Chinese social security law was promulgated by the central government but its administration and specific details are governed by local authorities. For example, employer and employee contribution rates and caps for each benefit vary according to local jurisdiction and are subject to annual changes and reforms. The contribution to China’s social security system is mandatory for Chinese employees and their employers as well as foreigners employed in China, except for foreigners in Shanghai.
Foreigners from countries which have entered into totalization agreements with China may be exempted from certain Chinese social security contributions in accordance with the specific coverage of the respective agreements. These agreements eliminate dual social security taxation that occurs when a worker from one country works in another country and is required to pay social security taxes to both countries on the same earnings. Currently, China has entered into totalization agreements with seven countries (for a detailed comparison, read our analysis of the totalization agreements).
THE FIVE PILLARS OF CHINA’S SOCIAL SECURITY SYSTEM
Employers and employees must pay monthly premiums into three of the funds (pensions, medical expenses, unemployment) while employers, in addition, are required to make a contribution to the last two (maternity and work-related injuries). As already mentioned the rates differ from province to province and are subject to caps.
Self-employed individuals, part-time employees who do not participate in the social security schemes through their employers, and unemployed individuals can participate in the pension and medical insurance schemes on merely a voluntary basis.
SOCIAL SECURITY CONTRIBUTION COSTS IN BEIJING
In the following, we calculate the social security contribution costs in Beijing for both the employer and the employee. As already mentioned, social security contributions are assessed on employment income, and the maximum employment income assessed is capped at three times the average city salary of the prior year.
In Beijing, the current social security contribution of the employee amounts to approximately 10.2% while the employer’s contribution lies at approximately 32.3% of the capped employment income. Employers are required to withhold the monthly contribution for the employee and have the funds available to cover both the monthly employer and employee contributions. The payments are then settled with the local social security bureau and monthly contribution or payment methods depend on the local jurisdiction. For example, they may be paid by direct debit from the employer’s bank account or together with the monthly individual income tax settlement.
CONDITIONS AND BENEFITS FOR FOREIGN AND CHINESE EMPLOYEES AND THEIR EMPLOYERS
For each insurance, there are benefits, certain conditions and possible complications for foreigners which we will cover in the following section.
Generally speaking, individuals need to make contributions for a minimum of 15 accumulative years before claiming a pension. The retirement ages differ for certain industries but mostly lie at 55 years for men and 50 years for women (in the case of blue-collar work) or 60 years for men and 55 years for women (in case of white-collar work). The amount of retirement benefit depends on local regulations. The ages will likely change soon due to China’s demographic problem.
When a foreigner leaves China prior to the stipulated age for receiving a pension, his individual account will be retained. If the foreigner later re-enters China for further employment, the payment period will continue to be calculated on a cumulative basis. Upon written application by the foreigner, the social insurance agency can pay the foreigner the amount in his individual account in one lump sum and terminate the basic pension relationship. The precondition here is that the employee intends to leave China for good. Upon the foreigner’s death, the amount remaining in the individual pension insurance account can be inherited.
Both employers and employees are required to make monthly medical insurance contributions. The medical insurance fund will refund medical expenses to designated hospitals that carry out the treatment. Patients will no longer have to pay treatment fees upfront and wait for compensation later.
Attention: The Medical Insurance only covers treatment undergone in and administered by government-approved hospitals and clinics (this excludes “international clinics”).
Employers are required to contribute to the unemployment insurance fund. Regarding employees, only in certain local jurisdictions, they are required to make additional monthly contributions. However, there are no unemployment benefits for foreigners, as a foreigner no longer working in China will not be permitted to continue living in China.
WORK-RELATED INJURY INSURANCE
Only employers are required to make monthly work-related injury insurance contributions. The required monthly amount may, in some jurisdictions, vary according to the respective industry. The insurance generally covers all work-related injuries and occupational illnesses.
The work-related injury insurance fund will cover the costs of the treatment. The employer will still be required to pay some salary to the individual, although it will be less than full salary. Even if the employer has not made the required contributions, the individual can still claim the treatment and have it paid for through the insurance fund. The fund administrator will then be required to follow up on the employer in order to receive full compensation.
Similar to the work-related injury insurance, only employers are required to make monthly maternity insurance contributions. The monthly payments from the insurance fund to women during their maternity leave will be based on the average salary of the women. That means a woman could receive more money during her maternity leave if she works at a company where other women receive a higher salary than her. To qualify for these benefits, the female employee’s employer must already have made monthly fund contributions for three months and the relevant medical treatment must be in compliance with China’s birth control policy. Under certain circumstance, male employees may also receive benefits.
We hope this article could give you a comprehensive overview of the Chinese Social Security System. You also might be interested in the related topic taxation of individual income and options of optimization for foreigners. Therefore please read our article on Individual Income Tax in China. For further questions or inquiries please don’t hesitate to ask us.
Manuela Reintgen has been living and working in Shanghai and Beijing since 2009 and recently joined ECOVIS Beijing as Manager of the Business Development team. Having focused on foreign direct investment into China for the last few years, she advises clients on all aspects of establishing and doing business in China. Contact: email@example.com
Ecovis Beijing is the trusted tax and legal advisor to several embassies and official institutions in China. It specializes in mid-sized international companies and is focused on tax & legal advisory, accounting and auditing. If you’re interested in finding out more about tax and legal, don’t hesitate to sign up for our Newsletter, give us a call +86 10-65616609 or contact us directly via firstname.lastname@example.org.