Shall foreign employees working in Shanghai participate in the social insurance program?
According to the PRC laws applicable since 2011, foreign employees shall participate in the social insurance in China, which includes five types of insurance, namely, (i) pension, (ii) medical insurance, (iii) work-related injury insurance, (iv) unemployment insurance and (v) maternity insurance. The social insurance premiums shall be paid by the employee and the employee pursuant to the relevant laws. Still, many companies have made a practice to agree with their foreign employees based in Shanghai Municipality that none of the employer and the employee would claim for the opening of a social security account.
Special local policy in Shanghai expired recently
The practice may vary in different cities. For a long time, the local regulation in Shanghai, i.e. Hu Ren She Yang Fa [2009] Notice No. 38 (the “Notice No. 38”), provides flexibility for foreign employees working in Shanghai on social insurance. According to the Notice No. 38, the foreign employees could, instead of “shall”, enroll the pension, medical insurance and work-related injury insurance. However, such Notice No. 38 has expired on 15 August 2021 without any alternative policy being released to replace it. Unless there is further policy released by Shanghai authorities, foreigners working in Shanghai and his/her employers shall prepare for being required to contribute social insurance. From our informal discussions with the relevant authorities and several audit companies, some employers in Shanghai have been already sanctioned because of their failure to contribute to the social security for their foreign employees.
Exemption of social insurance provided in bilateral treaties
As an exemption to the compulsory social insurance system, foreign employees who are citizens of the country which has concluded a bilateral treaty on social insurance with China, could apply for exemption of certain social insurance in China based on the satisfaction of the conditions provided in the relevant bilateral treaty.
As of today, 12 countries have signed the bilateral treaties on social insurance with China. Among which, 11 bilateral treaties have been implemented but the treaty between France and China is yet to be implemented. The details of such bilateral treaties are summarized as follows:
| S/N | Country | Exemption Scope | Exemption Duration | Applicable Personnel |
| German | Pension Unemployment Insurance | 2002.4.4 | Expatriates Employers of the Chinese subsidiaries of Germany enterprises Personnel who have no employer in German Crews Diplomatic employees | |
| South Korea | Pension for employees Pension for urban and rural residence Unemployment Insurance | 2013.1.16 | Expatriates Short-term (less than 5 years) employees in South Korea The self-employed and investors Employees work on sailing ships and aircrafts Diplomatic employees Employees of governments or public institutions | |
| Denmark | Pension | 2014.5.14 | Expatriates Employees work on sailing ships and aircrafts Diplomatic employees Employees of governments or the public institutions Family members Others who have paid social insurance in Denmark/China, subject to approval by the authorities of Denmark and China | |
| Canada | Pension for employeesPension for urban and rural residence | 2017.1.1 | Expatriates The self-employed Employees work on sailing ships and aircrafts Governmental employees Others, subject to the approval by the authorities in Canada and China | |
| Finland | Pension Unemployment insurance | 2017.2.1 | Expatriates The self-employed Employees work on sailing ships and aircrafts Diplomatic employees and the public servants Others, subject to the approval by the authorities in Finland and China | |
| Switzerland | Pension for employees Pension for urban and rural residence Unemployment insurance | 2017.6.19 | Expatriates Employees work on sailing ships and aircrafts Employees of governments or the public institutions Family members Others, subject to the approval by the authorities in Switzerland and China | |
| The Netherlands | Pension Unemployment insurance | 2017.9.1 | Expatriates Crews Employees working on aircrafts Public servants, diplomatic employees Family members Others, subject to the approval by the authorities in the Netherlands and China | |
| Spain | Pension Unemployment insurance | 2018.3.20 | Expatriates Employees working on sailing ships and aircrafts Diplomatic employees Others, subject to approval of the authorities | |
| Luxembourg | Pension | 2019.5.1 | Expatriates The Self-employed Employees working on sailing ships and aircrafts Diplomatic employees and the public servants Others, subject to the approval by the authorities in Luxembourg and China | |
| Japan | Pension | 2019.9.1 | Expatriate Employees working on sailing ships and aircrafts Diplomatic employees and the public servants Others, subject to the approval by the authorities Relevant spouse and children Others, subject to approval by authorities | |
| Serbia | Pension Unemployment insurance | 2021.2.1 | Expatriates Employees working on aircrafts Diplomatic employees Public servants Others, subject to approval of the authorities | |
| France | Not released yet | Not implemented yet | Expatriates Crews Employees work on aircrafts Diplomatic employees Public servants |
Kindly note that:
- Not all citizens from the above-mentioned countries can benefit from the social insurance exemption. The scope of applicable personnel mainly includes the expatriates, employees working on sailing ships and aircrafts, diplomatic employees, governmental employees and relevant family members, varying from treaty to treaty.
- Exemption is not automatically applied. The foreign employees who meet the conditions provided in the bilateral treaties shall submit relevant evidence, including without limitation, the social insurance participation certificate issued in his/her home country, to apply for the social insurance exemption.
- Time limits for exemption. Upon approval by Chinese authorities on the exemptions on social insurance, the foreign employees could be exempted from paying social insurance for 5-6 years with certain extendable periods, depending on the specific provisions in different treaties.
This change of position shall be taken into account when drafting transaction documentation and more specifically representations and warranties in SPA or subscription agreement in the event that the Shanghai authorities decide to apply such payment for foreign employees retroactively since the beginning of their working permit.
In case of question, please contact Mrs. Peggy Wu (p.wu@leaf-legal.com) and Mrs. Liu Tong (l.tong@leaf-legal.com) and to discuss this matter.
