For companies, offering equity incentives with tax advantages can help facilitate motivation and support recruitment, loyalty, and retention of employees. Individuals are entitled to preferential tax treatment – as long as certain conditions are met – where they are participating in the equity incentive plans of a listed company or participating in the trading of shares of Hong Kong-listed companies or Hong Kong fund units, and thereby their tax burden is reduced. It should be borne in mind that these preferential tax policies are only extended for one year until 31 December 2023, while it remains uncertain for 2024 and beyond.
In the meantime, it is expected that the tax authorities will continue to focus on the collection and administration of IIT on equity incentives in the future. At KPMG in China, we have observed that the tax bureau has been tightening its inspection into IIT of equity incentive income since 2021. When it is noticed through big data analysis and comparison that the declared equity incentives income in the IIT filing system does not match with tax registration information, the tax bureau may conduct further IIT investigation.
For Consideration
In this regard, in addition to benefiting from the preferential tax policies for equity compensation, companies should properly complete the tax registration of equity incentive plans in a timely manner, so as to respond to potential “visits” by the tax authorities, who, as we noted above, are enhancing their scrutiny.
If companies and their employees have questions or concerns about their record-keeping, properly submitting tax registration information, their exposure to investigation, and reviewing their compliance policies and procedures, they should contact their qualified global reward professional or a member of the Global Reward Services team with KPMG in China (see the below Contact Us section).
