China: Treatment of shares, options granted employees of unlisted companies

China: Treatment of shares

A local tax bureau issued opinions concerning the individual income tax treatment—including the taxation point, share valuation method, and tax calculation formula—relating to shares and options granted to employees of unlisted companies. This is the first guidance issued by tax authorities in China after prior guidance (Guo Shui Han [2007] No. 1030) became invalid in 2011.

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The opinions issued by the Hainan local tax bureau provide operational guidelines on individual income tax issues for equity incentive income derived from unlisted companies. [Hainan is a province located along the coast of southern China, adjacent to Guangdong.]

KPMG observation

Tax professionals in China believe that this type of guidance will likely encourage unlisted companies (including companies preparing for a public listing) to implement employee equity incentive plans.


Read a January 2016 report prepared by the KPMG member firm in China: Hainan Local Tax Bureau Released the Individual Income Tax (IIT) Policy on Equity Incentive Income Derived from Unlisted Companies, Filling Local Operational Guideline Gaps 

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