China Insurance Premium Deferral: What Businesses Need to Know

China has been allowing the deferral of social insurance premium payments for businesses affected by the pandemic to reduce the financial burden on them.

In April 2022, the Ministry of Human Resources and Social Security (MHRSS) and the State Taxation Administration (STA) jointly released an announcement, which allows five pandemic-hit sectors, namely catering, retail, tourism, civil aviation, and road, waterway, and railway transportation, to defer payments on the three basic social security premiums attributed to the employer – pension insurance, unemployment insurance, and work-related injury insurance.

Then in May 2022, the social insurance premium deferral policy was further expanded to cover an additional 17 industries and all micro, small, and medium-sized enterprises (MSMEs), as per the announcement released by the MHRSS, the STA, and the Ministry of Finance on May 31, 2022.

Who can apply for social insurance premium deferral?

According to two guiding announcements of the social insurance premiums deferral policy, the Notice on Temporarily Deferring Payment of Social Insurance Fees in Particularly Difficult Industries and the Notice on the Issues Regarding Expansion of Policies on Temporarily Deferring Payment of Social Insurance Fees, companies in China engaging in the below 22 industries that are facing operational difficulties and suffering losses can apply for the deferral of social insurance premium payments:

• First batch five industries: Catering, retail, tourism, civil aviation, and road, water, and railway transportation.
• Second batch 17 industries: Agricultural and sideline food processing, textile, apparel, paper and paper products, printing and recording media reproduction, pharmaceutical manufacturing, chemical fibres manufacturing, rubber and plastic products, general equipment manufacturing, automotive manufacturing, transportation equipment manufacturing, instrumentation manufacturing, social work, radio and movie production, culture and art, physical education, and entertainment.
  Besides companies within these industries, all MSMEs, as well as public institutions and social organizations, foundations, social service organizations, law firms, accounting firms, and other social organizations, can all apply to defer the payment of these three social insurance premiums until the end of 2022.

Businesses that fall in the policy scope may benefit from deferring the payment of the social insurance premiums attributed to the employers upon approval from local social insurance authorities. As per legal requirements, companies must deduct and pay the employee’s share of the social insurance contributions. Eligible companies may thus apply for postponed payment of three social insurance premiums, according to the following rules:

• The payment of pension insurance premiums can be deferred until the end of the year (December 2022); and,
• The deferred payment period for work-related injuries and unemployment insurance premiums must not exceed one year.

MSMEs and other market entities that have been greatly impacted by the epidemic and have difficulties in production and operation can also apply for a deferral of the payment of the three social insurance premiums until the end of 2022.

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During the deferral period, such firms will not be charged the usual fees for late payments. Further, the employee’s benefits under unemployment insurance and work-related injury insurance, as well as other benefits connected to those programs, will not be impacted.

There are some important exceptions that cause the interruption of payment deferral:

• If an employee must receive pension benefits during the deferral period or changes jobs, the company is immediately required to fulfil the postponed contributions of the employee’s pension fund.

If a firm wishes to dissolve, the postponed payments must be made up before the official deregistration.

How to apply to defer payment of social insurance premiums?

According to the government’s announcements, provincial-level governments have the right to formulate their own specific implementation measures based on local conditions and fund affordability and clarify implementation procedures, deferment periods, identification standards, approval procedures, and working mechanisms for enterprises in difficulty and in areas severely affected by the pandemic.

That is to say, the application procedure might be subject to local variances. Companies are suggested to consult the local authority in charge of the eligibility and application process.

Below, we take Wenzhou as an example to demonstrate the general procedures:

• Companies in the original five industries that are considered in a particularly difficult situation because of the pandemic are selected for deferral based on the type of industry declared by the company when registering the insurance. If the existing information cannot meet the needs of classifying the industry type, the enterprise shall issue a written commitment for the industry type it belongs to and bear the corresponding legal responsibility. Applications material includes an ‘Application Form for Phased Delay in Payment of Enterprise Social Insurance Premiums’ (in Chinese: 阶段性缓缴企业社会保险费申请表).

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Businesses belonging to the remaining 17 industries, as well as MSMEs and other market entities affected in their production and operation activities must respond to the following criteria: a state of loss for three consecutive months and regular financial statements. Other applicable conditions, such as proof of production and operation difficulties, type of industry, and type of business scale, may also be required. In this case, the application materials include an ‘Application Form for Phased Delay in Payment of Enterprise Social Insurance Premiums’ (in Chinese: 阶段性缓缴企业社会保险费申请表) and a ‘Financial statements of accumulated losses for three consecutive months in 2022’, with the official seal of the unit (in Chinese: 2022年度连续三个月累计亏损的财务报表).

The latest developments

On June 30, 2022, the National Healthcare Security Administration (NHSA), the National Development and Reform Commission (NDRC), and other two authorities jointly released the Circular on Postponing the Employer Payment of Basic Employee Medical Insurance on a Time-limited Basis. According to the document, MSMEs can defer the employer’s payment for the employees’ medical insurance. The policy also applies to foundations, social service agencies, law firms, accounting firms and other social organizations.

In regions where the accumulated balance of the pooling fund could cover payments of over six months, the insurance payment can be postponed for three months starting from July 2022. More specific information is awaited.

For a complete overview of China’s social security system, visit our dedicated article.

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