People's Republic of China (PRC) Ministry of Finance State Taxation Administration of The People's Republic of China
Notice on Issues Related to Paying Individual Income Tax on Stock Option Income of Senior Executives of Listed Companies
Caishui [2009] No.40
Date of writing: May 4, 2009
All provinces, autonomous regions, municipalities directly under the central government, the finance department (bureau), the local taxation bureau, the State Taxation Bureau of Tibet, Ningxia and Qinghai provinces (autonomous regions), and the Finance Bureau of Xinjiang Production and Construction Corps:
According to some local tax authorities, directors, supervisors and senior managers of listed companies (hereinafter referred to as senior managers of listed companies) have restrictions on the time limit and proportion of shares they hold, which leads to the problem that they do not have enough funds to pay taxes in time when exercising stock options. After study, we hereby notify the senior managers of listed companies of the issue of paying individual income tax on the income from stock options as follows.
1. When the executives of listed companies obtain stock options, they should calculate the taxable amount of individual income tax in accordance with the relevant provisions of the Notice of State Taxation Administration of The People's Republic of China of the Ministry of Finance on the Collection of Individual Income Tax on the Income from Individual Stock Options (Caishui [2005] No.35) and the Supplementary Notice of State Taxation Administration of The People's Republic of China on the Relevant Issues Concerning the Payment of Individual Income Tax on the Income from Individual Stock Options (Guoshuihan [2006] No.902).
2. If it is really difficult for senior executives of listed companies to pay taxes when they exercise stock options, they may, upon examination and approval by the competent tax authorities, pay individual income tax in installments within a period of no more than six months from the date of exercising stock options.
Three. Other equity incentives shall be implemented with reference to the provisions of this notice.
Four, this notice shall be implemented as of the date of issuance.
People's Republic of China (PRC) Ministry of Finance State Taxation Administration of The People's Republic of China
May 4(th), 2009
People's Republic of China (PRC) Ministry of Finance State Taxation Administration of The People's Republic of China
Notice on the issue of levying individual income tax on the income from individual stock options
Caishui [2005] No.35
The finance departments (bureaus) and local taxation bureaus of all provinces, autonomous regions, municipalities directly under the Central Government and cities under separate state planning:
In order to adapt to the salary system reform of enterprises (including domestic-funded enterprises, foreign-invested enterprises and institutions established by foreign enterprises in China) and strengthen the collection and management of personal income tax, the issue of collecting personal income tax on the income obtained by enterprise employees (including individuals with domicile and no domicile in China) participating in the enterprise stock option plan is hereby notified as follows:
First, on the tax issue of employee stock option income
Enterprises that implement the stock option plan shall pay individual income tax in accordance with the Individual Income Tax Law of People's Republic of China (PRC) and its implementing regulations.
Enterprise employee stock option (hereinafter referred to as stock option) refers to a right granted by a listed company to employees of the company and its holding enterprises in accordance with the prescribed procedures, allowing the granted employees to buy a certain number of shares of the company at a certain price in the future.
The above-mentioned "a specific price" is called "grant price" or "grant price", that is, the price at which stocks can be purchased according to the stock option plan, which is generally the market price on the grant date of the stock option or the discounted price of the price, or the price agreed according to the preset calculation method; "Grant date", also known as "execution date", refers to the process that employees choose to buy stocks according to the stock option plan; The day when employees exercise the above rights is the "exercise day", also known as the "purchase day".
Two, about the confirmation of the nature of stock option income and its specific tax provisions.
(1) When employees accept stock options granted by enterprises that implement the stock option plan, they are generally not taxed as taxable income unless otherwise stipulated.
(II) When employees exercise their rights, the difference between the actual purchase price (exercise price) of the shares they obtained from the enterprise and the fair market price on the purchase date (referring to the closing price of the shares on that day, the same below) shall be the income related to their positions and employment due to their performance and performance in the enterprise, and personal income tax shall be calculated and paid according to the applicable provisions of "income from wages and salaries".
For employees who transfer stock options before the exercise date due to special circumstances, the net income from the transfer of stock options shall be collected as wages and salaries.
The taxable income of wages and salaries during the employee's exercise date = (the stock price per share of the exercise stock-the exercise price per share paid by the employee when obtaining the stock option) * the number of shares.
(3) The difference between the employee's retransferred exercise shares and the fair market price on the purchase date is the income obtained by individuals from transferring shares and other securities in the secondary securities market, and personal income tax shall be calculated and paid according to the tax exemption provisions for the use of "property transfer income".
(4) The income obtained by employees who participate in the after-tax profit distribution of the enterprise because they own equity shall be calculated and paid according to the applicable provisions of "income from interest, dividends and bonuses".
Three. Division of domestic and foreign sources of wages and salary income
According to the relevant provisions of the Notice of State Taxation Administration of The People's Republic of China on Issues Concerning the Determination of Tax Obligation for Domestic Non-domiciled Individuals Obtaining Wages and Salaries in the Form of Securities (Guo [2000]190), if it is necessary to determine the domestic or overseas sources of wages and salaries earned by employees participating in the enterprise stock option plan, it should be calculated according to the proportion of the months during which employees obtained the above-mentioned wages and salaries.
Four. Calculation of tax payable
(1) Tax calculation of stock subscription income (exercise income). If the income obtained by employees from China for participating in the stock option plan is taxable according to the provisions of this notice, the wage income in the form of stock option in the current month can be distinguished from other wage income, and the taxable amount can be calculated separately according to the following formula:
Taxable amount = (taxable income of wages and salaries in the form of stock options/specified months * applicable tax rate-quick deduction) * specified months.
The number of months specified in the formula in the preceding paragraph refers to the number of months that employees work in China in the form of stock options. If it exceeds 12 months, it shall be calculated as 12 months; The applicable tax rate and quick deduction in the formula mentioned in the preceding paragraph shall be determined by dividing the taxable income of wages and salaries in the form of stock options by the specified number of months with reference to the attached tax rate table of the Notice of State Taxation Administration of The People's Republic of China City, People's Republic of China (PRC) on Printing and Distributing Several Issues Concerning the Collection of Individual Income Tax (Guo Shui Fa [1994] No.089).
(2) Calculation of share transfer (sales) tax. Income from the transfer of stocks and other securities by employees shall be exempted from personal income tax according to the current tax laws and policies. That is, "personal income tax will not be levied on the income obtained by transferring the shares of domestic listed companies again after exercising the rights of individuals;" Income obtained by individuals from transferring shares of overseas listed companies shall be calculated and taxed in accordance with the provisions of the tax law, and shall be taxed according to law.
(3) Tax calculation of income from participating in after-tax profit distribution. Dividends and bonus income obtained by employees who participate in after-tax profit distribution due to equity ownership shall be paid in full at the prescribed tax rate, except for those that can be exempted or reduced in accordance with relevant regulations.
Five, about the collection and management
(1) Withholding agents. Domestic enterprises that implement the stock option plan are withholding agents of individual income tax and shall fulfill their obligations to pay individual income tax in accordance with the provisions of the tax law.
(2) declare and pay taxes by yourself. If an employee obtains wages and salaries in the form of stock options from two or more places, and there is no withholding agent, the individual shall declare and pay taxes by himself within the tax declaration period stipulated in the individual income tax law.
(3) Submit relevant materials. Domestic enterprises that implement the stock option plan shall submit their stock option plan or implementation plan, stock option agreement, authorization notice and other materials to the competent tax authorities before the implementation of the stock option plan; Before employees exercise their rights, they shall submit the Notice of Exercise Adjustment of Dividend Options and other materials to the competent tax authorities.
Deduction obligors and individuals who declare and pay taxes by themselves shall submit stock options accepted or transferred by individuals and subscribed stocks (including types, quantities, exercise prices, market prices, transfer prices, etc.) when declaring or withholding taxes. Report to the competent tax authorities within the tax declaration period stipulated in the tax law.
(4) punishment. Enterprises that implement the stock option plan and self-declared employees who have obtained taxable income due to the stock option plan fail to submit the above-mentioned relevant statements and materials as required, and fail to fulfill the obligation of tax declaration or withholding, which shall be handled in accordance with the relevant provisions of the Law of People's Republic of China (PRC) on Tax Collection and Administration and its detailed rules for implementation.
Six, about the implementation time
This notice shall be implemented as of July 1 2005. In case of any inconsistency between the provisions of the Notice of State Taxation Administration of The People's Republic of China, People's Republic of China (PRC) on Individual Subscription of Stocks and Other Valuable Securities and the Notice of subsidy income on Individual Income Tax, the provisions of this notice shall prevail.
People's Republic of China (PRC) Ministry of Finance State Taxation Administration of The People's Republic of China
March 30(th), 2005
Supplementary Notice of State Taxation Administration of The People's Republic of China on Relevant Issues Concerning Paying Individual Income Tax on Income from Individual Stock Options
Guoshuihan [2006] No.902
September 30(th), 2006
Local tax bureaus of all provinces, autonomous regions, municipalities directly under the Central Government and cities under separate state planning:
Regarding the personal income tax treatment of employees' stock option income, the Notice of the Ministry of Finance of State Taxation Administration of The People's Republic of China on the Collection of Personal Income Tax on Personal Stock Option Income (Caishui [2005] No.35) has already made provisions. The supplementary notice on relevant implementation issues is as follows:
1. Employees accept stock options granted by employers (including listed companies and unlisted companies) and conduct tax treatment according to Caishui [2005] No.35 document, in which the stocks designated by stock options are listed companies (including listed companies at home and abroad).
Two. The "net income from stock option transfer" mentioned in Item (2) of Article 2 of Caishui [2005] No.35 document generally refers to the income from stock option transfer. If employees buy stock options at a discount to obtain stock options, the balance of the transfer income of stock options after deducting the actual price paid when buying stock options at a discount can be regarded as the net income of stock options transfer. ?
3. The "exercise price per share paid by employees when they obtain stock options" mentioned in the formula of Item (2) of Article 2 in Caishui [2005] No.35 document generally refers to the actual price per share paid by employees when they exercise stock options to buy stocks. If the employee obtains the stock option through discount purchase, the above exercise price may include the price actually paid by the employee when purchasing the stock option at a discount.
4. If an employee who has obtained stock options does not actually buy or sell stocks on the exercise date, but directly obtains the price difference income from the authorized enterprise according to the difference between the market price and the exercise price of the stocks designated by the stock options on the exercise date, the price difference income shall be regarded as the salary income obtained by the employees in the form of stock options, and personal income tax shall be calculated and paid according to the relevant provisions of Caishui [2005] No.35 document.
Verb (abbreviation of verb) When determining the income source of employee stock option, we should divide the number of months working in China and abroad according to the provisions of Article 3 of Caishui [2005] No.35 document. The total number of working months at home and abroad refers to the total number of months that employees must perform their work obligations before exercising their rights according to the provisions of the enterprise stock option plan. ?
6. Some stock options are agreed to be transferable at the time of authorization, and there is an open market and listing price in or outside China (hereinafter referred to as publicly traded stock options). When employees accept publicly traded stock options, unless otherwise stipulated in Item (1) of Article 2 of Caishui [2005] No.35 document, they shall be subject to tax treatment in accordance with the following provisions.
(1) If employees obtain publicly traded stock options, which belong to the property with definite value actually acquired by employees, the market price of stock options on the authorization date shall be regarded as the salary income of the month when employees are authorized, and personal income tax shall be calculated and paid according to the provisions of Item (1) of Article 4 of Caishui [2005] No.35 document. If employees buy stock options at a discount to obtain stock options, the balance of the market price of stock options on the authorization date after deducting the actual price paid when buying stock options at a discount can be regarded as the salary income of the month on the authorization date. ?
(II) After employees obtain the above publicly traded stock options, the income from the transfer of stock options belongs to the income from the transfer of property, and shall be subject to tax treatment in accordance with the provisions of Item (II) of Article 4 of Caishui [2005] No.35 document. ?
(3) When employees actually exercise the publicly traded stock options mentioned in Item (1) of this article to buy stocks, they will no longer pay personal income tax.
Seven, employees in a calendar month in the form of stock options to get a salary income. If an employee obtains wages and salaries in the form of stock options for many times in a tax year, the tax payable shall be calculated according to the formula specified in Item (1) of Article 4 of Caishui [2005] No.35 document. After this year, the taxable amount shall be calculated according to the following formula every time the income from wages and salaries in the form of stock options is obtained:
Taxable amount = (accumulated taxable income of wages and salaries in the form of stock options obtained in this tax year ÷ specified number of months × applicable tax rate-quick deduction) × specified number of months-accumulated taxable amount of wages and salaries in the form of stock options obtained in this tax year?
The cumulative taxable income of wages and salaries in the form of stock options obtained in the preceding tax year in the formula includes the taxable income of wages and salaries in the form of stock options obtained this time and in the past; The number of months specified in the formula in the preceding paragraph refers to the number of months that employees work in China in the form of stock options. If it exceeds 12 months, it shall be calculated as 12 months; The applicable tax rate and quick deduction in the formula mentioned in the preceding paragraph shall be determined by referring to the tax rate table attached to the Notice of State Taxation Administration of The People's Republic of China City, People's Republic of China (PRC) on Printing and Distributing the Provisions on the Collection of Individual Income Tax (Guo Shui Fa [1994] No.089), and the cumulative taxable income from wages and salaries in the form of stock options shall be divided by the business value of the specified number of months in this tax year; In the formula in the preceding paragraph, the accumulated tax paid for the income from wages and salaries obtained in the form of stock options in this tax year does not include the tax payable for the income from wages and salaries obtained in the form of stock options this time. ?
8. If employees receive multiple wages and salaries in the form of stock options from China for many times or at one time, and the number of months of working in China is different for each time or for all kinds of stock options, the weighted average number of months of working in China is the number of months specified in the formula in Item (1) of Article 4 of Caishui [2005] No.35 document and the formula in Article 7 of this notice, but the longest one shall not exceed 12 months.
Number of specified months = product of taxable income of wages and salaries in the form of ∑ stock options and the number of working months in China/taxable income of wages and salaries in the form of ∑ stock options.
State Administration of Taxation (SAT)
September 30(th), 2006