1. BENELUX CHAMBER OF COMMERCE IN CHINA BEIJING CHANG AN LAW FIRM SHANGHAI BRANCH Micky Ma & Stone Jin The Social Security Policy for foreign employees in China

2.  Current social security policies in respect of foreign employees in China  The percentage of foreigners that paid social security in China  The way to apply for social security for foreign employees in Shanghai  The difference between Chinese employees and foreign employees  Benefits of the social security 2

3. As known by us, foreigners are not allowed to participate the Chinese social security plans like Chinese employees, which means that the foreign employees could be covered only by commercial insurance bought by themselves or their employers, or the social security in their own country. When the foreign employees had diseases, they cannot go to normal hospitals like Chinese, but had to go to international hospitals, which is of high costs, and sometimes not good doctors. As more and more foreigners work and live in China (according to the 6 th National Census in 2010, there are more than 593,832 registered foreigners who have legal residence in China), the lack of Chinese social security for them seems to be unfair (which can also increase the revenue of the social security system). Under the pressures of international organizations like WTO and the foreign bilateral officials, the government first start the trial of allowing foreigners to participate in this system in East China. After years experiences, the people’s congress passed the Social Security Law in 2010, and formally provides the social security issues for foreign employees at the first time in the form of law. 3

4. 4 National Level Social Security Law (2010) Article 97 Foreigners who work in China shall participate in the social security in China. (the only provision that in relation to foreigners) Interim Measures for the Participation in Social Security of Foreigners Employed in China (2011) As the law only has one provision about the foreigners, the Ministry of Human Resources and Social Security solicited public opinion on a set of temporary measures for the program in early June 2011, which stipulates that all registered foreign workers with a valid work permit in China should be covered, and then published this Interim Measures in September 2011 to give formal opinions to resolve the social security issues for foreigners in China. Honestly speaking, the Interim Measures are very good for foreigners. But the provisions in it are controversial because they will make enrollment by foreign employees mandatory, a state of affairs which is almost unprecedented in PRC law, which therefore lack of practical enforcement in China, now still has not been directly used by local government.

5. 5 Shanghai Level Notice on Several Issues regarding the Participation of Urban Employee Social Security by Foreigners, Chinese Citizens that Have Gained Permanent (Long Term) Overseas Residential Rights, Citizens from Taiwan, Hong Kong and Macau Who Worked in Shanghai (2009) Although the Social Security Law and the Interim Measures comes into effect in 2011, which is new comparing with the Shanghai Notice above. But the local rules are not yet automatically abolished. Actually, in practice, the ways the employers buy insurances for the foreign employees are quite different, so is the Chinese employees from place to place. According to Shanghai Notice, the participation of social security are not compulsory, but voluntary, which is different from the Interim Measures mentioned above. Please note that, the local regulations published after the Interim Measures all provide that the participation of social security for foreigners shall be compulsory.

6. Shanghai Policy - effective since October 10, 2009 - 3 insurances (Pension, Medical, Work-related Injury) - voluntary, based on the agreement between employer and the employee - still valid National Policy - effective since October 15, 2011 - 5 insurances (Pension, Medical, Work-related Injury, Unemployment, Maternity) - compulsory - It is pending. as the actual enrollment procedures, arrangements for paying contributions and enforcement have all been left to local authorities, but there are few cities, including Beijing, Tianjin, Chongqing and other few cities, have published detailed notices or rules about how the Interim Measures will apply to foreigners 6

7.  Who can be enrolled in Chinese social security system in China  According to Article 2 of the Interim Measures, the foreigners worked in China refer to the person that do not have Chinese citizenship and legally lives in China with Foreigners Working Permit, Foreign Expert Certificate, Resident Journalist Certificate and other working certificate or residential certificate, or Foreigners Permanent Residential Certificate. 7

8.  Who can be enrolled in Chinese social security system in Shanghai  According to the Shanghai Notice, the foreign employees who hold: - Foreign Expert Certificate - Shanghai Residence Certificate – B - Foreigners Working Permit - Taiwan, Hong Kong, Macau Personnel Working Permit or - Working Permit in Shanghai for Chinese who reside in Foreign Countries 8

9.  Insurance Type  pension insurance  medical insurance  work-related injury insurance  unemployment insurance (not in Shanghai)  maternity insurance (not in Shanghai) 9

10.  Insurance Premium Percentage 10 Social Security in Shanghai Insurance TypeEmployerEmployee Pension Insurance22%8% Medical Insurance12%2% Work-related Injury Insurance0.5%0% Maternity Insurance0.8%0% Unemployment Insurance1.7%1% Total37%11% Note: The deductions are capped at no more than three times the average salary of Shanghai, that is RMB 12,993 till the end of March 2013. The insurances in red are not open to foreigner employees.

11.  Trend of Shanghai - 3 insurances ---> 5 insurances - Voluntary ---> Mandatory 11

12.  Real Case A foreigner who worked in Shanghai for 11 years, and his employment relationship was terminated after the expiration of the employment term. The foreigner applied for arbitration against the employer on the reason that: 1) he cannot enjoy the social security in his native country as his working term is too short there; 2) the Chinese law provides that any worker who paid the social security more than 15 years can enjoy the social security (especially the pension) after retirement; 3) he has working permit in China, and therefore his employment in China shall be legal. Therefore, he requests the employer to pay 11 years’ social security for him in China, and he will pay the rest 4 years by himself. However, as the payment of social security in Shanghai is voluntary by both parties in writing, other than compulsory, the requests of the foreigner do not have legal support. Finally, the foreigner reached an mediation agreement with the employer under the work of the arbitration commission. 12

13. 13  Currently, there are more than 600,000 foreigners that legally work or live in China. (do not include the foreigners that illegally come to China, or illegally live or work in China)  Till last September, according to the calculation of the Ministry of Human Resource and Social Security, more than 120,000 foreigners had participated the social security systems in different provinces in China, which means that only 20% of the foreigners in China enjoy the social security benefits in China.  China is negotiating with more than 13 countries to reach a bi- lateral agreement in respect of payment of social security to reduce the burden of the foreign employees in China.

14. 14 As the social security system is not uniform in China, and different cities have different policies and payment rate, we hereby only take Shanghai as example. Competent Authority Local bureau for administration and settlement center for social security funds. Condition 1. The company employs the foreign employees who have not setup his/her personal social security account in Shanghai. 2. The employer and the employee have an agreement on participating in Chinese Social Security in Shanghai (normally specified in the employment contract).

15. 15  Application Materials 1. Application Form 2. Foreign Expert Certificate Shanghai Residence Certificate – B Foreigners Working Permit or Taiwan, Hong Kong, Macau Personnel Working Permit 3. The copy of the ID certificate (such as passport) 4. The copy of the Employment Contract 5. Company Seal and the Social Security Payment Card of the Company  Applicant The employer

16. 16  Period Immediately after the submission of the application materials  Fee Free of charge

17. Chinese EmployeesForeign Employees Insurance type5 insurances3 insurances Mandatory/VoluntaryMandatoryVoluntary PercentageEmployer: 37% Employee: 11% Employer: 34.5% Employee: 10% 17 Take Shanghai for example

18.  If a foreigner leaves China prior to reaching the statutory age for pension withdrawal, his/her social insurance personal account will be retained, and the contribution years will be calculated on a cumulative basis if he/she comes to work in China again in the future.  Alternatively, upon his/her written application for terminating the social insurance account, the relevant social insurance center may make a lump-sum payment of the money deposited in the social insurance personal account to him/her.  (Note: The personal social security fee has interests and is free of tax. ) 18

19.  Bilateral Treaty  It is possible that a foreign employee has to pay twice his/her social security, both in his/her own country and in China. If the employee can provide the certificate that he/she has already paid the social security in his/her own country and his/her own country has a bilateral treaty with China. He/she may not pay the social security in China.  Currently, China has signed Bilateral Treaty with following country. - Germany (in respect of Pension Insurance and Unemployment Insurance) - South Korea (in respect of Pension Insurance) 19

20. 20 Pension Insurance An individual participating in basic pension insurance may collect basic pension on a monthly basis if the cumulative premium payment period reaches 15 years at the time the individual reaches the statutory retirement age. If the cumulative premium payment period is less than 15 years at the time the individual participating in basic pension insurance reaches the statutory retirement age, he/she may continue to pay the premium until the cumulative premium payment period reaches 15 years and then collect the basic pension on a monthly basis. If an individual who participates in basic pension insurance passes away due to sickness or reasons other than work, the family members of the deceased may collect funeral allowance and bereavement payment. The individual losing the capacity for work completely due to sickness or disability not caused by work before reaching the statutory retirement age may collect sickness and disability subsidy. The amount required will be paid from the basic pension insurance fund.

21. 21 Medical Insurance Medical expenses that conform to the drug catalogue, the treatment items and the standard of medical services and facilities for basic medical insurance and medical expenses for emergency treatment and rescue shall be paid from the basic medical insurance fund in accordance with the provisions of the State. It shall be settled directly between the social insurance center and the medical institution or the entity engaging in the drug business.

22. 22 Work-related Injury Insurance A employee injured in an accident due to work or suffering from an occupational disease and is identified as being injured at work will enjoy work-related injury insurance benefits. A employee identified as losing the capacity for work after the assessment on capacity for work is conducted will enjoy disability benefits. The following fees arising from work-related injuries will be paid from the work-related injury insurance fund in accordance with the provisions of the State: (1) medical fees and rehabilitation fees for the treatment of work-related injury; (2) meal allowance during hospitalization; (3) fees for transportation, accommodation and meal when receiving medical treatment outside the coordinated region;

23. 23 (4) fees required for the installation of aids and appliances for the disabled; (5) fees for daily care confirmed by the committee assessing the capacity for work for those who cannot take care of themselves; (6) one-off disability allowance and disability subsidy collected on a monthly basis by employees with classes 1-4 disability; (7) one-off medical allowance upon termination or rescission of the labor contract; (8) funeral allowance for the family members of the deceased, bereavement payment for dependant relatives and allowance for work- related death in case of work-related death; (9) fee for the assessment of capacity for work.

24. 24 For Unemployment Insurance & Maternity Insurance In consideration of once a foreign employee loses his/her job in China, his/her visa will be invalid. Foreign employees actually cannot enjoy the unemployment benefit. Therefore, it is meaningless to discuss this issue. Meanwhile, maternity insurance are for the employees who comply with the Family Planning policy. However foreign employees are not restricted by the Family Planning policy. It is still unclear how a foreign employee enjoy the maternity insurance benefit in China. Based on above concerns, currently, foreign employees are not required to pay unemployment insurance and maternity insurance in Shanghai. And therefore, we do not discuss such issues here.

25. 25 Social Security Premium As different places has different standards, we hereby only take Shanghai for example. The basis to pay the social security from April 2012 to March 2013 is from RMB 2,599 to RMB 12,993 per month, therefore the social security premium deducted from the salary of the employee is from RMB 260 to RMB 1,299 (10%). And the part shall be paid by the employer for the employee shall be from RMB 897 to RMB 4,482 (34.5%). According to above analysis, comparing with the fees foreign employees and their employer shall pay before participating Chinese social security system (normally in the form of international commercial insurance or pay the social security in their mother country), we think the China’s social security premium is not a big burden to the foreign employees (not to mention that the individual part is deducted before tax, which can reduce the IIT, and the individual part can be refunded in case they go back to their own countries), but seems to be a burden on the employer, that is why the social security is not supported by the employers.

26. 26 Although the Interim Measures have provided detailed information for the local government to proceed with the social security for foreigners, it still has not resolved the following questions: 1.The standard of the pension after retirement: is it the same with the Chinese or has different standards? 2.The family member of the foreign employee: the regulations only provide that the foreign employee that have qualified certificate in China can enjoy the social security, it does not mention the family member. For example, how can a baby enjoy the same free medical services like a Shanghai baby by only paying fees about RMB 100 a year? 3.The medical services in foreign countries: the medical services in foreign countries are not covered by Chinese citizen’s social security. But the foreign employees are special group in China, and the Interim Measures at this time close this door to foreign employees also. It is not clear whether this policy would be changed or not in the future.

27. Beijing Chang An Law Firm Shanghai Branch Micky Ma - Partner Lawyer Mobile: 18621861273 Email: horseflag@hotmail.comhorseflag@hotmail.com Stone Jin - Partner Lawyer Mobile: 13916902553 Email: wenbin.stone@hotmail.comwenbin.stone@hotmail.com Thanks a lot for your attendance today. If you have any questions, please contact us freely.