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LEGAL: Social Security Bilateral Agreement between China and Spain
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Social Security Bilateral Agreement between China and Spain
By Manuel Torres (Managing Partner of Garrigues China) and Eduardo Antonio Bernal (Corporate Associate)

BT 201806 Legal 02      经中国和西班牙两国政府批准,中国人力资源和社会保障部部长尹蔚民与西班牙王国就业和社会保障大臣法蒂玛•巴内兹于5月19日在德国出席二十国集团劳工就业部长会议期间签署了《中华人民共和国和西班牙王国社会保障协定》。中国和西班牙两国签署双边社保协定的主要目的是维护劳动者的社会保障权益,解决双方投资企业和员工双重缴纳社会保险费问题,降低企业用工和投资成本,促进两国经贸关系,便利人员往来。除了避免双重缴纳社保费,降低两国企业在对方国家的经营成本以外,协议的签署还有利于确保两国企业向对方国家所派员工的社会保护。截至目前,除西班牙外,中国政府已与德国、韩国、丹麦、芬兰、加拿大、瑞士、荷兰、法国签署了双边社保协定。





BT 201806 Legal 04In accordance with previous Chinese legislation on social security, Spanish companies with presence in China, as well as Spanish employees expatriated by these companies, were required to contribute to Chinese social security. Thus, in order to maintain the social security contributions in Spain of their expatriated employees, these companies were forced to support a double social security contribution, both in Spain and in China.

In order to remedy the problem mentioned above, China and Spain have signed an agreement on social security (the “Agreement”) whose main objective is to ensure social protection of employees expatriated in one of the two countries, and to avoid double social security contributions, which will reduce costs for companies, as well as for the employees themselves.

The elimination of duplication is materialized through a mechanism which regulates that, for the first 6 years of an employee's expatriation to one of the two countries (the “Period of Expatriation”), the social security scheme of origin can be maintained with the scope and coverage that will be explained below.

Given the entry into force of the Agreement on March 20, 2018 and its impact for Spanish companies with a presence in China, as well as for the personnel themselves expatriated by these companies to China, we will now explain the most relevant aspects of the Agreement:

BT 201806 Legal 031. Entry into force

After the compliance with the respective internal procedures in each of the countries and in accordance with the official publication of the Agreement in China on March 9, 2018 through the Circular of the General Office of the Ministry of Human Resources and Social Security on Implementing the Agreement between China and the Kingdom of Spain on Social Security, and in the Official State Gazette on March 16 in Spain, the Agreement has entered into force on March 20, 2018.

2. Application scope

The Agreement will be applicable to those persons who work in the territory of one of the contracting parties for an employer whose place of activity is in the said territory, and then are expatriated by that employer to the territory of the other contracting party within the framework of said employment and in order to provide services there to said employer (the “Employee Expatriated”).

The system contained in the Agreement will be applied to the expatriated employees for a period of 6 years counting from the date of their expatriation. For those employees who had begun their expatriation before the entry into force of the Agreement, the period of expatriation will begin on said date of entry into force.

3. Coverage of the Agreement

With regard to China, the Agreement is applicable to the legislation relating to basic endowment insurance for employees and unemployment insurance.

In relation to Spain, it is applied to the regulation of the contributory pensions of employees, except those due to work related accidents or occupational diseases and unemployment contributions and benefits.

As a consequence of the above, it will be applied in the following way depending on the expatriation:

- Employees Expatriated from Spain to China

In the case of an employee expatriated to China, the maintenance of Spanish regulations means that they should continue contributing in Spain.

This implies that during the Period of Expatriation, the basic endowment insurance and unemployment insurance of the Employees Expatriated in China will be exempt from the contribution. Previously, for example in the case of Beijing, the contributions to the Chinese social security for these concepts supposed that the employer should make contributions equivalent to 19% of the contribution base of the Employee Expatriated for basic endowment insurance and 0.8 % for unemployment insurance. Likewise, for the Employee Expatriated, it supposed a contribution equivalent to 8% of the contribution base for basic endowment insurance and 0.2% for unemployment insurance.

Notwithstanding the foregoing, in China you must pay for medical insurance, maternity insurance and work-related injury insurance.

- Employees Expatriated from China to Spain

In this case, a Chinese employee expatriated in Spain, should contribute in China for basic endowment insurance and unemployment insurance, without prejudice to the contribution in Spain for the contingencies of work-related accidents and occupational diseases.

BT 201806 Legal 014. Practical Considerations

- Certificate of coverage

It will be the social security administration in origin that will issue a certificate stating that the employee is subject to the case of expatriation regulated in the Agreement. In accordance with the Administrative Agreement developed from the Agreement, the competent authorities are the General Treasury of Social Security of Spain and the Ministry of Human Resources and Social Security of China.

- Analysis of the labor structure of the expatriation

In light of the above, and pending the interpretation and practical application of the Agreement both in China and in Spain, it is worthy to analyze the different labor structures for the expatriation of employees to China in order to determine if the expatriation provisions of the Agreement are applicable.

In this sense, among others, it will be particularly important to review and analyze the expatriation of employees through a labor contract of the country of origin and another labor contract of the country of destination, which normally responds to the maintenance of the contribution of the Employee Expatriated in the country of origin.

- Tax implications of the Agreement

In accordance with current legislation in China, the contributions to foreign social security are subject to taxation in China, as long as they are not considered compulsory. In this sense, it will be necessary to consider the development of the Agreement and its interpretation to determine if said contributions can be considered as compulsory, and therefore deductible for tax purposes.

In any case, the comments contained herein should be considered preliminary and attention should be paid to its interpretation and practical application by both administrations and to the detailed analysis on a case-by-case basis.

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