There are less than two months to go before the new company law comes into effect on July 1. It is important for companies to learn and understand the relevant provisions of the new company law. The New Company Law clarifies that all shareholders must pay up the subscribed capital contribution within 5 years from the date of establishment of the company, and unless otherwise stipulated by laws, administrative regulations or the State Council, the payment period of existing enterprises shall be gradually adjusted to 5 years. For enterprises, the new regulation involves a number of tax-related matters that are worth noting.
Shareholders can transfer equity if they have no money to contribute
The Company Law amended in 2013 implements the registered capital subscription registration system, which lowers the entry threshold to a certain extent and stimulates entrepreneurial vitality, but at the same time, there are also phenomena such as "sky-high registered capital" and "100-year subscription period". In order to guide enterprises to reasonably set the amount of registered capital and the term of capital contribution, standardize the capital contribution behavior of shareholders, and build an honest and orderly market environment, the new company law has changed from the original subscription registration system to a time-limited subscription system, and clarifies that the capital contribution period of shareholders shall not exceed 5 years. Therefore, some shareholders of existing enterprises whose paid-in registered capital is far less than the subscribed registered capital usually choose to reduce the registered capital or reduce the paid-in pressure by transferring part of the equity.
When a corporate shareholder withdraws or reduces its investment from an investee enterprise, according to Article 5 of the Announcement No. 34 of the State Administration of Taxation [2011], the part of the assets obtained by the corporate shareholder that is equivalent to the accumulated undistributed profits and accumulated surplus reserve of the invested enterprise calculated in proportion to the reduction of paid-in capital shall be recognized as dividend income, and according to Article 26 of the Enterprise Income Tax Law, dividends, bonuses and other equity investment income between eligible resident enterprises shall be exempted from enterprise income tax. When a corporate shareholder transfers shares and equity, if the production and operation of the invested enterprise is in good condition and the transfer income is greater than the initial investment cost, including the retained earnings of the shareholders such as the undistributed profits of the invested enterprise, the enterprise income tax shall be calculated and paid according to the equity transfer income.
This paragraph is changed as a whole: for natural person shareholders, the capital reduction is regarded as an enterprise repurchase, and when the enterprise has not yet actually operated, the transfer of individual equity generally does not involve the payment of individual income tax. However, when the enterprise actually operates and generates profits, the natural person shareholders shall, in accordance with the provisions of the Announcement No. 67 of 2014 of the State Administration of Taxation, determine the income from equity transfer on the basis of the principle of arm's length and declare and pay individual income tax.
Non-monetary property may be valued as capital contributions
Article 48 of the New Company Law stipulates that shareholders may make capital contributions in monetary terms, as well as non-monetary assets such as physical objects, intellectual property rights, land use rights, equity rights, creditor's rights, etc., which can be valued in monetary terms and can be transferred in accordance with the law. However, there is an exception for assets that cannot be used as capital contributions as stipulated by laws and administrative regulations. Therefore, under the "5-year subscription period", if monetary assets cannot be paid in time, shareholders can invest in non-monetary assets.
According to the relevant provisions of the "Cai Shui [2014] No. 116), the legal person shareholders should reasonably determine the fair value of non-monetary assets, and the part of the fair value exceeding the book value is the income from the transfer of non-monetary assets.
For natural person shareholders, according to the Cai Shui [2015] No. 41), the individual income tax arising from the investment in non-monetary assets can be paid in installments within 5 years, but the cash boot obtained from the transaction shall be used to pay the tax first. Only the amount of tax payable in excess of the cash boot can be paid by instalments. In addition, during the period of installment payment, if a natural person transfers all or part of the equity held by him or her and obtains cash income, the cash income shall also be used to pay the outstanding tax on a priority basis.
For example, natural person shareholder A contributes 1 million yuan, of which 500,000 yuan is subscribed and 500,000 yuan is contributed by non-monetary assets, accounting for 50% of the registered capital of the enterprise. The original value of the non-monetary assets and reasonable taxes and fees totaled 100,000 yuan, and the cash premium paid by the invested enterprise was 20,000 yuan, then the taxable income from the property transfer = property transfer income - the original value of the property and reasonable expenses = 50-10 = 40 (10,000 yuan), and the individual income tax payable on the property transfer income = taxable income ×20% = 40×20% = 8 (10,000 yuan), of which the cash premium of 20,000 yuan should be used to pay taxes first, and the remaining 60,000 yuan can be paid in installments within 5 years.
Penalties will be imposed for failure to make timely or false contributions
The New Company Law adds a provision that shareholders will lose their corresponding equity if they fail to fulfill their capital contribution obligations. According to Article 52 of the New Company Law, if a shareholder fails to pay the capital contribution on the date of capital contribution stipulated in the articles of association, and fails to perform its obligations upon the expiration of the grace period after the written reminder of the company, the shareholder shall lose the equity of the unpaid capital contribution, and this part of the equity shall be transferred or reduced for cancellation or paid in full by other shareholders in proportion to the capital contribution.
At the same time, according to the provisions of the new company law, if the promoters and shareholders of the company make false capital contributions and fail to deliver or fail to deliver the monetary or non-monetary assets used as capital contributions on time, the company registration authority shall order them to make corrections and may impose a fine of not less than 50,000 yuan but not more than 200,000 yuan; where the circumstances are serious, a fine of between 5% and 15% of the amount of false capital contribution or failure to make capital contribution shall be imposed; The directly responsible managers and other directly responsible personnel are to be fined between 10,000 and 100,000 RMB. In other words, if the shareholder does not complete the payment within 5 years, the shareholder may lose the equity of the unpaid capital contribution, and the company and its officers may face fines.
There are also institutional arrangements for special circumstances
In addition to clarifying legal liabilities, the New Company Law also strengthens the legal constraints on shareholders to fulfill their capital contribution obligations through a series of institutional arrangements. For example, when an enterprise has debts due that cannot be discharged, the creditor can grasp the specific details of the "unexpired subscription amount" of the shareholders in detail according to the information such as the amount of capital subscribed and paid-in by the shareholders, the method of capital contribution, the date of capital contribution, etc., and then require the shareholders whose capital contribution period has not expired to make capital contributions in advance according to the provisions on the accelerated maturity of shareholders' capital contributions. If the company is liquidated or reorganized, the tax authorities, as tax creditors, may, in accordance with the provisions of Article 7 of the Enterprise Bankruptcy Law, file an application for bankruptcy liquidation of the tax-delinquent enterprise with the people's court, so as to achieve the purpose of accelerating shareholders' capital contribution, participating in asset distribution, and collecting taxes into the treasury, so as to ensure the implementation of the new registered capital system.
Source: China Tax News; 17.05.2024; Edition: 07; Authors: Wang Yan, Zhou Xuan, Wang Qingyu, Wang Si, Wang Meng; Author's Affilications:Beijing Municipal Taxation Bureau, State Administration of Taxation. 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!