• New income tax policies for equity incentives and technology
• Updates to corporate tax regulations
• SAIC to simplify deregistration of enterprises nationwide
• China to further liberalise elder care industry
• Temporary adjustments in social insurance law for pilot programme
• New Shanghai policy on mandatory social security contributions for medical insurance
New income tax policies for equity incentives and technology
To support entrepreneurship, innovation, and China’s economic restructuring, the State Council has updated the income tax policies as follows:
A. Application of deferred tax policy to eligible stock options, equity options, restricted stock units and equity rewards by non-listed companies
The deferred tax policy applies to stock options, equity options, restricted stock units and equity rewards granted to employees by non-listed companies if they meet the prescribed conditions. A deferred tax policy means there is no individual income tax (“IIT”) liability for the employees when they obtain the equity, unless they transfer the equity, and the taxable income should be subject to 20% IIT after deducting the acquisition cost and other related handling charges.
For employees to benefit from the deferred tax policy, non-listed companies’ equity incentives (including stock options, equity options, restricted stock units and equity rewards) must meet all the following conditions:
- The incentive falls under the equity incentive plan of a domestic resident enterprise.
- The equity incentive plan shall be approved by the board of directors or during the shareholders’ meeting (general meeting) of the company. For a state-owned entity without a shareholders’ meeting, the equity incentive plan shall be approved by the relevant department.
- The equity incentive should be the equity of a domestic resident enterprise.
- Those eligible for the incentive should be the company’s technical and senior management personnel, and the number of incentives for the employees shall not exceed 30% of the average number of employees in the company in the last 6 months.
- Stock (equity) options shall be held for 3 years from the date of grant, and for over 1 year from the date of vesting. Restricted stock units shall be held for over 3 years from the date of grant, and for over 1 year after the lifting of the ban. Equity rewards shall be held for over 3 years from the date of grant. The time conditions above shall be stated in the equity incentive plan.
- The period for stock (equity) options from the date of grant to the date of exercise shall not exceed 10 years.
- The company that executed the equity incentive plan does not belong to prohibited or restricted sectors specified in China’s Catalogue for the Guidance of Industries.
A stock option grants employees the right to buy the company’s stock at an agreed price within a certain period of time. Restricted stock units are granted to employees according to a vesting plan and distribution schedule.
B. Extension of tax payment period for stock options, restricted stock units and equity rewards
Previously, employees had to file a tax return and pay the tax once they were granted stock options, restricted stock units and equity rewards by listed companies. Now, they may do so at any time within 12 months of obtaining these.
C. Implementation of chosen tax incentives (preferential tax policy) for investments in technology
Updates to corporate tax regulations
The State Administration of Taxation announced updates to corporate tax regulations on 9 December 2016 that apply from year of assessment 2016 onward.
The updates are:
1. Pre-tax deduction of personal accident insurance premiums as expenses
Enterprises are allowed to record personal accident insurance premiums as expenses and deduct them from revenue before calculating the corporate tax payable if the employee had a traffic accident during the business trip.
2. Determination of sales revenue for asset disposal
Except under special circumstances, enterprises that need to dispose of assets are required to determine the sales revenue based on the fair market value of the assets in accordance with tax regulations.
SAIC to simplify deregistration of enterprises nationwide
The State Administration for Industry and Commerce (“SAIC”) recently announced that it would simplify deregistration of enterprises nationwide with effect from 1 March 2017.
The announcement states that any limited liability company, non-corporate legal person, sole proprietorship or partnership that has not carried out any business activity after obtaining the business licence, or has no credits/debts or has settled all credits and debts before applying for the deregistration, may choose between the standard and simplified deregistration procedures.
However, the simplified deregistration procedures shall not apply to an enterprise under any of the following circumstances:
- A foreign-invested enterprise subject to special regulatory requirements for market entry;
- The enterprise has been included in the list of enterprises with non-compliant operations or list of enterprises with a record of serious illegalities or dishonest acts; or
- The enterprise’s application for simplified deregistration procedures was rejected previously.
China to further liberalise elder care industry
The General Office of the State Council recently announced that it would further liberalise the elder care industry and relax the sector’s entry rules for foreign investors by 2020.
According to the announcement, an example would be to allow a profit-making elder care institution to apply for a business licence before obtaining the operation permit from the Civil Department. Foreign investors are also encouraged to set up both profit-making and non-profit elder care institutions in China.
Temporary adjustments in social insurance law for pilot programme
China has temporarily adjusted provisions in its social insurance law for a pilot programme in Handan, Hebei province, and 11 other cities since 1 January 2017.
Before the pilot programme, the maternity insurance fund account was managed separately from the employee’s mandatory medical insurance account. For the pilot programme, they are managed together under the employee’s mandatory medical insurance account.
If the two-year pilot programme is successful, the relevant legal provisions would be implemented nationwide. But if not, the original provisions before the pilot programme would be reinstated.
New Shanghai policy on mandatory social security contributions for medical insurance
Since 1 Jan 2017, Shanghai has implemented a new policy that allows local employees to use funds from their mandatory social security contributions for medical insurance to purchase serious illness insurance plans that provide greater coverage.
In Shanghai, mandatory social security contributions for medical insurance only cover up to a maximum of 50% of hospitalisation expenses, and are insufficient for treatment of serious illnesses. Serious illness insurance covers those diagnosed with one of 45 types of serious illnesses in the city.
| ABOUT US |
SBA Stone Forest (SBASF) is a corporate advisory and public accounting group headquartered in Shanghai with offices in Beijing, Suzhou, Shenzhen, Chengdu and Hangzhou. We help foreign businesses set up in China and thereafter support them in navigating China’s regulatory and business environment, having carved a niche serving those from the Americas, Europe, as well as North and South East Asia since we started in 2001.
Our parent company — Stone Forest — is the largest accounting and business advisory group outside the Big 4 in Singapore, with a 30-year history. Discerning international businesses appreciate our Singapore heritage, as it epitomises excellence, integrity and trust. We share the same systems, high standards, international best practices and service culture of our Singapore parent.
Together with our partner-owned public accounting practice, we offer intimate local knowledge and one-stop, seamless solutions in business assurance, accounting & advisory, payroll & HR advisory, tax compliance and advisory, risk management, corporate advisory and eDiscovery.
We are also well-positioned to help Chinese enterprises internationalise, given our Singapore parentage in a top financial and business hub in Asia, and our memberships in the Allinial Global and World Services Group international networks.
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Rita Boyle, Director
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