China and Canada signed an Agreement on Social Security on 2 April in Ottawa, Canada. The agreement is expected to result in savings for employees relocating between the two countries, as well as their employers.
In addition to Canada, China has signed bilateral agreements on social security contributions with Germany, the Republic of Korea, Denmark and Finland. It also has reportedly entered into negotiations on bilateral social security agreements with 15 other jurisdictions.
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No more double contributions
The agreement aims to address issues encountered by employees working outside their home country, such as making contributions to both the Canadian pension plan and the comparable pension fund in China in respect of the same employment. Since 2011, China has required that foreign employees make contributions to social insurance.
Pursuant to the agreement, Canadian companies and their employees sent to work temporarily in China may continue to contribute to the Canadian Pension Plan and would not need to make contributions in China.
Likewise, Chinese companies operating in Canada and their employees located there will continue contributing to China’s pension programme and would not need to make contributions in Canada.
The text of the agreement has not yet been made public. However, based on published news reports, the agreement does not seem to have addressed other Chinese social insurance funds, including those covering medical treatment, unemployment, maternity and occupational injury.
Although the Sino-Canadian agreement is a positive step forward, it is noteworthy that the process of entering into bilateral agreements takes significant time, and that to date only five agreements have been signed. There are still a significant number of foreign workers in China who are making social insurance contributions in two jurisdictions, creating increased costs to both them and their employers.
The agreement will come into force once both Canada and China have complied with the legally mandated approval procedures in their respective jurisdictions. The text of the agreement will be made available at that time.
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Business Law Digest is compiled with the assistance of Baker & McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker & McKenzie by e-mailing Danian Zhang (Shanghai) at: danian.zhang@bakermckenzie.com
