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Answer Press Questions on Personal Income Tax

1. Why should the differentiated policy for personal income tax on dividends from listed companies be adjusted?

A: China has adopted differentiated policy for personal income tax on dividends distributed by listed companies since January 1, 2013. Differentiated treatment has been offered based on the shareholding period. Specifically, if the shares have been held for less than one month, more than one month but less than one year, and more than one year,100%, 50% and 25% of dividends will be included in taxable income respectively,which then are taxed at a rate of 20% as personal income tax. In other words,the actual tax rates are 20%, 10% and 5% respectively. This differentiated policy has been implemented for the purposes of guiding tax policies,encouraging long-term investments and promoting the long-term stable and healthy development of China's capital market.

Approved by the State Council, we made proper adjustments to the differentiated policy on September 8, providing more preference to investors holding shares for more than one year, i.e., personal income tax on dividends an investor obtains for shares he/she has been holding for more than one year will be exempted temporarily. Meanwhile, dividends for shares that have been held for less than one month or more than one month but less than one year will be taxed at rates of 20% and 10% respectively, same asthe existing policy. These adjustments will be favorable for further encouraging long-term investments and promoting the healthy development of China's capital market.


2. Is the adjusted differentiated policy applicable to dividends distributed by companies listed on the NEEQ?

A: Based on the relevant documents of the State Council, the Ministry of Finance, the State Administration of Taxation and China Securities Regulatory Commission released on 2014 the Circular on the Implementation of the Differentiated Policy for Personal Income Tax on Dividends from Companies Listed on NEEQ (Cai Shui No. 48 [2014]). This Circular specifies that the differentiated policy for personal income tax on dividends from listed companies shall be applicable to dividends from companies listed onthe NEEQ, which will be taxed at 20%, 10% and 5% respectively if the shares have been held for less than one month, more than one month but less than one year, and more than one year.

But the Circular of Ministry of Finance,State Administration of Taxation and China Securities Regulatory Commission on Differentiated Policy for Personal Income Tax on Dividends from Listed Companies (Cai Shui No. 101 [2015]) released this time specifies that the differentiated policy for personal income tax on dividends from companies listed on the NEEQ shall be implemented in accordance with this Circular, that is, the policy for personal income tax on dividends from companies listed onthe NEEQ will be adjusted in sync with the differentiated policy for personal income tax on dividends from listed companies, and if the shares of a company listed on the NEEQ have been held by an individual for more than one year, tax on the dividends will be exempted temporarily while if the shares have been held for less than one month or more than one month but less than one year,dividends will still be taxed at 20% and 10% respectively.


3. How will the personal income tax ondividends of an individual investor be calculated? How will a listed company withhold such a tax?

A: According to the personal income tax law and related regulations, the amount of personal income tax payable should be taxable income * applicable tax rate. The taxable income of dividend income isthe dividend an investor obtains. For example, an investor gets a dividend of RMB 100, and if the dividend is fully included in the taxable income, then the taxable income is RMB 100; if 50% of the dividend is included in the taxable income,then the taxable income is RMB 50. Multiply the taxable incomesby 20%,the statutory tax rate for dividends, and you will get RMB 20 and RMB 10 respectively, which are the amounts of the personal income tax payable.

Listed companies are statutory with holding agents of personal income tax on dividends. If the shares have been held for more than one year by an individual by the time a listed company distributes dividends, the personal income tax will be exempted temporarily as stipulated by the policy. If the shares have been held by an individual for less than oneyear (inclusive), listed companies will temporarily not withhold personal income tax when distributing dividends; when the individual transfers his/her shares, a securities depository and clearing company will calculate the taxable income based on the shareholding period, which will be withheld from his/her personal account by a shareholding trusteeship like securities company and transferred to the securities depository and clearing company, and the latteris required to transfer the money to the listed company within 5 working days in the next month, while the listed company should file a tax return to the competent tax authority in the statutory filing period in the month when it receives the tax.


4. How to count the shareholding period?

A: According to the Circular of the Ministry of Finance, the State Administration of Taxation and China Securities Regulatory Commission on Implementing Differentiated Policy for Personal Income Tax on Dividends from Listed Companies (Cai Shui No. 85 [2012]), shareholding period refers to the time from an individual obtaining publicly issued or transferred shares of a listed company to the day right ahead of the deliverydate. When an individual transfers the shares, the shareholding period will becounted using the "first in first out" approach, that is, the shares obtained first in the securities account will be transferred first. The shareholding period is based on a natural year (month). If the shares have been held for one year, it means that the shares have been held continuously from MM/DD of the previous year to the day right ahead of the same MM/DD this year.If the shares have been held for one month, it means that the shares have been held continuously from a day in the previous month to the day right ahead ofthe same day this month.


5. What should relevant departments do to support this policy?

A: This policy involves a wide range of areas and concerns the vital interests of enormous individual investors.Departments concerned should cooperate closely with each other, increase policy promotion and coaching, optimize tax services and provide technical guarantee.Listed companies, securities depository and clearing companies and shareholding trusteeships like securities companies should provide relevant technical and staff training and cooperate with tax authorities to collect and administer personal income tax on dividends, so as to ensure the policy is smoothly implemented.

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