China: Guidance on employer equity incentives

The Ministry of Finance and the State Taxation Administration have issued two announcements this year that extend the individual income tax (IIT) payment period for equity incentives granted by domestic listed companies and specify the tax reporting and filing requirements for equity incentives.

 An April 2024 announcement stipulates that the IIT payment period for equity incentives could be deferred to up to 36 months if:

• The equity incentive is the stock of a company listed on the Shanghai, Shenzhen, or Beijing Stock Exchange
• The plan has been registered with the local tax authority
• The income from the incentives is derived between 2024 and 2027
• The income from the equity incentives is derived after 1 January 2023 but IIT has not been paid in full

Taxpayers who end their employment during the extended IIT payment period must pay the IIT in full before their employment is terminated. The announcement also emphasizes tax reporting and registration requirements for employer equity incentive plans.

Another announcement released in early 2024 provided the tax reporting and registration requirements of employer equity incentive plans, and emphasized that taxpayers who receive multiple equity incentives from one or more employer(s) in the same tax year need to consolidate all instalments for tax computation and remittance purposes.

David Ling | davidxling@kpmg.com