Announcement 1 stipulates that the IIT payment period for equity incentives2 could be deferred by up to 36 months. This provision is applicable if:
- the equity incentive granted is the stock of a company that is listed on the Shanghai Stock Exchange, the Shenzhen Stock Exchange, or the Beijing Stock Exchange;
- the equity incentive plan has been registered with the local in-charge tax authority;
- income from the equity incentives is derived (i.e., stock options exercised or restricted shares (units) vested) between 2024 and 2027;
- income from the equity incentives is derived after 1 January 2023, but IIT has not been paid in full (IIT instalment payment commences from the date of exercise/vest).
In addition, Announcement 1 clarifies that taxpayers who terminate their employment during the extended IIT payment period should pay the IIT in full before their employment is terminated. This requirement enables tax withholding agents to fulfil their IIT withholding obligations in order to support individual taxpayers taking steps to settle the IIT in a timely manner.
The provision regarding the 12-month period of deferral of the tax payment on IIT due on certain equity incentives previously stipulated in Circular Caishui [2016] 1013 was abolished, as Announcement 1 came into force.
Announcement 2 underpins the tax reporting and registration requirements of employer equity incentive plans and emphasised that taxpayers who receive multiple equity incentives from one or more employer(s) in the same tax year should consolidate all instalments for tax computation and remittance purposes.
Specifically:
- The provisions apply to equity incentives granted by domestic listed companies to their employees, as well as equity incentives granted to domestic employees by overseas listed companies;
- The announcement reaffirms the requirements for tax reporting and filing in accordance with Circular Caishui [2005] 354;
- It also emphasises that if a taxpayer obtains multiple equity incentives from the same employer within a tax year, the employer should calculate and withhold relevant IIT on a consolidated basis.
- Where multiple equity incentives from different employers are derived within a tax year, the taxpayer can:
- provide information about the equity incentives derived from the previous employer to the current employer, which should then calculate and withhold the IIT on a consolidated basis; or
- lodge an annual individual income reconciliation tax return to report the consolidated equity incentives received within the year, between 1 March and 30 June in the next year.