1. Determination of the original value of the equity (vote) purchased by the individual
According to the Measures for the Administration of Individual Income Tax on Income from Equity Transfer (for Trial Implementation) (Announcement No. 67 [2014] of the State Administration of Taxation):
Article 15 The original value of the equity transferred by an individual shall be confirmed in accordance with the following methods:
(1) For equity acquired by way of cash contribution, the original value of equity shall be determined according to the sum of the actual price paid and the reasonable taxes and fees directly related to the acquisition of equity;
(2) For equity acquired by way of capital contribution of non-monetary assets, the original value of equity shall be determined according to the sum of reasonable taxes and fees directly related to the price of non-monetary assets and the acquisition of equity at the time of investment and equity acquisition recognized or approved by the tax authorities;
(3) If the equity is acquired by way of free transfer, and the circumstances listed in Item 2 of Article 13 of these Measures are met, the original value of the equity shall be determined according to the sum of the reasonable taxes and fees incurred in the acquisition of the equity and the original value of the equity of the original holder;
(4) If the invested enterprise has converted capital reserves, surplus reserves and undistributed profits into share capital, and the individual shareholders have paid individual income tax in accordance with the law, the original equity value of the newly converted share capital shall be confirmed by the sum of the amount of the conversion and relevant taxes and fees;
(5) In addition to the above circumstances, the in-charge taxation authorities shall reasonably confirm the original value of equity in accordance with the principle of avoiding duplicate collection of individual income tax.
Article 16 If the equity transferor has been verified by the in-charge taxation authorities for the income from equity transfer and levied individual income tax in accordance with the law, the original value of the equity of the equity transferee shall be recognized by the sum of the reasonable taxes and fees incurred when acquiring the equity and the equity transfer income of the equity transferor verified by the in-charge taxation authorities.
Article 17 If an individual fails to provide a complete and accurate certificate of the original value of the equity for the transfer of equity, and cannot correctly calculate the original value of the equity, the in-charge taxation authorities shall verify the original value of the equity.
Article 18 Where an individual obtains the equity of the same invested enterprise multiple times, the "weighted average method" shall be used to determine the original value of the equity when transferring part of the equity.
2. Increase individual share capital
1. The capital reserve formed by the premium issuance income of joint-stock enterprises is converted into share capital
According to the notice of the State Administration of Taxation on the exemption of individual income tax on the conversion of share capital and the distribution of bonus shares by joint-stock enterprises (Guo Shui Fa [1997] No. 198), the conversion of capital reserve into share capital by joint-stock enterprises does not belong to the distribution of dividends and bonuses, and the amount of converted share capital obtained by individuals shall not be regarded as personal income and shall not be subject to individual income tax. The distribution of bonus shares by joint-stock enterprises with surplus reserve funds is in the nature of dividends and bonuses, and the amount of bonus shares obtained by individuals shall be taxed as personal income.
Guo Shui Han [1998] No. 289 further clarified that the "capital reserve" expressed in Guo Shui Fa [1997] No. 198 refers to the capital reserve formed by the income from the premium issuance of shares of joint-stock enterprises. The amount obtained by individuals from the converted share capital shall not be subject to individual income tax as taxable income. However, the part of personal income allocated by other capital reserves that do not conform to this shall be subject to individual income tax in accordance with the law.
To sum up, if the capital reserve formed by the income from the premium issuance of shares of a joint-stock enterprise is converted into share capital, no individual income tax shall be levied.
2. Except for the issuance of shares at a premium, other capital reserves, surplus reserves and undistributed profits are converted into registered capital and share capital
According to the notice of the State Administration of Taxation on further strengthening the collection and administration of individual income tax for high-income earners (Guo Shui Fa [2010] No. 54), if the registered capital and share capital are increased by undistributed profits, surplus reserves and other capital reserves other than those issued at a premium for shares, individual income tax shall be levied in accordance with the items of "income from interest, dividends and bonuses" in accordance with the current policies.
According to the notice of the State Administration of Taxation on printing and distributing the "Provisions on Several Issues Concerning the Collection of Individual Income Tax" (Guo Shui Fa [1994] No. 89), when distributing dividends and bonuses, joint-stock enterprises shall pay dividends and bonuses due to shareholders in the form of shares (i.e., the distribution of bonus shares), and the par amount of the shares distributed shall be used as the amount of income, and individual income tax shall be levied according to the interest, dividends and bonus items.
To sum up, if the capital reserve, surplus reserve and undistributed profits other than the premium issuance of shares are converted into registered capital and share capital, the par amount of the stock with bonus shares shall be used as the amount of income, and individual income tax shall be levied in accordance with the current policy provisions according to the item of "interest, dividend and bonus income". (20% tax rate)
According to the provisions of the Notice of the Ministry of Finance, the State Administration of Taxation and the China Securities Regulatory Commission on Issues Concerning the Differentiated Individual Income Tax Policy on Dividends and Dividends of Listed Companies (CS [2015] No. 101), the individual income tax is calculated and paid, that is, calculated from the date of lifting the ban, and the holding period exceeds 1 year, the dividend income is temporarily exempted from individual income tax; If the holding period is less than 1 month (including 1 month), the full amount of the dividend income shall be included in the taxable income; If the holding period is more than 1 month to 1 year (including 1 year), 50% of the shareholding period shall be temporarily reduced to include the taxable income; The above-mentioned income is subject to individual income tax at a uniform rate of 20%.
According to Article 4 of the Notice of the Ministry of Finance, the State Administration of Taxation and the China Securities Regulatory Commission on Issues Concerning the Implementation of the Differentiated Individual Income Tax Policy on Dividends and Dividends of Listed Companies (Cai Shui [2012] No. 85), the dividends and dividends obtained before the lifting of the ban on restricted shares of listed companies held by individuals shall continue to be temporarily reduced by 50% and included in the taxable income, and the individual income tax shall be subject to a tax rate of 20%.
If the capital reserve, surplus reserve and undistributed profits of a listed company are converted into share capital, the differentiated individual income tax policy shall be applied to calculate the individual income tax.
Dividends and dividends obtained by individuals holding restricted shares are subject to individual income tax, which is summarized as follows:
(1) The dividends and dividends obtained before the lifting of the ban will continue to be temporarily reduced and included in the taxable income at 50%, and the individual income tax shall be levied at a rate of 20%.
(2) The dividends and dividends obtained after the lifting of the ban shall be reduced or exempted from individual income tax or calculated and paid in accordance with Article 1 of Cai Shui [2015] No. 101).
Case 1.
In March 2022, Li purchased 5 million shares of Company A, with an initial investment cost of 6 yuan per share. In May, Company A made an initial public offering of shares and went public, with a par value of 1 yuan per share and a listed issue price of 10 yuan per share. In March 2023, Company A will pay a cash dividend of RMB 0.8 per share, and the capital reserve formed by the stock premium will be converted into 5 shares for every 10 shares, and the closing price on the ex-rights date will be RMB 12 per share. On May 10, 2023, all the restricted shares of Company A held by Li will be lifted. Mr. Li sold 2 million shares of Company A at a selling price of 15 yuan per share, earning an income of 29.9 million yuan. On May 20, 2023, Company A paid a cash dividend of 1 yuan per share; The capital reserve formed by the stock premium is converted into share capital, and every 5 shares are converted into 2 shares, and the closing price on the ex-rights date is 16 yuan per share. On June 5, 2023, Li sold 7 million shares at a selling price of 20 yuan per share, earning 139.8 million yuan.
Analysis:
1. In March 2023, no individual income tax will be paid; Dividend tax: 500×0.8×50%×20%=400,000 yuan.
2. May transfer individual income tax: (total income 2990 - cost 3000×200÷750) × 20% = 4.38 million yuan.
3. Individual income tax on dividends in May: (750-200) ×1×20% = 1.1 million yuan.
4. No individual income tax will be paid in May.
5. Transfer tax in June: the number of shares after Li's transfer = 550 + 220 = 7.7 million shares, the number of taxable shares of Li is 5.5 million shares, and the number of shares not taxable is 2.2 million shares. The tax basis of the stocks held by Li = 3000-3000×200÷750 = 22 million yuan.
Individual income tax payable on the transfer of shares by Li = (total income 13980 - non-taxable stock income 13980×150÷700 - cost 2200×550÷770) × 20% = 18.8257 million yuan.
3. Individual transfer of equity (votes)
1. Individual income tax on the transfer of restricted shares of listed companies
Individual income tax shall be paid on the transfer of restricted shares according to the "income from property transfer", and individual income tax shall be exempted from individual income tax on the transfer of non-restricted shares on the Shanghai Stock Exchange and Shenzhen Stock Exchange. According to Cai Shui [2009] No. 167 and Cai Shui [2010] No. 70, the restricted shares currently included in the scope of taxation are limited to restricted shares under the share reform and restricted shares for new shares, and do not include allotments, restricted shares formed by private placement by listed companies to introduce strategic investors, and restricted shares formed by major asset restructuring. Restricted shares under the share reform refer to the original non-tradable shares held by shareholders before the resumption date of the stock after the completion of the equity division reform of the listed company, as well as the gift and transfer of shares from the above-mentioned shares from the date of stock resumption to the date of lifting the ban; Restricted shares for new shares refer to the restricted shares formed by companies that have made initial public offerings and listed companies after the separation of the old and new after the 2006 equity division reform, as well as the gift and transfer of shares from the above-mentioned shares from the first day of listing to the date of lifting the ban.
According to the Notice of the Ministry of Finance, the State Administration of Taxation and the China Securities Regulatory Commission on Issues Concerning the Levy of Individual Income Tax on Income from the Transfer of Restricted Shares of Listed Companies by Individuals (Cai Shui [2009] No. 167), the taxable income shall be the income from the transfer of restricted shares by an individual, after deducting the original value of the shares and reasonable taxes and fees. Namely:
Taxable income = income from the transfer of restricted shares - (original value of restricted shares + reasonable tax and fee)
Tax Payable = Taxable Income ×20%
The income from the transfer of restricted shares mentioned in this notice refers to the income actually obtained from the transfer of restricted shares. The original value of the restricted shares refers to the purchase price at the time of purchase of the restricted shares and the relevant fees paid in accordance with the regulations. Reasonable taxes and fees refer to the stamp duty, commission, transfer fee and other taxes related to the transaction incurred in the process of transferring restricted shares.
If the taxpayer fails to provide a complete and true certificate of the original value of the restricted shares, and fails to accurately calculate the original value of the restricted shares, the in-charge taxation authorities shall verify the original value of the restricted shares and reasonable taxes and fees at 15% of the income from the transfer of the restricted shares.
The individual income tax on the income from the transfer of restricted shares shall be subject to the holder of the restricted shares, and the securities institution with which the individual shareholder opens an account shall be the withholding agent. The individual income tax on restricted shares shall be collected and administered by the competent tax authority where the securities institution is located.
If a taxpayer holds both restricted shares and tradable shares, the income from the transfer of shares shall be subject to the principle of priority of restricted shares, that is, the transfer of shares shall be regarded as the first transfer of restricted shares, and individual income tax shall be calculated and paid according to the regulations.
Case: Company A made an initial public offering of shares on January 1, 2018 at an issue price of 10 yuan per share, and Mr. Wu held 100,000 shares of company A (the date of lifting the ban on December 31, 2018), with an investment cost of 5 yuan per share. On January 1, 2019, Wu transferred all the shares and obtained a transfer income of 4 million yuan (the average transaction price was 40 yuan per share). Regardless of relevant taxes and fees, Wu should pay personal income tax of 700,000 yuan [(400-10×5)×20%]
Situation 1: Company A transfers shares before the lifting of the ban. On November 1, 2018, Company A increased its ordinary shares by 10 shares with capital reserve for every 10 shares, then it held a total of 200,000 shares, the cost per share was adjusted to 2.5 yuan, the transfer income was still 4 million yuan (ex-rights price of 20 yuan per share), and the individual income tax payable was still 680,000 yuan [(20×20-20×2.5)×20%].
Situation 2: Company A transfers shares after the ban is lifted. If on February 1, 2019, Company A converts 10 ordinary shares into ordinary shares for every 10 shares, then Wu holds a total of 200,000 shares, the cost per share is adjusted to 2.5 yuan, and the transfer income is still 4 million yuan (ex-rights price of 20 yuan per share). Since 100,000 of them are not taxable restricted shares under the tax law, the individual income tax payable is 350,000 yuan [(400-20×10)-10×2.5]×20%.
2. Individual income tax on the transfer of tradable shares of listed companies
According to the Notice of the Ministry of Finance, the State Administration of Taxation and the China Securities Regulatory Commission on Issues Concerning the Levy of Individual Income Tax on Income from the Transfer of Restricted Shares of Listed Companies by Individuals (Cai Shui [2009] No. 167), the income from the transfer of shares of listed companies obtained from the public offering and transfer of listed companies on the Shanghai Stock Exchange and the Shenzhen Stock Exchange shall continue to be exempted from individual income tax.
3. Individual income tax on the transfer of equity of non-listed companies
According to the Measures for the Administration of Individual Income Tax on Income from Equity Transfer (for Trial Implementation) (Announcement No. 67 [2014] of the State Administration of Taxation):
Article 4 For the transfer of equity by an individual, the balance of the income from equity transfer after deducting the original value of equity and reasonable expenses shall be the taxable income, and the individual income tax shall be paid according to the "income from property transfer".
Reasonable expenses refer to the relevant taxes and fees paid in accordance with the regulations when the equity is transferred.
Article 5 The individual income tax on the income from the transfer of individual equity shall be the taxpayer of the equity transferor and the transferee shall be the withholding agent.
Article 7 Income from equity transfer refers to cash, in-kind, negotiable securities and other forms of economic benefits obtained by the transferor as a result of equity transfer.
Article 8 All kinds of payments related to equity transfer obtained by the transferor, including liquidated damages, compensation and other items, assets, rights and interests, etc., shall be incorporated into the income from equity transfer.
Article 9 The subsequent income obtained by the taxpayer after satisfying the agreed conditions in accordance with the contract shall be regarded as the income from equity transfer.
Article 10 The income from equity transfer shall be determined in accordance with the principle of arm's length transaction.
Article 11 Under any of the following circumstances, the in-charge taxation authorities may verify the income from equity transfer:
(1) The declared income from equity transfer is obviously low and there is no justifiable reason;
(2) Failing to file tax returns within the prescribed time limit, and failing to file within the time limit after being ordered by the tax authorities to file within the time limit;
(3) The transferor is unable to provide or refuses to provide relevant information on the income from equity transfer;
(4) Other circumstances in which the income from equity transfer should be verified.
Article 12 In any of the following circumstances, it shall be deemed that the income from equity transfer is obviously low:
(1) The declared income from equity transfer is lower than the share of net assets corresponding to equity. Among them, if the invested enterprise owns land use rights, houses, unsold real estate of real estate enterprises, intellectual property rights, prospecting rights, mining rights, equity and other assets, the declared equity transfer income is less than the fair value share of the net assets corresponding to the equity;
(2) The declared income from equity transfer is lower than the initial investment cost or lower than the price paid for the acquisition of the equity and related taxes;
(3) The declared income from equity transfer is lower than the income from equity transfer of the same shareholder or other shareholders of the same enterprise under the same or similar conditions;
(4) The declared equity transfer income is lower than the equity transfer income of enterprises in the same or similar industries under the same or similar conditions;
(5) unreasonable transfer of equity or shares without compensation;
(6) Other circumstances as determined by the in-charge tax authorities.
Article 13 If the income from equity transfer is obviously low if one of the following conditions is met, it shall be deemed to have legitimate reasons:
(1) Able to issue valid documents to prove that the production and operation of the invested enterprise have been significantly affected due to the adjustment of national policies, resulting in the transfer of equity at a low price;
(2) Inherit or transfer equity to a spouse, parents, children, grandparents, grandchildren, siblings, and a caregiver or supporter who bears the obligation of direct support or support to the transferor;
(3) The internal transfer of equity held by the employees of the enterprise that cannot be transferred to the outside world as stipulated by relevant laws, government documents or articles of association, and there are relevant materials that fully prove that the transfer price is reasonable and true;
(4) Other reasonable circumstances in which both parties to the equity transfer can provide valid evidence to prove their reasonableness.
Article 14 The in-charge taxation authorities shall examine and approve the income from equity transfer in accordance with the following methods:
(1) Net assets verification method
The income from equity transfer shall be assessed according to the net assets per share or the share of net assets corresponding to the equity.
If the proportion of land use rights, houses, unsold real estate, intellectual property rights, prospecting rights, mining rights, equity and other assets of the invested enterprise in the total assets of the enterprise exceeds 20%, the in-charge taxation authorities may refer to the asset appraisal report issued by an intermediary agency with legal qualifications provided by the taxpayer to verify the income from equity transfer.
If the equity transfer occurs again within 6 months and there is no significant change in the net assets of the invested enterprise, the in-charge tax authorities may refer to the asset appraisal report of the invested enterprise at the time of the previous equity transfer to verify the income from the equity transfer.
(2) Analogy
(1) Verify with reference to the income from equity transfer of the same enterprise, the same shareholder or other shareholders under the same or similar conditions;
(2) Refer to the equity transfer income of enterprises in the same industry under the same or similar conditions.
(3) Other reasonable methods
If it is difficult for the in-charge taxation authorities to adopt the above methods to verify the income from equity transfer, they may adopt other reasonable methods to verify the income.
To sum up, for the transfer of equity by an individual, the balance of the equity transfer income after deducting the original value of the equity and reasonable expenses shall be the taxable income, and the individual income tax shall be paid according to the "income from property transfer". (Tax rate 20%)
4. Special Provisions
(1) After acquiring the equity of the enterprise, the surplus will be accumulated and converted into share capital
According to the announcement of the State Administration of Taxation on the individual income tax issues of individual investors converting the accumulation of original earnings into share capital after acquiring the equity of enterprises (Announcement No. 23 of 2013 of the State Administration of Taxation):
1. One or more individual investors acquire 100% of the equity of the acquired enterprise by way of equity acquisition, and before the equity acquisition, the surplus accumulation of "capital reserve, surplus reserve, undistributed profits" and other surpluses in the original book amount of the acquired enterprise has not been converted into share capital, and it is included in the equity transfer price and the income tax obligation is fulfilled at the time of equity transaction. After the equity acquisition, the enterprise will transfer the surplus accumulation in the original book amount to the individual investor (new shareholder, the same below) to increase the share capital, and the relevant individual income tax issues shall be treated in the following circumstances:
(1) If the new shareholder acquires the equity at a price not lower than the net asset price, the original surplus accumulation of the enterprise has been fully included in the equity transaction price, and the part of the new shareholder that has obtained the surplus accumulation and converted to increased share capital shall not be subject to individual income tax.
(2) If the new shareholder acquires the equity at a price lower than the net asset price, the difference between the equity purchase price and the original share capital has been included in the equity transaction price, and the part of the new shareholder that has accumulated surplus and converted to increased share capital shall not be subject to individual income tax; For the difference between the equity purchase price and the original owner's equity that is not included in the equity transaction price, and the part of the new shareholder that accumulates surplus and converts into share capital shall be subject to individual income tax according to the item of "interest, dividend and bonus income".
The new shareholder shall increase the share capital after acquiring the equity of the enterprise at a price lower than the net asset price, i.e., first increase the taxable surplus accumulation, and then increase the tax-exempt surplus accumulation.
2. When the new shareholder transfers the equity held by the new shareholder, the original value of its property is the consideration and related taxes actually paid by the company for the acquisition of the enterprise.
3. After the occurrence of equity transactions and conversion of share capital, the enterprise shall, within 15 days of the following month, report to the in-charge tax authorities the changes in shareholders and their equity, the amount of surplus accumulation recorded in the original books before the equity transaction, the amount of converted share capital and the withholding tax.
Case: In December 2022, the paid-in capital of enterprise A was 10 million yuan, and the total surplus accumulation of capital reserve, surplus reserve, and undistributed profits was 50 million yuan. Zhang paid 50 million yuan to the original shareholders of enterprise A to purchase 100% of the equity of the enterprise in the next month, and after the change of shareholders, enterprise A accumulated 40 million yuan of book surplus to increase the paid-in capital to Zhang.
Analysis: When enterprise A transfers paid-in capital to new shareholders, the 30 million yuan transferred is not subject to individual income tax, and the 10 million yuan transferred should be subject to individual income tax according to the item of "interest, dividends and bonus income". New shareholders should pay individual income tax = 1000×20% = 200 (10,000 yuan).
(2) Deferred payment
1. According to the Notice of the Ministry of Finance and the State Administration of Taxation on Extending the Relevant Tax Pilot Policies of the National Independent Innovation Demonstration Zone to the Whole Country (CS [2015] No. 116) and the Announcement of the State Administration of Taxation on the Collection and Administration of Individual Income Tax on Equity Awards and Conversion of Share Capital (Announcement No. 80 of 2015 of the State Administration of Taxation):
(1) Since January 1, 2016, when small and medium-sized high-tech enterprises nationwide transfer their share capital to individual shareholders with undistributed profits, surplus reserve and capital reserve, if the individual shareholders have difficulties in paying individual income tax at one time, they can formulate an installment payment plan according to the actual situation, pay in installments within no more than 5 calendar years (inclusive), and report the relevant information to the competent tax authorities for the record.
(2) Individual shareholders shall be subject to individual income tax at a rate of 20% according to the item of "income from interest, dividends and bonuses".
(3) If a shareholder transfers equity and obtains cash income, the cash income shall be used to pay the outstanding tax on a priority basis.
(4) If the enterprise declares bankruptcy in accordance with the law before the shareholder transfers the part of the equity, and the shareholder does not obtain income after disposing of the relevant rights and interests or the income is less than the initial investment amount, the in-charge tax authority may not pursue the individual income tax that has not been paid.
(5) The term "small and medium-sized high-tech enterprises" mentioned in this notice refers to enterprises registered in China for audit and collection, which have been recognized as high-tech enterprises, and whose annual sales and total assets do not exceed 200 million yuan, and the number of employees does not exceed 500.
With regard to the filing and submission of materials for the filing of tax payment in installments for the conversion of share capital, the enterprise shall submit to the competent tax authorities the certificate of recognition of high-tech enterprises, the resolution of the general meeting of shareholders or the board of directors, the Filing Form for Installment Payment of Individual Income Tax (Conversion of Share Capital), the financial statements of the enterprise in the previous year and the month of the conversion of share capital, and the explanation of the relevant circumstances of the conversion of share capital, etc., and the copies and other relevant materials shall be submitted to the tax authorities for retention.
Taxpayers who are not listed and are not listed on the National Equities Exchange and Quotations (NEEQ) may pay individual income tax in installments if they transfer their share capital to individual shareholders with undistributed profits, surplus reserves and capital reserves, and comply with the relevant provisions of the Cai Shui [2015] No. 116 document; Non-listed and other enterprises not listed on the National Equities Exchange and Quotations (NEEQ) shall withhold and pay individual income tax in a timely manner. If a listed small and medium-sized high-tech enterprise or a small and medium-sized high-tech enterprise listed on the National Equities Exchange and Quotations transfers its share capital to individual shareholders, the individual income tax payable by the shareholders shall continue to be implemented in accordance with the current differentiated individual income tax policy on dividends and dividends, and the installment tax policy stipulated in this notice shall not apply.
2. According to the notice of the Ministry of Finance and the State Administration of Taxation on improving the income tax policies related to equity incentives and technology investment (CS [2016] No. 101):
(1) Implement a deferred tax policy for eligible non-listed company stock options, equity options, restricted stocks and equity awards
If a non-listed company grants stock options, equity options, restricted stocks and equity awards to its employees and meets the prescribed conditions, it may implement a tax deferral policy after filing with the competent tax authorities, that is, employees can temporarily withhold tax when they obtain equity incentives and defer tax payment until the transfer of such equity; In the case of equity transfer, the "income from property transfer" item shall be applied according to the difference between the equity transfer income after deducting the cost of equity acquisition and reasonable taxes and fees, and the individual income tax shall be calculated and paid at a rate of 20%. In the case of equity transfer, the acquisition cost of stock (right) options is determined according to the exercise price, the acquisition cost of restricted shares is determined according to the actual amount of capital contribution, and the acquisition cost of equity awards is zero.
(2) For stock options, restricted stocks and equity awards granted to individuals by listed companies, individuals may pay individual income tax within a period of no more than 12 months from the date of exercise of stock options, lifting of the ban on restricted shares or obtaining equity awards after filing with the competent tax authorities.
3. According to the Announcement on Individual Income Tax Policies Related to Equity Incentives of Listed Companies (Announcement No. 2 of 2024 of the Ministry of Finance and the State Administration of Taxation):
For stock options, restricted stocks and equity awards granted to individuals by domestic listed companies, individuals may pay individual income tax within a period of not more than 36 months from the date of exercise of stock options, release of restricted shares or acquisition of equity awards (hereinafter referred to as "exercise") upon filing with the competent tax authorities. If a taxpayer resigns during this period, he or she shall pay all taxes before leaving the company.
4. According to the Notice of the Ministry of Finance and the State Administration of Taxation on Issues Concerning the Convergence of Relevant Preferential Policies after the Revision of the Individual Income Tax Law (CS [2018] No. 164), the Announcement of the Ministry of Finance and the State Administration of Taxation on Extending the Implementation of Preferential Individual Income Tax Policies such as Annual One-time Bonuses (Announcement No. 42 of 2021 of the Ministry of Finance and the State Administration of Taxation) and the Announcement of the Ministry of Finance and the State Administration of Taxation on Extending the Implementation of Individual Income Tax Policies Related to Equity Incentives of Listed Companies (Ministry of Finance Announcement No. 25 [2023] of the State Administration of Taxation) stipulates:
(1) Resident individuals who obtain equity incentives such as stock options, stock appreciation rights, restricted stocks, and equity awards (hereinafter referred to as equity incentives) are in accordance with the Notice of the Ministry of Finance and the State Administration of Taxation on Issues Concerning the Levy of Individual Income Tax on Income from Individual Stock Options (CS [2005] No. 35), the Notice of the Ministry of Finance and the State Administration of Taxation on Issues Concerning the Levy of Individual Income Tax on Income from Stock Appreciation Rights and Income from Restricted Stocks (CS [2009] No. 5), and the Ministry of Finance Article 4 of the Notice of the State Administration of Taxation on Promoting the Relevant Tax Pilot Policies of the National Independent Innovation Demonstration Zone to the Nationwide Implementation (CS [2015] No. 116) and Article 4 (1) of the Notice of the Ministry of Finance and the State Administration of Taxation on Improving the Income Tax Policies Related to Equity Incentives and Technology Shareholding (CS [2016] No. 101) shall not be included in the comprehensive income of the current year before December 31, 2021, and the comprehensive income tax rate table shall be applied separately for the full amount to calculate the tax. The calculation formula is: tax payable = equity incentive income × applicable tax rate - quick deduction. (2) If a resident individual obtains more than two (including two) equity incentives in a tax year, the tax shall be calculated and paid in accordance with the provisions of Article 2 (1) of this Notice.
If an individual obtains shares (rights) from an employed enterprise at a price lower than the fair market price, if it does not meet the conditions for deferred tax payment, it shall, at the time of obtaining the shares (rights), calculate and pay individual income tax on the difference between the actual capital contribution and the fair market price in accordance with the item of "income from wages and salaries" and with reference to the relevant provisions of the Notice of the Ministry of Finance and the State Administration of Taxation on Issues Concerning the Levy of Individual Income Tax on Income from Individual Stock Options (CS [2005] No. 35).
Case: Zhang exercised 30,000 shares of stock options granted by Company A two years ago, with an exercise price of 8 yuan per share, and the closing price of the stock on the exercise day was 15 yuan.
Analysis: The taxable income of stock options = (15-8) * 30,000 = 210,000, the applicable tax rate is 20%, the quick deduction is 16,920 yuan, and the individual income tax payable = 210,000 * 20% - 16,920 = 25,080 yuan.
Continuing from the previous question, Company A granted Zhang 10,000 shares of the company's restricted shares, and Zhang paid 50,000 yuan. The closing price of the stock registration date is 6 yuan per share, and according to the plan, all shares will be lifted in August 2022, and the closing price on the day will be 8 yuan per share.
The taxable income of individual income tax on Zhang's stock is lifted = (6 + 8) ÷ 2×10000-50000 = 20000 yuan, and the individual income tax payable = (stock option income 210000 + restricted stocks 20000.00) ×20%-16920--25080 = 4000 yuan.
Case: Zhang obtained 100,000 shares of Company A, with a closing price of 15 yuan per share.
Analysis: The taxable income of equity awards = 15 * 100000 = 1500000, the applicable tax rate is 20%, the quick deduction is 16,920 yuan, and the individual income tax payable = 1,500,000 * 45% - 181,920 = 493,080 yuan.
Author: Finance and Taxation Source: Finance and Accounting Cabinet