Now! China - Social Insurance Compliance for Foreign-Invested Enterprises in China

With the official implementation of the policy transferring social insurance collection fully to the tax authorities, social insurance administration in China has entered a new era characterised by enhanced data integration and cross-agency coordination. Recently, many enterprises have received notices from the relevant authorities requesting their cooperation in employment-related fact‑finding exercises and the submission of supporting information.

For foreign‑invested enterprises (FIEs) operating in China, determining appropriate social insurance contribution bases while balancing cost pressures and maintaining compliance has become an increasingly important challenge for HR and finance professionals.

I. Policy Background: Why Adjusting Social Insurance Contribution Base Has Become a Priority for FIEs

1. Fundamental Shift in Collection Authority and Data Monitoring

The transfer of social insurance collection responsibilities is not merely an administrative change. Rather, it represents a significant enhancement of the collection and enforcement framework:

The tax authorities can now automatically compare the "total wages" reported for IIT purposes with the "total contribution base" reported for social insurance contributions. Significant discrepancies may be automatically flagged for further review.

2. Clearer Definition of Compliance Boundaries

Following the implementation of the new rules, the following practices are expressly regarded as illegal or non-compliant:

• Obtaining employee consent to waive social insurance contributions— Such agreements are legally invalid, and employers remain obligated to make social insurance contributions on behalf of eligible employees.
• Making long-term contributions based solely on the minimum wage—Social insurance contribution bases must generally reflect employees’ actual remuneration.

• Artificially splitting or restructuring wage payments to reduce social insurance contributions—Such arrangements may be identified through data matching and analysis conducted under the Fourth Golden Tax Information System.

3. Special Challenges for FIEs

Compared to domestic enterprises, FIEs face greater complexities in managing social insurance compliance, including:

• Cross-regional operations: Businesses with branches in multiple locations must navigate differing social insurance contribution rates, contribution base ceilings and floors, and local compliance requirements.
• Management of foreign employees: Employers must accurately determine the applicability of social security agreements and available exemptions for foreign employees.

II. Core Strategy: Scientifically Optimising Compensation Structures

Compliance Principle: Optimise the composition of the social insurance contribution base within the legal framework by appropriately distinguishing between "monetary wages" and "non-monetary benefits".

1. Compliant Treatment of Non-monetary Benefits

For benefits commonly provided to foreign executives, such as housing and children's education:

• ❌ Cash housing allowance: Subject to IIT and generally included in the social insurance contribution base.
• ✅ Company-leased accommodation: Where the company leases the property directly and obtains the relevant supporting invoices, the benefit is generally not included in total wages for social insurance purposes.

Operational Considerations: Maintain proper supporting documentation, including tenancy agreements and valid invoices, and ensure that rental arrangements are consistent with prevailing market rates to minimise the risk of being classified as disguised wages by the authorities.

2. Special Social Insurance Treatment of Contribution Base for Foreign Employees

Pursuant to the Interim Measures for the Participation in Social Insurance of Foreigners Employed in China:

• Foreign employees from countries that have entered into social security agreements with China (such as Germany, Japan, Korea) may be exempt from participating in China's pension insurance upon presentation of a valid Certificate of Coverage.
• For foreign employees from countries that do not have such agreements with China, participation in all five categories of social insurance is generally mandatory, with contribution bases determined based on monthly wages and subject to the applicable local statutory ceilings and floors.

Operational Guidance: Employers should determine the applicability of any social security agreement at the commencement of employment and obtain the necessary supporting documents, such as the Certificates of Coverage to avoid under-contribution or over-contribution.

III. Core Strategy: Compliant Optimisation of Employment Models

Compliance Principle: Properly distinguish between employment relationships and service arrangements, as different categories of engagement carry different social insurance obligations.

1. Application of Different Employment Categories

2. Statutory Cap on Labour Dispatch Arrangements

Pursuant to the Interim Provisions on Labour Dispatch, the ratio of dispatched workers shall not exceed 10% of an employer’s total workforce.

Any excess must be converted into direct employment arrangements. Failure to comply may result in administrative penalties.

IV. Special Considerations for FIEs: Cross-Regional Coordination and Foreign Employee Management

1. Cross-Regional Social Insurance Coordination

For FIEs operating across multiple locations:

• Establish a regional compliance register: Document local contribution rates, contribution base ceilings and floors, and applicable benefit standards.
• Apply the “place of work” principle: For employees assigned to work outside their home region for six months or more, social insurance contributions should generally be made in the location where the employee performs the work.
• Engage third-party professional service providers: Third-party specialists can facilitate centralised reporting, compliance monitoring and data management across multiple jurisdictions within China.

V. Risk Management Framework: Moving from Reactive Compliance to Proactive Governance

1. Priority Self-Audit Checklist

FIEs are advised to conduct a self-assessment covering the following areas:

• Compare wage records, IIT filings and social insurance contribution records for the past three years.
• Identify instances where contributions have consistently been made based solely on minimum wage levels.
• Verify the social security agreement status of foreign employees.
• Confirm compliance with labour dispatch ratio requirements.
• Review historical records for any underpaid social insurance contributions relating to former employees.

2. "Three-Lines-of-Defense" Risk Control Framework

VI. Conclusion and Outlook

The integration of social insurance collection with tax administration marks the beginning of a new data-driven era in China’s social security compliance framework. For FIEs, this development represents not only heightened compliance obligations but also an opportunity to strengthen governance and operational controls.

In the short term, compliance costs may increase. However, these investment are essential to managing regulatory risks and ensuring long-term stability.

Over the medium to long term, robust social insurance compliance can deliver three key benefits:

• Reducing exposure to penalties, enforcement actions and reputational risks
• Enhancing employee satisfaction, trust and retention
• Strengthening the reputation and competitiveness of compliant businesses in an increasingly transparent and level regulatory environment.

Action Recommendations:

Enterprises are advised to conduct internal self‑audits without delay, focusing on potential compliance gaps in social insurance contribution bases, the consistency of social insurance coverage, and the alignment of payroll, individual income tax (IIT) and social insurance data.

At the same time, organisations should establish stronger coordination mechanisms between HR and finance functions to enhance oversight and data accuracy. Social insurance compliance should also be incorporated into annual budgeting and strategic planning processes, enabling businesses to move from reactive compliance management to a more proactive and sustainable approach.

Given that evolving regulatory landscape and variations in local implementation practices across different regions, SBA Stone Forest can offer in‑depth analysis of the latest policy developments and help design tailored, practical and sustainable compliance solutions. Through a risk-based and commercially focused approach, we can support businesses in strengthening compliance, managing costs and navigating the transition with confidence.

China Updates

Accounting and Taxation

I. Eligible Institutions

For the purposes of these Measures, the research institutions eligible for import tax incentives for scientific and technological innovation (collectively referred to as “beneficiary entities”) include:

1. Municipal and district-level research institutes engaged in scientific research, as well as their graduate schools and libraries with independent legal personality;

2. Institutions within Shanghai that have been transformed into enterprises or incorporated into enterprises pursuant to General Office of the State Council Document No. 38 [2000] and are principally engaged in scientific research and technological development;

3. New-type R&D institutions established as private non-enterprise entities or public institutions;

II. Eligibility Criteria for Municipal- and District-Level Research Institutes

Municipal- and district-level research institutes engaged in scientific research shall satisfy the following criteria;

1. Be established with the approval of the municipal or district authorities;

2. Be principally engaged in basic research, frontier technology research, public-interest technology research, the commercialisation and application of scientific and technological achievements, or scientific and technological information and strategic research;

3. Have a name, principal responsibilities of business scope that clearly reflects a research focus; and

4. Possess the organisational structure, professional technical personnel and operational capabilities necessary to carry out scientific and technological activities.

III. Eligibility Criteria for New-Type R&D Institutions

New-type R&D institutions established as private non-enterprise entities or public institutions shall meet the registration requirements applicable in Shanghai and be included in the municipal register of new-type R&D institutions.

Private non-enterprise R&D institutions must also satisfy the following requirements:

1. Be registered with the municipal civil affairs authority;

2. Have total assets of not less than RMB 3 million yuan; and

3. Employ at least 20 scientific research personnel (defined as individuals holding a college degree or above, or an intermediate-level or higher professional title), representing not less than 60% of the total workforce.

IV. Application Procedures

Applications may be submitted throughout the year to the Municipal Science and Technology Commission together with the following documents:

1. Application form (including an overview of the organisation, details of scientific and technological innovation activities, existing facilities and resources, and workforce composition);

2. Certificate of Incorporation or Business Licence; and

3. Approval documents relating to any enterprise conversion and other supporting materials.

V. Changes to Beneficiary Entities

Where there is a change to the name or business scope of a beneficiary entity, the entity shall promptly submit details of the change to the Municipal Science and Technology Commission.

The Commission shall determine, in accordance with the procedures set out under these Measures, whether the entity remains eligible for the incentive policy following the change. The outcome shall be communicated to Shanghai Customs and copied to the relevant authorities, including the Municipal Bureau of Civil Affairs, Municipal Finance Bureau and Municipal Taxation Bureau, with notification also provided to the beneficiary entity.

Notice on Adjusting the Scope of Goods Eligible for Value-Added Tax (“VAT”) and Consumption Tax (“CT”) Refunds in Pingtan Comprehensive Experimental Area (“Pingtan”) 

On April 13, 2026, the Ministry of Finance (“MOF”) and the State Taxation Administration (“STA”) jointly issued the Notice on Adjusting the Scope of Goods Eligible for VAT and CT Refunds in Pingtan. In accordance with the prevailing VAT and CT policies, the relevant adjustments are set out below:

• Production-related goods sold from the Chinese mainland to Pingtan via the “second line” shall be deemed exports and eligible for VAT and CT refunds in accordance with existing policies, except for the following categories of goods:
• This notice takes effect from April 13. The applicable date for VAT and CT refund treatments shall be the export date indicated on the Export Goods Declaration Form.
• The specific administrative procedures for VAT and CT refunds shall continue to be implemented in accordance with existing policies.

• Export goods that are ineligible for VAT refund (or exemptions) and tax exemptions as prescribed by the MOF and the STA;
• Goods procured for commercial real estate development projects in Pingtan;
• Other goods that are ineligible for tax refunds when sold from the mainland to Pingtan, as specified in the "List of Goods Ineligible for Tax Refund when Sold from the Mainland to Pingtan";
• Goods purchased by enterprises that are disqualified from tax refund or exemption.

^*Commercial real estate development projects refer to the construction (including reconstruction and expansion) of hotels, office buildings, villas, apartments, residences, commercial shopping venues, entertainment service venues, catering establishments and other commercial real estate projects.

• This notice takes effect from April 13. The applicable date for VAT and CT refund treatments shall be the export date indicated on the Export Goods Declaration Form.
• The specific administrative procedures for VAT and CT refunds shall continue to be implemented in accordance with existing policies.

Human Resources

Interim Provisions on the Protection of Basic Rights and Interests of Older Workers 

The Interim Provisions on the Protection of Basic Rights and Interests of Older Workers were jointly promulgated by the Ministry of Human Resources and Social Security, the National Health Commission, the Ministry of Emergency Management, the State Taxation Administration, and the National Healthcare Security Administration on May 10, 2026, as Decree No. 56, and will take effect on July 1, 2026.

The Provisions clarify the rights and obligations of employers and older workers, and aim to safeguard the legitimate rights and interests of workers who have exceeded the statutory retirement age.

Employers are required to enter into written work agreements with older workers. In addition, employers must enrol older workers in work-related injury insurance and bear the relevant insurance premiums. Individual workers are not required to contribute towards such premiums.

Corporate Governance

Notice of the Administration for Market Regulation on Issuing the Specifications for Registration Documents for Market Entities 

Pursuant to the requirements of the Notice of the Administration for Market Regulation on Issuing the Specifications for Registration Documents for Market Entities, registration authorities across China have fully implemented the revised document specifications for various registration and filing matters relating to market entities.

The new requirements further strengthen the real-name authentication mechanism and enhance the supervision of intermediary and agency service providers. As a result, previous versions of application forms and related registration documents are no longer applicable.

For foreign-invested enterprises established in China that are required to undertake registration changes or filing procedures, it is recommended that professional advisers be engaged to assist with the process and ensure full compliance with the latest regulatory requirements.

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