2009-10-27 16:11:30State Administration of Taxation: Individual Income Tax on Equity

On August 24, 2009, the State Administration of Taxation issued “Notice of Taxation on Levying Individual Income Tax on Equity Incentives” (hereinafter referred to as “the Notice”), expressly providing the measures of levying individual income tax on incomes from equity incentives.

As stipulated by “Laws of Individual Income Tax” and other relative laws and regulation, individuals’ incomes from stock appreciation right and restricted stocks as employees of listed companies, shall be withheld of individual income tax according to taxation regulations on wages, salaries and stock options.
 

The Notice defines the calculation method of the taxable income amount from stock incentives. For stock appreciation right, the taxable income = (the market price on exercise date – the market price on mandate date) × the number of stocks. And for restricted stocks, the taxable income = (the stock price on the date of entry + the stock price on desterilization date) ÷2×the number of desterilized stocks – the paid amount for the stocks × (the number of desterilized stocks ÷ the total number of restricted stocks of the tax payer).The taxation liability arises when the listed company cashes such stock appreciation rights or the desterilization date of restricted stocks.