The New Rules officially took effect on 15 October 2011 and since then, all foreign individuals (unless exempted) working in the PRC must participate in the PRC Social Insurance System. The New Rules affect every foreign individual (non-Chinese national) who is in possession of an employment permit, which would include a permanent residence permit of foreigners, and is lawfully working for an entity registered in the PRC, including a PRC subsidiary or a representative office of a foreign company. The system, to which both employers and employees are required to contribute, provides for basic old-age insurance, basic medical insurance, work-related injury insurance, unemployment insurance and maternity insurance. Failure to register and contribute may lead to punitive measures and/or penalties.

Exemption may be obtained under a social insurance agreement signed between the PRC and the foreign employee’s home country, though at present very few such agreements have been signed.

The New Rules will have a significant impact on clients who have offices in the PRC with a large number of foreign employees, increasing existing social security costs and other administrative burdens.