China: Tax incentives for employee equity awards, certain capital contributions

China: Tax incentives for employee equity awards

Guidance addresses the preferential individual income tax treatment of certain employee equity incentive awards and capital contributions to PRC-resident enterprises through technology investments.

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Caishui [2016] No. 101 (Circular 101) (22 September 2016) was jointly issued by the Ministry of Finance and the State Administration of Taxation, and sets out the criteria for eligible taxpayers to benefit from this favourable tax treatment. Circular 101 is supplemented by SAT Announcement 62 that provides administrative guidelines and detailed implementation rules. The new rules were effective 1 September 2016. 

Together, these guidance items reflect governmental support for national mass entrepreneurship and innovation so as to promote economic structural transformation. The preferential tax treatment applies solely to “unlisted” domestic resident enterprises and, as such, will be of interest to private companies and pre-Shanghai and Shenzhen stock exchange IPO companies seeking to use equity awards.

Following the release of Circular 101 and Announcement 62, various local tax authorities provided clarification with respect to some of the practical implications of the guidance.

 

Read a November 2016 report prepared by the KPMG member firm in China: Tax incentive policy on equity based compensation

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