(1) Personal income tax is not required when capital reserve (premium income) is converted into share capital.
According to "Notice of State Taxation Administration of The People's Republic of China Municipality on Converting Share Capital of Joint-stock Enterprises and Distributing Bonus Shares to Exempt Individual Income Tax" (Guo Shui Fa [1997]No. 198), "The capitalization of capital reserve funds by joint-stock enterprises does not belong to the distribution of dividends and bonuses, and the amount of capitalization obtained by individuals is not regarded as personal income and personal income tax is not levied".
According to the "Reply of State Taxation Administration of The People's Republic of China on Personal Income Tax Payable by Individual Share Value-added Income in the Process of Transforming the Former Urban Credit Cooperatives into Urban Cooperative Banks" (Guo Shui Han [1998] No.289), "Notice of State Taxation Administration of The People's Republic of China on Individual Income Tax Exemption for Joint-stock Enterprises" (Guo Shui Fa [1997]1. The amount obtained by the individual from the transfer of this share capital shall not be levied as taxable income; Other capital accumulation funds that are inconsistent with this should allocate personal income, and personal income tax should be levied according to law. "
Therefore, for the capital reserve fund formed by the premium issuance income of capital (or equity), the natural person shareholders do not have to pay personal income tax when the share capital is increased, and the personal income of other capital reserve funds formed by the non-premium issuance income shall be subject to personal income tax according to law.
(2) Personal income tax should be paid for capital reserve (non-premium income), surplus reserve and undistributed profit.
According to the "Notice of State Taxation Administration of The People's Republic of China on Transferring Share Capital of Joint-stock Enterprises and Distributing Bonus Shares to Exempt Individual Income Tax" (Guo Shui Fa [1997]No. 198), "The bonus shares distributed by joint-stock enterprises with surplus reserve fund belong to the distribution of dividends and bonuses, and the amount of bonus shares obtained by individuals should be taxed as personal income."
Notice of State Taxation Administration of The People's Republic of China on Further Strengthening the Collection and Management of Personal Income Tax for High-income earners (Guo Shui Fa [2010] No.54) effectively strengthens the collection and management of major income items of high-income earners, strengthens the collection and management of interest, dividends and bonus income, and focuses on the management of withholding taxes when distributing dividends and bonuses by joint stock limited companies. Strengthen the management of enterprises' transfer of registered capital and share capital. If the registered capital and share capital are transferred from undistributed profits, surplus reserves and other capital reserves except stock premium issuance, individual income tax shall be levied according to the items of "interest, dividends and bonus income" and the current policies and regulations.
The Ministry of Finance and State Taxation Administration of The People's Republic of China promulgated the Notice on Individual Income Tax Policies for Personal Non-monetary Assets Investment (Caishui [20 15] No.4 1), which took effect on April15. According to the circular, individual income tax should be calculated and paid according to the item of "income from property transfer" for the income obtained by individuals from investing in non-monetary assets, and individuals should report and pay taxes to the competent tax authorities within 15 days of the month following the above taxable behavior. If taxpayers have difficulty in paying taxes in one lump sum, they can reasonably determine the installment payment plan and report it to the competent tax authorities for the record, and pay individual income tax in installments within no more than five calendar years (inclusive) from the date of the above taxable behavior. According to the notice, when the whole enterprise is changed into a joint stock limited company, the individual tax paid by natural person shareholders can apply for payment in installments within five calendar years.
To sum up, joint-stock enterprises should use undistributed profits, surplus reserves and other capital reserves other than stock premium issuance to increase registered capital and share capital, which should be taxed as personal income. However, according to the Notice on Personal Income Tax Policies for Personal Non-monetary Assets Investment (Cai Shui [2015] No.41), if taxpayers have difficulty in paying taxes at one time, they can reasonably determine the installment plan and pay it.