Three Ministries Set 20% Tax on Restricted Share Transfers, Allow 15% Cost Basis
China's Ministry of Finance, State Taxation Administration, and China Securities Regulatory Commission issued a joint announcement standardizing individual income tax on transfers of restricted shares in listed companies. Gains are taxed as property transfer income at a flat 20%, with a 15% deemed cost basis option for shares lacking declared original costs. The rules apply to companies listed on the Shanghai and Shenzhen stock exchanges, as well as to original shares on the National Equities Exchange and Quotations and Beijing Stock Exchange, effective immediately.
The Ministry of Finance, the State Taxation Administration, and the China Securities Regulatory Commission have issued a joint announcement regulating individual income tax on the transfer of restricted shares in listed companies. Individual gains from transferring restricted shares of listed companies are subject to individual income tax under the category of property transfer income at a tax rate of 20%. The announcement takes effect from the date of publication, and where previous provisions are inconsistent with this announcement, the provisions of this announcement shall prevail. For the purposes of this announcement, a listed company refers to a joint-stock company whose shares are listed and traded on the Shanghai Stock Exchange or the Shenzhen Stock Exchange. Individuals transferring original shares of companies listed on the National Equities Exchange and Quotations (NEEQ) or of companies listed on the Beijing Stock Exchange shall pay individual income tax in accordance with this announcement. Restricted shares include those specified in Article 2 of the Notice on Issues Concerning the Collection of Individual Income Tax on Gains from the Transfer of Restricted Shares of Listed Companies (Cai Shui [2009] No. 167), as well as bonus shares and converted shares arising after the lifting of the lock-up period and registered after this announcement takes effect. If, after this announcement takes effect, a listed company fails to declare the original cost of restricted shares when applying for initial share registration, the securities institution shall calculate and withhold individual income tax based on the full transfer proceeds at a 20% rate. After such withholding, taxpayers may apply for final settlement in accordance with Article 3 of this announcement. For restricted shares of listed companies that completed initial registration before this announcement without declaring original costs, when individuals transfer such shares after this announcement, the securities institution may determine the original cost and reasonable expenses at 15% of the transfer proceeds for withholding purposes. The announcement takes effect from the date of publication, and any prior provisions inconsistent with it are superseded.