mandatory for foreign employees and their employers, while in Shanghai it is still voluntary. In practice it is seen that in most cities, where the social insurance contribution is made mandatory for the expats, the funds mainly include basic pension insurance, basic medical insurance, and work-related injury insurance. Foreigners who are working or residing in China and have received any of the following employment and residence certificates: Employment certificate
- Employment Certificate for Foreigner;
- Certificate of foreign Expert;
- Certificate of Permanent Foreign Correspondent;
- Other employment certificates.
Residence certificate
- Permanent Residence Certificate for Foreigner;
- Residence Certificates for foreigners in accordance with the law.
If the foreigner has a social security system in place his or her home country, he or she may end up paying contribution both in China and the home country. So far, China has a totalisation agreement with only two countries- Germany and South Korea. This means the nationals from these countries working in China may be exempted from the statutory requirement to participate in the social security scheme covering pension insurance and unemployment insurance. According to the regulations, foreigners who are registered for the social insurance plan are as much entitled to benefits from the plan as Chinese nationals are. In order for an expatriate to enjoy pension benefits in China, he or she must have reached the statutory retirement age and has made pension contribution for 15 years in China, cumulatively or continuously. The statutory retirement age for an expatriate in China is 60 years old for males and 55 years old for females. If an expatriate decides to leave China, he or she may close the social insurance account and collect the individual contribution while the employer’s contribution will be forfeited by the government. As an alternative, the expat may choose to let the account stay open while staying outside China. The account will be re-activated once the expat returns to China. According to the new policy, the foreigners working in China will be registered by their employers with the local social security bureau within 30 days from the date they applied for employment permits. The social security contribution is calculated as percentage of employee’s monthly salary which is subject to lower and upper cap. The caps are adjusted every year. The contribution is made both by the employer as well as employee on a monthly basis as per the rates as stated below: 
Individuals failing to register with the local social security bureau or avoiding making contributions will be subject to penalties. If the employer fails to complete social security registration, he may be subject to penalty which may be as high as three times the amount of contribution payable. In addition, if the employee fails to make payment on time, he shall be subject to a fine amounting to 0.05% of the contribution payable for each day of late payment. For employer: The portion of social security contribution made by an employer will be exempted from PRC individual income tax. For employee: Foreign employees will be subject to same treatment as Chinese nationals on their portion of the security contribution. This entails that employer’s contribution (subject to certain upper limit) is deductible prior to computing taxable income. If it is a voluntary contribution, for instance, the one in Shanghai, it is taxable on employer’s portion of the contribution and non-deductible on employee’s portion. Ever since the social security law is released, it’s been a subject of debate for its reasonableness. Although foreigners are just as much entitled to enjoy the social security benefits as Chinese nationals provided certain conditions are met; practically that may not be the case. At the moment, there are certain uncertainties surrounding the details of benefits that foreigners can actually enjoy, therefore, you are recommended to check with your local social security bureau for more details. See also: the Chinese Government’s official web portal http://daxueconsulting.com/market-research-in-china/