This article reviews the individual income tax treatment of natural person shareholders (hereinafter referred to as individuals) who invest in the equity or shares of enterprises or organizations established in China (hereinafter collectively referred to as "invested enterprises, excluding sole proprietorship enterprises and partnerships"). Individuals transferring shares of listed companies obtained from the public offering and transfer markets of listed companies on the Shanghai Stock Exchange and Shenzhen Stock Exchange, transferring restricted shares, and other equity transfers with special provisions are not within the scope of this review.
1. Circumstances of equity transfer
Equity transfer refers to the act of transferring equity by an individual to another individual or legal person, including the following circumstances:
1. Sale of equity;
2. The company buys back shares;
3. When the issuer makes an initial public offering of new shares, the shareholders of the invested enterprise will sell their shares to investors in the form of a public offering;
4. The equity is forcibly transferred by the judicial or administrative authorities;
5. Investing in equity or other non-monetary transactions;
6. Settle debts with equity;
7. Other equity transfers.
2. Taxpayers and withholding agents
The individual income tax on the income from the transfer of individual equity shall be the taxpayer of the equity transferor, and the transferee shall be the withholding agent.
3. Place of taxation
The individual income tax on the income from the transfer of individual equity shall be the competent tax authority of the local taxation authority where the invested enterprise is located.
Fourth, the declaration period
Under any of the following circumstances, the withholding agent or taxpayer shall declare and pay tax to the in-charge tax authorities within 15 days of the following month in accordance with the law:
(1) The transferee has paid or partially paid the equity transfer price;
(2) The equity transfer agreement has been signed and taken effect;
(3) The transferee has actually performed its duties as a shareholder or enjoyed the rights and interests of a shareholder;
(4) Where a judgment, registration, or announcement by a relevant state department takes effect;
(5) The acts in items 4 to 7 of Article 3 of the "Announcement No. 67 of the State Administration of Taxation [2014]) have been completed;
(6) Other circumstances identified by the tax authorities as having evidence that the equity has been transferred.
V. Tax items and tax rates
According to Article 6, Paragraph 8, the income from the transfer of property refers to the income obtained by an individual from the transfer of securities, equity, property share in a partnership, immovable property, machinery and equipment, vehicles and vessels, and other property.
According to the regulations, the balance of the equity transfer income after deducting the original value of the equity and reasonable expenses shall be the taxable income, and the individual income tax shall be paid according to the "income from property transfer".
According to Article 3 of the "Regulations", the proportional tax rate on income from property transfer is 20%.
6. Taxable income
For the transfer of equity by an individual, the balance of the equity transfer income after deducting the original value of the equity and reasonable expenses shall be the taxable income, and the individual income tax shall be declared and paid according to the "income from property transfer".
(1) Income from equity transfer
1. Income from equity transfer refers to cash, in-kind, negotiable securities and other forms of economic benefits obtained by the transferor as a result of equity transfer.
2. All kinds of payments related to the equity transfer obtained by the transferor, including liquidated damages, compensation and other items, assets, rights and interests, etc., shall be incorporated into the income from equity transfer.
3. The subsequent income obtained by the taxpayer after satisfying the agreed conditions in accordance with the contract shall be regarded as equity transfer income.
4. The income from equity transfer shall be determined in accordance with the principle of arm's length transaction.
5. Under any of the following circumstances, the in-charge taxation authorities may verify the income from equity transfer:
(1) The declared income from equity transfer is obviously low and there is no justifiable reason;
(2) Failing to file tax returns within the prescribed time limit, and failing to file within the time limit after being ordered by the tax authorities to file within the time limit;
(3) The transferor is unable to provide or refuses to provide relevant information on the income from equity transfer;
(4) Other circumstances in which the income from equity transfer should be verified.
6. If one of the following circumstances is met, it shall be deemed that the income from equity transfer is obviously low:
(1) The declared income from equity transfer is lower than the share of net assets corresponding to equity. Among them, if the invested enterprise owns land use rights, houses, unsold real estate of real estate enterprises, intellectual property rights, prospecting rights, mining rights, equity and other assets, the declared equity transfer income is less than the fair value share of the net assets corresponding to the equity;
(2) The declared income from equity transfer is lower than the initial investment cost or lower than the price paid for the acquisition of the equity and related taxes;
(3) The declared income from equity transfer is lower than the income from equity transfer of the same shareholder or other shareholders of the same enterprise under the same or similar conditions;
(4) The declared equity transfer income is lower than the equity transfer income of enterprises in the same or similar industries under the same or similar conditions;
(5) unreasonable transfer of equity or shares without compensation;
(6) Other circumstances as determined by the in-charge tax authorities.
7. If the income from equity transfer is obviously low if one of the following conditions is met, it shall be deemed to have a legitimate reason:
(1) Able to issue valid documents to prove that the production and operation of the invested enterprise have been significantly affected due to the adjustment of national policies, resulting in the transfer of equity at a low price;
(2) Inherit or transfer equity to a spouse, parents, children, grandparents, grandchildren, siblings, and a caregiver or supporter who bears the obligation of direct support or support to the transferor;
(3) The internal transfer of equity held by the employees of the enterprise that cannot be transferred to the outside world as stipulated by relevant laws, government documents or articles of association, and there are relevant materials that fully prove that the transfer price is reasonable and true;
(4) Other reasonable circumstances in which both parties to the equity transfer can provide valid evidence to prove their reasonableness.
8. The in-charge taxation authorities shall in turn verify the income from equity transfer in accordance with the following methods:
(1) Net assets verification method
The income from equity transfer shall be assessed according to the net assets per share or the share of net assets corresponding to the equity.
If the proportion of land use rights, houses, unsold real estate, intellectual property rights, prospecting rights, mining rights, equity and other assets of the invested enterprise in the total assets of the enterprise exceeds 20%, the in-charge taxation authorities may refer to the asset appraisal report issued by an intermediary agency with legal qualifications provided by the taxpayer to verify the income from equity transfer.
If the equity transfer occurs again within 6 months and there is no significant change in the net assets of the invested enterprise, the in-charge tax authorities may refer to the asset appraisal report of the invested enterprise at the time of the previous equity transfer to verify the income from the equity transfer.
(2) Analogy
(1) Verify with reference to the income from equity transfer of the same enterprise, the same shareholder or other shareholders under the same or similar conditions;
(2) Refer to the equity transfer income of enterprises in the same industry under the same or similar conditions.
(3) Other reasonable methods
If it is difficult for the in-charge taxation authorities to adopt the above methods to verify the income from equity transfer, they may adopt other reasonable methods to verify the income.
(2) The original value of the equity transferred by the individual shall be confirmed in accordance with the following methods
1. For equity acquired by way of cash contribution, the original value of equity shall be determined according to the sum of the actual price paid and the reasonable taxes directly related to the acquisition of equity;
2. For equity acquired by way of non-monetary asset capital contribution, the original value of equity shall be determined according to the sum of the reasonable taxes and fees directly related to the acquisition of equity at the time of investment and equity acquisition recognized or approved by the tax authorities;
3. If the equity is acquired by way of free transfer, and the circumstances listed in Paragraph 2 of Article 13 (inheritance or transfer of equity to a spouse, parents, children, grandparents, grandchildren, brothers and sisters, and the guardian or supporter who bears the obligation of direct support or support to the transferor) by way of free transfer, the original value of the equity shall be confirmed according to the sum of the reasonable taxes and fees incurred in the acquisition of the equity and the original value of the equity of the original holder;
4. If the invested enterprise converts capital reserve, surplus reserve and undistributed profits into share capital, and the individual shareholder has paid individual income tax in accordance with the law, the original equity value of the newly converted share capital shall be confirmed by the sum of the amount of the increase and relevant taxes and fees;
5. In addition to the above circumstances, the in-charge tax authorities shall reasonably confirm the original value of the equity in accordance with the principle of avoiding double collection of individual income tax.
If the equity transferor has been verified by the in-charge tax authorities and the individual income tax is levied in accordance with the law, the original value of the equity of the equity transferee shall be recognized by the sum of the reasonable taxes and fees incurred when acquiring the equity and the equity transfer income of the equity transferor approved by the in-charge tax authorities.
If an individual fails to provide a complete and accurate certificate of the original value of the equity and cannot correctly calculate the original value of the equity, the in-charge tax authorities shall verify the original value of the equity.
If an individual acquires the equity of the same invested enterprise multiple times, the "weighted average method" shall be used to determine the original value of the equity when transferring part of the equity.
7. Collection and management (source: Guizhou Tax)
(1) Matter report
The withholding agent shall report the relevant circumstances of the equity transfer to the in-charge tax authority within 5 working days after the signing of the relevant agreement on the equity transfer.
1. Advance reporting by the withholding agent
The withholding agent shall report the relevant circumstances of the equity transfer to the in-charge tax authorities within 5 working days after the signing of the relevant agreement on the equity transfer.
How to inquire about the information of the in-charge tax authorities: The invested enterprise can log in to the electronic tax bureau (homepage - My information - taxpayer information - registration information) to view the information of the in-charge tax authority.
2. Report of the invested enterprise
The investee enterprise shall, within 5 working days after the conclusion of the board of directors or shareholders' meeting, submit to the in-charge tax authority the resolutions of the board of directors or shareholders' meeting, meeting minutes and other materials related to the change in equity.
In the event of a change in the equity held by an individual shareholder or a shareholder, the invested enterprise shall submit the Basic Information Form of Individual Income Tax (Form A) containing the information on the change of shareholders and the explanation of the change of shareholders to the in-charge tax authorities within 15 days of the following month.
The "Individual Income Tax Basic Information Form (Form A)" containing shareholder change information can be collected through the Natural Person Electronic Tax Bureau (Withholding End) - [Personnel Information Collection] module, or you can bring the information to the tax service hall for submission.
(2) Tax returns
1. Handling path
(1) The withholding agent shall file the declaration
(1) If the withholding agent and the invested enterprise are under the jurisdiction of the same tax authority, it can be handled through the electronic tax bureau (withholding end) of the natural person of the enterprise. The specific path: log in to the withholding client of the natural person tax management system - select [Classified Income Declaration] on the left menu bar - select [Property Transfer Income] - enter the [Property Transfer Income] declaration interface and click [Add] to handle the declaration.
Or bring the relevant materials to the tax authorities to handle the declaration of equity transfer income.
(2) If the withholding agent is a natural person or is not under the jurisdiction of the same tax authority as the invested enterprise, it can be handled through the electronic tax bureau of the natural person of the invested enterprise (withholding end), and when filling in the attached table "Individual Shareholder Equity Transfer Information Form", the type of individual income tax declaration for equity transfer should be selected as "declaration of the invested enterprise".
Or bring the relevant materials to the tax authorities to handle the declaration of equity transfer income.
(3) If the taxpayer refuses to withhold, the withholding agent shall report to the tax authorities in a timely manner.
(2) Taxpayers should file their own declarations
(1) In the absence of a withholding agent or the withholding agent has not withheld, the taxpayer may bring the relevant materials to the competent tax authority of the invested enterprise to handle the declaration of income from equity transfer, or through the electronic tax bureau of the natural person of the invested enterprise (withholding end). When filling in the attached form "Information Form for Equity Transfer of Individual Shareholders", pay attention to the type of individual income tax declaration for equity transfer and click "Declaration of Invested Enterprises". Other paths will be added in the future, which will be communicated in due course.
(2) When taxpayers self-declare, they need to accurately select the circumstances of self-declaration.
2. Submit information
Taxpayers and withholding agents shall also submit the following materials when filing tax (withholding) declarations for equity transfer with the in-charge tax authorities:
(1) Equity transfer contract (agreement);
(2) Proof of identity of both parties to the equity transfer;
(3) If it is necessary to conduct asset appraisal according to the regulations, it is necessary to provide the net assets or asset value appraisal report such as land and real estate issued by an intermediary agency with statutory qualifications;
(4) Proof that the tax basis is obviously low but there is a legitimate reason;
(5) Other materials required to be submitted by the in-charge tax authorities.
3. Instructions for filling in the "Individual Shareholder Equity Transfer Information Form".
(Sample)
(1) The type of individual income tax declaration for equity transfer: fill in according to the actual situation of individual income tax declaration. It is important to pay attention to the withholding declaration, and accurately distinguish whether it is the declaration of the invested enterprise or the declaration of the withholding agent, so as not to be confused.
(2) Unified social credit code of the invested enterprise: fill in according to the business license.
(3) Registered capital of the invested enterprise (investment amount): fill in the registered capital recorded in the articles of association.
(4) Equity change time: fill in the specific time of equity transfer. Fill in according to the principle of whichever comes first: 1. The time when the transferee has paid or partially paid the equity transfer price 2. The effective time of the signing of the equity transfer agreement 3. The time when the transferee has actually performed the duties of the shareholder or enjoyed the rights and interests of the shareholders 4. The effective time of the judgment, registration or announcement of the relevant state departments 5. The time when the equity is forcibly transferred by the judicial or administrative authorities 6. The time when the equity is used for foreign investment or other non-monetary transactions 7. The time when the equity is used to repay the debt 8. The time when there is other evidence that the equity has been transferred as determined by the tax authorities.
(5) The amount of net book assets of the enterprise at the time of transfer: The amount of owner's equity in the latest balance sheet before the time of equity change is filled. =（6）+（7）+（8）+（9）+（10）+（11）
(6) Paid-in capital: The amount in the latest balance sheet.
(7) Capital reserve: The amount in the latest balance sheet.
(8) Surplus reserve: The amount in the latest balance sheet.
(9) Undistributed profits: The amount in the latest balance sheet is reported.
(10) Others: fill in the owner's equity items other than paid-in capital, capital reserve, surplus reserve and undistributed profits.
(11) Fair value of net assets of an enterprise with specified assets at the time of transfer: If the net book value of the invested enterprise's unsold real estate, intellectual property rights, prospecting rights, mining rights, equity and other assets accounts for more than 20% of the total assets of the enterprise, an asset appraisal report issued by an intermediary agency with statutory qualifications shall be provided.
(12) Name of the transferor (taxpayer): fill in according to the identity document of the transferor.
(13) The transferor's ID number (tax identification number): fill in according to the transferor's ID card.
(14) Transfer contract number: fill in the number of the equity transfer contract signed by both parties to confirm that it has legal effect. If the taxpayer's transfer contract does not have a number, it is recommended to use "enterprise abbreviation + equity transfer time + two-digit serial number".
(15) Equity transfer share: The unit is "share", only the number can be filled, and the share must be greater than 0.
(16) The proportion of the transferred equity in the total equity of the enterprise (proportion, %): the proportion of the transferred equity in the registered capital of the enterprise (subscription ratio). Note that the unit is %, and the value range is 0-100.
(17) The price of the equity transfer contract (agreement): fill in according to the contract.
(18) Original value of equity: fill in the original value of equity that can be deducted according to regulations. Note: If the transferor has subscribed unpaid registered capital, and the original value of the equity is the paid-in amount of the transferred part, it should pay attention to whether the subsequent capital contribution obligation and the paid-in amount included in the transfer of equity are stipulated in the transfer contract.
(19) Relevant reasonable taxes and fees: fill in the directly related taxes and fees actually paid in the process of equity transfer that can be deducted according to law, such as stamp duty.
(20) Whether to pay tax in installments/deferred: refers to whether the equity transferred this time enjoys the preferential policy of installment tax payment stipulated in the "Cai Shui [2015] No. 41), or whether it enjoys the preferential tax deferral policy stipulated in the "Cai Shui [2016] No. 101). You can check whether the filing is based on the [Individual Income Tax Installment Payment Filing List] or [Individual Income Tax Deferred Tax Filing List] function module on the tax side of the electronic tax bureau for natural persons.
(21) Filing number: the filing number assigned by the in-charge tax authority after filling in the filing procedures for installment or deferred tax payment. The filing number can be queried through the [Individual Income Tax Installment Payment Filing List] or [Individual Income Tax Deferred Tax Filing Inventory] function module on the tax side of the electronic tax bureau for natural persons.
(22) Type of transferee (withholding agent): natural person or organization.
(23) Taxpayer identification number of the transferee: the transferee fills in the taxpayer identification number or unified social credit code for the organization, and the transferee fills in the ID number for the natural person.
(24) Name of the transferee: fill in the name of the natural person or organization of the equity transferee.
(25) Relationship with the equity transferor: immediate family members or non-immediate family members.
8. Main risk points
(1) Sign a yin-yang contract to transfer equity
Case: Deng X 1 transferred 35% of the equity of a company held by him to Deng X 2, and the Equity Transfer Agreement signed by the two parties agreed on the equity transfer price of RMB 1, and the change registration was completed accordingly. Later, the tax authorities found that: first, the effective civil judgment confirmed that the equity transfer price of the two parties was 300,000 yuan, and second, Deng Mou2 paid Deng Mou1 300,000 yuan of the equity transfer price through the related account. In the end, the inspection bureau made a "Tax Treatment Decision" to recover the unpaid tax due from Deng Mou1, and did not charge a late fee in accordance with the provisions of the State Administration of Taxation (Guo Shui Han [2004] No. 1199).
(2) 0 yuan transfer of unpaid equity
Company A has a registered capital of 1 million yuan and has 2 natural person shareholders, with Li Si accounting for 40% (unpaid) and Zhang San accounting for 60%. In January 2024, Company A had an undistributed profit of 2 million yuan and a net asset of 2.6 million yuan. Assuming that Li Si reduces his capital by 0 yuan, does he need to pay taxes?
Situation 1: If the shareholders agree to enjoy all the shareholders' rights according to the proportion of paid-in, "" Paragraph 4 of Article 210 stipulates that the after-tax profits of the company after making up the losses and withdrawing the provident fund shall be distributed by a limited liability company in accordance with the proportion of the capital contribution paid by the shareholders, unless all shareholders agree not to distribute the profits in accordance with the proportion of the capital contribution;
Situation 2: If the shareholders agree that the unpaid part of the equity can also enjoy property rights such as the right to claim profit distribution, the shareholder rights corresponding to the unpaid part of the equity shall not be 0, and the equity value shall not be 0.
Paragraph 3 of Article 8 stipulates that under any of the following circumstances, the tax authorities shall have the right to make tax adjustments in accordance with reasonable methods: (3) Individuals obtain improper tax benefits by implementing other arrangements that do not have a reasonable commercial purpose. (Announcement No. 41 [2011] of the State Administration of Taxation) stipulates that the issues related to the collection and administration of individual income tax in this announcement shall be implemented in accordance with the "Guo Shui Han [2009] No. 285), and Guo Shui Han [2009] No. 285 has been repealed by the State Administration of Taxation Announcement [2014] No. 67 since January 1, 2015. Article 12 of the Announcement No. 67 of 2014 of the State Administration of Taxation stipulates that if the declared equity transfer income is lower than the share of net assets corresponding to the equity, it shall be deemed that the equity transfer income is obviously low, and the in-charge tax authorities may verify the equity transfer income.
According to the above provisions, in the second case, if the taxpayer withdraws at a price of 0 yuan, the tax authorities can verify the income from the transfer of property and require the taxpayer to pay individual income tax in accordance with the law.
Method 1: Carry out restoration processing, assuming that Li Si's capital contribution is in place, the approved property transfer income = (260 + 40) * 40% = 1.2 million yuan, and the property transfer income = 120-40 = 800,000 yuan.
Method 2: The corresponding part of the paid-in capital has not been paid-in, and the income cannot be verified. When the undistributed profits enjoy the right of distribution regardless of whether there is actual capital contribution, the approved income from property transfer is 200 * 40% = 800,000 yuan, and the income from property transfer = 800,000 yuan.
(3) Transfer equity at parity without justifiable reasons
Just cause means:
1. Able to issue valid documents to prove that the production and operation of the invested enterprise have been significantly affected due to the adjustment of national policies, resulting in the transfer of equity at a low price;
2. Inherit or transfer equity to spouses, parents, children, grandparents, grandchildren, grandchildren, siblings and dependents who have the obligation to directly raise or support the transferor;
3. Relevant laws, government documents or articles of association of the enterprise, and there are relevant materials to fully prove that the transfer price is reasonable and true The internal transfer of equity held by the employees of the enterprise cannot be transferred to the outside world;
4. Other reasonable circumstances in which both parties to the equity transfer can provide valid evidence to prove their reasonableness.
Case: Zhang San holds 100% of the shares of Company A, and the holding cost is 10 million yuan. In February 2017, Zhang San transferred the equity parity to Li Si. In accordance with the net assets verification law, the tax authorities approved the income from equity transfer as 30 million yuan, and Li Si withheld and paid individual income tax of 4 million yuan according to the income approved by the tax authorities (without considering relevant taxes and fees). In September 2020, Li Si transferred the equity again at a transfer price of 32 million yuan, and the tax authorities considered the transfer price to be fair and reasonable. Calculate the individual income tax payable on the transfer of equity by Li Si.
According to Article 16 of the Announcement No. 67 of the State Administration of Taxation in 2014, the original value of Li Si's transfer of his equity is recognized as "the sum of the reasonable taxes and fees incurred when acquiring the equity and the equity transfer income approved by the competent tax authorities by the equity transferor", that is, 30 million yuan.
Income from equity transfer is: 3200-3000 = 200 (10,000 yuan);
The individual income tax payable is: 200×20% = 40 (10,000 yuan).
(4) Failure to withhold and pay individual income tax
Case: In August 2017, when Xiao and 7 others transferred their respective shares in the "Xi'an *** Project" to Wu, in order to achieve the purpose of not paying the tax payable, they used a false agreement signed separately to transfer the equivalent amount of the registered subscribed funds for the registration of equity change registration. At the time of the actual equity transfer, the total amount of the transfer was 269.1 million yuan. The stamp duty should be paid 134,550 yuan, and the individual income tax should be withheld and paid 46,233,090 yuan. Mr. Wu did not apply for the full withholding declaration of the individual income tax of all the above 7 people. The withholding agent Wu was fined 46,233,090 yuan for double the undeducted and uncollected taxes.
It is stipulated that the individual income tax on the income from individual equity transfer shall be the taxpayer of the equity transferor and the transferee shall be the withholding agent. The withholding agent shall report the relevant circumstances of the equity transfer to the in-charge tax authority within 5 working days after the signing of the relevant agreement on the equity transfer. The invested enterprise shall record in detail the costs related to the shareholder's holding of the equity of the enterprise, truthfully provide the tax authorities with information related to the equity transfer, and assist the tax authorities in performing their official duties in accordance with the law.
(5) Investment in non-monetary assets: failure to fulfill the obligation of installment tax
Case: In 2016, Mr. Zhang transferred his equity in Company X to Company Y, a listed company, and the parties agreed that Company X should achieve the agreed performance target within 3 years after the transaction, otherwise Mr. Zhang would need to return part of the shares of Company Y as performance compensation. During the three-year performance commitment period, the shares of Company Y obtained by Zhang were restricted from sale and would be unlocked according to the realization of the promised performance of Company X, so Zhang could not sell the shares of Company Y obtained in the stock market immediately after the equity transaction. In 2016, Zhang filed with the tax bureau for the installment tax payment of the income from equity transfer, and planned to pay it in installments within five tax years, of which the planned payment amount from 2016 to 2019 was zero yuan, and the tax was planned to be paid in full in 2020.
When the tax payment record expired in 2020, Zhang failed to pay the tax within the prescribed time limit, and then declared and paid more than 50 million yuan in taxes, which was half of the 100 million yuan tax that should be paid, and then paid more than 8,000 yuan in taxes and late fees after being inspected by the tax authorities.
Source: Xiaoying Yan Tax. The content of this article is for general information purposes only and is not intended as formal auditor, accounting, tax or other advice, and we cannot guarantee that such information will remain accurate in the future. No person should act on the basis of the information contained herein without having due regard to the relevant circumstances and obtaining appropriate professional advice. The articles reproduced in this issue are for academic exchange purposes only. The original copyright of the article or material belongs to the original author or original copyright owner, and we respect copyright protection. If you have any questions, please contact us, thank you!