Clarification by the State Taxation Administration on filing of equity incentives to tax authorities
There continues to be an increased focus on ‘streamlining administration, delegating powers, improving regulation and optimising services’ within China.
To further implement the reform programme nationally, the State Taxation Administration announced the Notice on Several Measures for Deepening the Reform of ‘Streamlining Administration, Delegating Powers, Improving Regulation and Optimising Services’ in the Taxation Field to Cultivate and Stimulate the Vitality of Market Players. This notice introduced 15 new measures in three aspects on how to further deepen the reform in the field of taxation. In particular, it stipulates the administration of individual income tax on equity incentives as follows:
The administration of individual income tax on equity incentives shall be strengthened and the relevant policies on individual income tax shall be strictly implemented. An enterprise that implements equity (stock, same hereinafter) incentives shall submit a “Report on Equity Incentives” to the tax authorities in charge within 15 days of the month following the decision on implementation of equity incentives. They will submit relevant materials to the tax authorities in charge pursuant to the prevailing regulations such as the Notice on Issues relating to Individual Income Tax on Income from Shares and Options of Individuals and the Notice on Improvement to Income Tax Policies Relating to Equity Incentives and Provision of Technology in Exchange for Shareholding. Where an equity incentive plan has been implemented but not completed, a “Report on Equity Incentives” and the relevant materials shall be submitted to the tax authorities in charge retrospectively by the end of 2021. Where a domestic enterprise implements equity incentives for its employees using the equity of an overseas enterprise, the enterprise shall withhold individual income tax on the income derived based on that for wages and salaries and comply with the aforesaid provisions.