Requirements of Foreign Companies
Not all foreign companies that have a presence in China have a right to employ staff in the country. For example, representative offices cannot engage in profit-making activities and cannot directly hire staff. All employers in China must abide by particular rules when recruiting and hiring local or foreign staff. If your business is legally entitled to hire staff in China, you will have to comply with labour laws, tax laws, and other regulations, including paying into China’s social security system.Foundation of the China Social Security System
The central government established China social security law. However, local authorities administer it and influence it. Local jurisdictions have the ability to adjust the employer and employee contribution rates. These rates are modified every year and may also be reformed. The current contribution rates for some cities are listed below.What is the Connection Between the China Social Security System and the China Social Credit System?
These are completely distinct. The purpose of the China social security system is to provide a certain level of welfare to all workers in China. The purpose of the China Social Credit System is to assess and score individuals and corporations on their ‘trustworthiness’. For corporations, there is a connection between the two systems when it comes to compliance. A company that has failed to make the appropriate social security contributions could find that it ends up with a lower social credit score as a result. Read more about that system in An Introduction to the China Social Credit System.Components of the China Social Security System
China’s social security system is comprised of five types of insurance:- pension insurance
- medical insurance
- unemployment insurance
- maternity insurance
- industrial injury insurance
Additionally, employers and local employees contribute to a housing fund. Each of these components is described in greater detail.
Pension Insurance
Pension insurance ensures that employees in China will have money available to them after retirement. Money is accumulated in the employee’s individual fund.
Typically, employees must make 15 years’ worth of contributions in order to receive a pension in China. Employers also contribute to these funds.
In most industries, men retire at about age 55 and women retire at about age 50. However, different industries may have different retirement ages.
The quantity of funds in the pension depends on the regulations of the local government and the history of contributions.
Read about some of the challenges facing the pension system at China’s Pension System Is Not Aging Well.
Medical Insurance
Medical insurance covers a portion of the cost to treat Chinese workers’ illnesses or non-work-related injuries. The employer and employee must pay into this form of social insurance on a monthly basis.
This fund reimburses designated hospitals for providing treatment to workers. This eliminates the need for the Chinese worker to pay in advance for treatment.
China’s medical insurance fund only pays for treatment from hospitals and clinics that the government approves. Some employers may offer additional insurance that allows employees to seek medical treatment from private facilities, but these funds are not taken out of the contributions to the medical insurance fund.
Unemployment Insurance
Unemployment insurance provides monetary benefits to unemployed workers, up to 24 months. In most cases, only employers contribute to this form of social insurance. However, employees in certain areas may also be required to make monthly contributions to this fund.
If an employee contributes to the fund for more than 12 months, he or she may be eligible for unemployment benefits for a maximum of 12 to 24 months, based on the particular situation.
Maternity Insurance
In China, many pregnant women receive paid maternity leave. Employers, but not employees, are required to make monthly contributions for this form of social insurance.
To be eligible for this type of insurance, a woman must work for an employer who has paid three months of contributions and related medical services.
Money from the funds are paid to the new mother while she is off work and caring for her child. The amount of these payments is based on women’s average wages. In some cases, men can also receive these benefits.
Industrial Injury Insurance
This form of insurance is similar to many countries’ workers’ compensation insurance. It pays for treatment stemming from a work-related injury or illness. Additionally, employees who perform work under certain types of weather conditions can receive allowances.
Only Chinese employers make contributions to this type of social insurance; employees do not. Employers pay on a monthly basis.
The amount of the mandatory contribution varies by the industry and jurisdiction. The money in the fund pays for the actual treatment. Employers are still required to pay the employee wages for time missed from work. However, this payment is less than the employee’s usual wage.
Housing Fund
China’s housing fund ensures that employees will have the savings necessary to purchase housing. Employers and employees alike pay this form of social insurance.
Foreign employees do not pay into this type of fund. The amount of contributions depends on the local government. However, the combined rate for the Chinese employer and employer should be at least 5%.
Contribution Rates for the Chinese Social Security System
Chinese law requires Chinese employers and employees and foreign employees to contribute to China’s social security system. If a company does not make these mandatory contributions, it can face serious consequences.
For this reason, many foreign companies choose to use the intuitive consulting services from an experienced provider, such as Horizons. Our experts can discuss the mandatory contributions based on your particular jurisdiction and industry.
The contribution rates for social insurance and the housing fund are updated every year and are different across jurisdictions. The current contribution rates for Beijing, Shanghai and Guangzhou are detailed in the charts below.
Additionally, employers and local employees contribute to a housing fund. Each of these components is described in greater detail.
Pension Insurance
Pension insurance ensures that employees in China will have money available to them after retirement. Money is accumulated in the employee’s individual fund.
Typically, employees must make 15 years’ worth of contributions in order to receive a pension in China. Employers also contribute to these funds.
In most industries, men retire at about age 55 and women retire at about age 50. However, different industries may have different retirement ages.
The quantity of funds in the pension depends on the regulations of the local government and the history of contributions.
Medical Insurance
Medical insurance covers a portion of the cost to treat Chinese workers’ illnesses or non-work-related injuries. The employer and employee must pay into this form of social insurance on a monthly basis.
This fund reimburses designated hospitals for providing treatment to workers. This eliminates the need for the Chinese worker to pay in advance for treatment.
China’s medical insurance fund only pays for treatment from hospitals and clinics that the government approves. Some employers may offer additional insurance that allows employees to seek medical treatment from private facilities, but these funds are not taken out of the contributions to the medical insurance fund.
Unemployment Insurance
Unemployment insurance provides monetary benefits to unemployed workers, up to 24 months. In most cases, only employers contribute to this form of social insurance. However, employees in certain areas may also be required to make monthly contributions to this fund.
If an employee contributes to the fund for more than 12 months, he or she may be eligible for unemployment benefits for a maximum of 12 to 24 months, based on the particular situation.
Maternity Insurance
In China, many pregnant women receive paid maternity leave. Employers, but not employees, are required to make monthly contributions for this form of social insurance.
To be eligible for this type of insurance, a woman must work for an employer who has paid three months of contributions and related medical services.
Money from the funds are paid to the new mother while she is off work and caring for her child. The amount of these payments is based on women’s average wages. In some cases, men can also receive these benefits.
Industrial Injury Insurance
This form of insurance is similar to many countries’ workers’ compensation insurance. It pays for treatment stemming from a work-related injury or illness. Additionally, employees who perform work under certain types of weather conditions can receive allowances.
Only Chinese employers make contributions to this type of social insurance; employees do not. Employers pay on a monthly basis.
The amount of the mandatory contribution varies by the industry and jurisdiction. The money in the fund pays for the actual treatment. Employers are still required to pay the employee wages for time missed from work. However, this payment is less than the employee’s usual wage.
Housing Fund
China’s housing fund ensures that employees will have the savings necessary to purchase housing. Employers and employees alike pay this form of social insurance.
Foreign employees do not pay into this type of fund. The amount of contributions depends on the local government. However, the combined rate for the Chinese employer and employer should be at least 5%.
Contribution Rates for the Chinese Social Security System
Chinese law requires Chinese employers and employees and foreign employees to contribute to China’s social security system. If a company does not make these mandatory contributions, it can face serious consequences.
For this reason, many foreign companies choose to use the intuitive consulting services from an experienced provider, such as Horizons. Our experts can discuss the mandatory contributions based on your particular jurisdiction and industry.
The contribution rates for social insurance and the housing fund are updated every year and are different across jurisdictions. The current contribution rates for Beijing, Shanghai and Guangzhou are detailed in the charts below.
Beijing Social Security
Type of Social Insurance | Employer | Rate Employee Rate Pension insurance 19% 8% Medical insurance 10% 2% Unemployment insurance 0.8% 0.2% Maternity insurance 0.8% 0% Industrial injury insurance 0.4% 0% Housing fund 12% 12%
Shanghai Social Security
Type of Social Insurance | Employer Rate | Employee Rate Pension insurance 20% 8% Medical insurance 9.5% 2% Unemployment insurance 0.5% 0.5% Maternity insurance 1% 0% Industrial injury insurance 0.16% 0% Housing fund 7% 7%
Guangzhou Social Security
Type of Social Insurance | Employer Rate | Employee Rate Pension insurance 14% 8% Medical insurance 7% 2% Unemployment insurance 0.6% 0.2% Maternity insurance 0.9% 0% Industrial injury insurance 0.2% 0% Housing fund 5-12% 5-12%
Discretionary Benefits
The contributions discussed above are those that are required by the China social security system and that go into the national social security fund in China. These are the mandated forms of social insurance and are meant to protect the country as a whole.
However, employers can provide additional benefits to make their work more attractive to potential candidates. Some of the most common types of discretionary benefits Chinese employers provide include the following:
Commercial Insurance
Commercial insurance is based on making profits by using insurance contracts. The insured entity, such as the employer, pays premiums to the company providing the insurance. Then, when a contractually-agreed event occurs, such as the employee getting sick, suffering disability or reaching retirement age, the insurance company covers the event, up to the relevant policy limits.
As noted above, China’s medical insurance fund only pays for treatment that government-managed hospitals and clinics provide. Chinese employees who have commercial health insurance have access to private health clinics and organizations.
Supplemental Housing Fund
This type of benefit provides additional contributions to the employee’s housing fund that are in excess of the mandatory contribution amount. Typically, employees also pay the same rate as the employer’s additional contribution. These funds are deposited into a special supplementary account owned by the employee.
Discretionary Benefits
The contributions discussed above are those that are required by the China social security system and that goes into the national social security fund in China. These are the mandated forms of social insurance and are meant to protect the country as a whole.
However, employers can provide additional benefits to make their work more attractive to potential candidates. Some of the most common types of discretionary benefits Chinese employers provide include the following:
Commercial Insurance
Commercial insurance is based on making profits by using insurance contracts. The insured entity, such as the employer, pays premiums to the company providing the insurance. Then, when a contractually-agreed event occurs, such as the employee getting sick, suffering disability or reaching retirement age, the insurance company covers the event, up to the relevant policy limits.
As noted above, China’s medical insurance fund only pays for treatment that government-managed hospitals and clinics provide. Chinese employees who have commercial health insurance have access to private health clinics and organizations.
Supplemental Housing Fund
This type of benefit provides additional contributions to the employee’s housing fund that are in excess of the mandatory contribution amount. Typically, employees also pay the same rate as the employer’s additional contribution. These funds are deposited into a special supplementary account owned by the employee.
Get Help with Your Social Insurance Contribution Management
Forming a new business entity in China can be a confusing process and may make you think of many questions, such as:
-
Does China have a social security system?
What contribution rates do I have to pay in my jurisdiction and industry?
How often do I need to make social insurance contributions?
Do I have to contribute to the housing fund?
What are my obligations regarding local staff?
What are my obligations regarding foreign staff?
Where do I make contributions?
How can I ensure compliance with the China social insurance system?
These are great questions that should be answered by a licensed professional who is experienced in handling all tax and social insurance obligations.
Horizons’ representatives have years of experience in this field and can provide valuable information about tax and social security contributions for employers in China.
We also offer PEO services so that we consider the legal employer of record and responsible for adhering to all compliance regulations. In this role, we can help
-
relieve the burden and fear associated with complying with complex Chinese laws
-
free up your in-house resources to focus on the operations while we handle the administrative responsibilities
- streamline your workflow
- manage employee-related tasks
- handle HR functions
- use our strong relationships with local government agencies to your advantage.
Contact us today to learn more about how we can help your business.
Frequently asked questions
As a general rule, yes. In 2011, a national law was passed requiring foreigners to pay into the social insurance scheme (though not into the Housing Fund).
However, as the China social security system operates on a regional level, there are exceptions in some cities and regions. For example, foreigners in Shanghai are not required to pay into the scheme.
There are also exceptions where foreign workers come from countries that have entered into exemption agreements with China. To date, this covers Germany, South Korea, Denmark, Canada, Finland, Switzerland, and the Netherlands, Spain, Luxembourg, Japan, and Serbia.
The minimum pension can be paid after at least 15 years of contribution. The pension is available at age 60 for men and professional women. It is available at age 55 for non-professional women, and 50 for other women.
An early pension is also available in some cases (such as disability or having undertaken arduous work).
