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Management of Individual Income Tax of Equity Transfer Income

According to the existing tax policies, the individual income tax shall be suspended for the personal stock transfer income at Shanghai Stock Exchange and Shenzhen Stock Exchange, and shall be collected for the personal transfer of listed companies‘ restricted shares.

The individual income tax at a rate of 20% shall be collected for the personal equity transfer income except for such two situations described(hereinafter referred to as ‘equity transfer income’). To handle the collection and administration work of individual income tax for equity transfer income properly, the SAT has issued the Circular on Strengthening the Management over the Collection of Individual Income Tax for Equity Transfer Income (GuoShuiHan No. 285 [2009]) and the Announcement on the Issues Concerning Appraising the Tax Basis of Individual Income Tax for Equity ransfer Income (SAT Announcement No.27 (2000)). With the concerted efforts of tax organs at all levels, the individual equity transfer has boasted a significant rise in tax management level, the individual income tax of equity transfer income has increased sharply for years, and individual income tax has played a satisfactory role in regulating the distribution of incomes.

Coupled by the constant social and economic development, the new form of equity transactions has never ceased to emerge, the transaction contents get increasingly colorful and the new tax-related appeals are constantly raised. Under this new circumstance, these two documents can hardly meet the demands from administration of tax collection. The tax payers and tax organs at grassroots level cherish a strong appeal for the improvement and upgrading of the existing regulations on individual income tax for equity transfer income. In this case, after the sufficient investigation and deliberation and the careful consideration of comments from different sources, the SAT has recently issued the Measures for the Administration of Individual Income Tax of Equity Transfer Income (for Trial Implementation) (SAT Announcement No.67 (2014) , hereinafter referred to as the Measures), which will be put into force on January 1, 2015.

As the leader from the SAT’s Income Tax Department introduced, the Measures mainly regulate the rights and duties of tax collectors and payers in the course of equity transfer, and supplements and improves the scope of equity transfer, two parties involved in equity transfer, rights and duties of invested enterprises, confirmation of equity transfer income and original equity value, tax payment schedule, tax organs’ collection and administration, and service criteria when the main framework of the former measures remain intact, so that the related regulations become more scientific and comprehensive. The Measures can effectively resolve the tax collection problems that trouble tax payers and tax organs at grassroots level and further enhanced the certainty and operability of tax policies, so that the tax payers’ taxation risk and the tax organs’ law enforcement risk can be significantly lowered, thus providing a more favorable tax environment for the healthy development and standardized operation of individual equity investment conducts in China.

The leader also stated that the Measures specified the tax management requirements for the coordination among industrial and commercial departments, SAT’s local offices and local taxation bureaus, the creation of dynamic chain management mechanism, and coordinated management among different taxes. This will surely play a positive role in guiding tax organs at all levels to further specify management thoughts, grasp management focus and raise tax management level of equity transfer, so that individual income tax can play a regulatory role in those individual with high equity transfer income more effectively.

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