Announcement of the State Administration of Taxation on Issues Concerning the Collection and Administration of Tax on Income from Stock Incentives and Technology Appraised as Capital Stock

　　Announcement of the State Administration of Taxation [2016] No.62

　　September 28, 2016

　　In order to implement the Circular of the Ministry of Finance and the State Administration of Taxation on Improving the Income Tax Policies for Stock Incentives and Technology Appraised as Capital Stock (Cai Shui [2016] No.101) (the "Circular"), some issues concerning the collection and administration of tax on income from stock incentives and technology appraised as capital stock are hereby announced as follows:

　　I. Issues concerning the collection and administration of individual income tax
　　(I) For qualified stock incentives offered by a non-listed company, the average number of on-the-job employees of the company in the last six months shall be determined based on the average number of employees with "wage and salary income" on the payroll in the last six months from the exercise date of stock options, the elapse of date of restricted stock, or the grant date of stock awards, as indicated on the declaration form for all taxpayers paying full tax.
　　(II) Where a non-listed company can no longer satisfy the requirements set out in Items 4 to 6 in Paragraph 2 of Article 1 of the Circular due to changes of the company's conditions in the deferral period, individual income tax shall be calculated and paid pursuant to Paragraph 1 of Article 4 of the Circular within the first 15 days of the following month from the change date.
　　(III) The wage and salary income acquired by an employee in the form of stock (rights) within a calendar month shall be calculated once. Qualified stock incentives subject to the policy of tax deferral shall be separately calculated from stock incentives not subject to tax deferral.
　　The wage and salary income which is acquired by an employee in the form of stock (rights) for several times within a tax year and is not subject to tax deferral shall be subject to Article 7 of the Circular of the State Administration of Taxation on Supplemental Issues Concerning the Payment of Individual Income Tax on Income from Stock Options Acquired by Individuals (Guo Shui Han [2006] No.902).
　　(IV) The fair market value ("FMV") mentioned in the Circular shall be determined as follows:
　　1. The FMV of a listed company's stock shall be determined according to the closing price of the stock on the date of acquisition. In the event that the stock is acquired on a non-trading day, the FMV shall be determined according to the closing price of the stock on the last trading day.
　　2. The FMV of a non-listed company's stock (rights) shall be determined by employing the net worth and expenditures method, method of analogy or other reasonable methods in sequence. If the net worth and expenditures method is used, the FMV shall be determined according to the net asset of the acquired stock (rights) at the end of the previous year.
　　(V) The record-filing of companies shall be subject to the following provisions:
　　1. Where qualified stock incentives are offered by a non-listed company and individual income tax is paid on a deferred basis, the non-listed company shall, within the first 15 days of the following month from the exercise date of stock options, the elapse date of restricted stock, or the grant date of stock awards, submit to the competent tax authority the Record-filing Form for Deferred Payment of Individual Income Tax on Income from Stock Incentives of Non-listed Companies (Appendix I), the stock incentive plan, the resolution of board of directors or shareholders meeting, and information on the managerial or technical positions of the incentive recipients, as well as reports on the main business revenues of the company that offers the stock incentives and the target company of the stock awards.
　　2. Where stock incentives are offered by a listed company and individual income tax is paid within 12 months, the listed company shall, within the first 15 days of the following month from the exercise date of stock options, the elapse date of restricted stock, or the grant date of stock awards, submit to the competent tax authority the Record-filing Form for Deferred Payment of Individual Income Tax on Income from Stock Incentives of Listed Companies (Appendix II). The listed company shall also submit the stock incentive plan and the resolution of board of directors or shareholders meeting when applying for initial record-filing for stock incentives.
　　3. Where investment with technological achievement in a domestic company is made by an individual and individual income tax is paid on a deferred basis, the invested company shall, within the first 15 days of the following month from the date of acquisition of the technological achievement and delivery of stock rights, submit to the competent tax authority the Record-filing Form for Deferred Payment of Individual Income Tax on Income from Investment with Technological Achievement (Appendix III), credential or certificate of technological achievement, technology investment agreement, and technology achievement appraisal report, etc.
　　(VI) Where stock (rights) are acquired as a result of stock incentives from non-listed companies or investment with technological achievement by an individual, the withholders shall, within 30 days from the end of each tax year, submit to the competent tax authority the Annual Report on Deferred Payment of Individual Income Tax (Appendix IV) during the deferral period.
　　(VII) When declaring tax for transfer of stock (rights) subject to tax deferral, the withholders and individuals shall submit to the competent tax authority the supporting documents on the transfer price, original value of the stock (rights) subject to tax deferral, and reasonable taxes and fees, including transfer agreements, appraisal reports and relevant bills and documents. If relatively lower taxation basis is used as a result of incomplete documents or insufficient proofs to fully prove the relevant conditions, without justifiable reasons, the competent tax authority may determine the payable tax on a deemed basis pursuant to the relevant provisions of the tax collection and administration law.

　　II. Issues concerning the collection and administration of corporate income tax
　　(I) Where the tax deferral policy under the Circular is adopted, the investment shall be made with proprietary technological achievement by resident enterprises which are subject to taxation based on audited accounting books.
　　(II) Enterprises implementing the tax deferral policy shall fill in the Record-filing Form for Deferred Payment of Corporate Income Tax on Income from Investment with Technological Achievement (Appendix V) when making a pre-payment declaration for the first time upon completion of investment.
　　(III) Where an enterprise accepts investment with technological achievement and the estimated value of the technological achievement is obviously unreasonable, the competent tax authority shall have the right to make an adjustment.

　　III. Implementation time
　　This Announcement shall come into force on September 1, 2016. The stock incentive items without paying taxes within the Zhongguancun National Innovation Demonstration Zone from January 1 to August 31, 2016 shall be subject to the Circular and tax matters may be handled in accordance with the provisions of this Announcement. Item 1 of Article 2 of the Announcement of the State Administration of Taxation on Canceling the Administrative Approval and Implementing Follow-up Administration for Three Individual Income Tax Items (Announcement of the State Administration of Taxation [2016] No.5) shall be repealed simultaneously.

　　The Announcement is hereby given.