(Promulgated by the State Administration of Taxation on January 20, 1998)
State and Local Administrations of Taxation of Provinces, Autonomous Region, Municipalities Directly under the Central Government and Municipalities Separately Listed in the National Economic Plan:
In accordance which the relevant laws and provisions of the corporations and as a means of attracting and stabilizing experienced employees, some corporations and enterprises within the Chinese territory grant the stock subscription warrant to employees (internal employees), and make promises that employees may, after they have worked for a certain period of time or meeting the other qualifications, purchase the stocks of the corporation thereof according to the contracted prices (generally below the issuing prices of stocks for the period, to employees who have worked for a certain period of time or met other qualifications, the stock and other negotiable securities of other companies (including foreign companies) held by the enterprises thereof; or invest, according to a certain proportion, in stocks and other negotiable securities on behalf of employees. This Circular is specially formulated on the issues of levying individual income tax on the discount rebates or subsidies received by the employees from their employers by purchasing stocks and negotiable securities in the aforesaid modes:
(1) Determination of the Nature of Income
The discount rebates or subsidies received by the taxpayers in China (including individuals who have residence and who have not residence in the Chinese territory) from their employers by purchasing stocks and negotiable securities are part of the salaries, wages and incomes received due to their performance and achievements in the period of employment. Therefore, individual income tax levied on the discount rebates and subsidies (referring to the case that the prices paid by the employees in purchase of the stocks are below the issuing prices or the marketing prices) shall be computed and paid in accordance with the relevant provisions and rules for implementation of Law of Individual Income Tax of the People's Republic of China (hereinafter referred to as Law of Tax).
The income gained from the transference of the stocks and negotiable securities purchased by the aforementioned individuals is income of transference of stocks and negotiable securities stipulated in the Law of Tax and the Rules for Implementation of the Law of Tax. Therefore, the relevant provisions of levying the individual income tax on the transference of stocks and negotiable securities shall be applicable to the income thereof.
(2) Method for Computation of Tax
Where it is difficult to compute and add the discount rebates or subsidies received by the aforesaid individuals from their employers by purchasing stocks and negotiable securities into the monthly salary, wages and income due to the relatively high amount, the party concerned may, after submitting an application to the local tax authorities and gaining the approval therefore, add the monthly average of the amount into the salary, wages and incomes within a period not exceeding 6 months counting from the very month of purchasing stocks and negotiable securities.
(3) On Submitting Documents When the taxpayers or the withholding agents pay or withhold the individual income tax of the aforesaid salaries and wages, the taxpayers or the withholding agents shall submit the varieties, numbers, purchasing prices, marketing prices (including the international market prices), relevant documents and process of computing the amount of tax payable to the local competent tax authorities.
