2021-12-03-KPMG_Global-People_s_Republic_of_China_–_Tax_Administration_Tightening_Compliance_on_ESOPs_4页_351kb

报告摘要

GMS Flash Alert Summary: China Tax Administration Tightening Compliance on ESOPs

Core Content

The State Taxation Administration (STA) of the People's Republic of China (PRC) has issued a Circular to further deepen the reform of tax administration. This initiative aims to simplify tax processes, enhance taxpayer experience, and cultivate market vitality by introducing 15 new measures to strengthen tax compliance and enforcement.

The Circular specifically targets Employee Share Ownership Plans (ESOPs), emphasizing the need for greater transparency and strict adherence to reporting requirements. It outlines new individual income tax (IIT) compliance rules that apply to both domestic and overseas companies with ESOPs in China.

Main Points and Key Information

1. Why This Matters

The increased scrutiny by tax authorities means that companies with ESOPs must enhance their compliance efforts.
Due diligence and accurate reporting are essential to ensure proper application of preferential IIT treatment.
Companies should consult with tax service providers to understand the implications of the new rules.

2. Key Reporting Requirements

Within 15 days of approval of a new ESOP, companies must complete and lodge the equity incentive details disclosure form (the Form) with the in-charge tax authorities.
By 31 December 2021, companies must submit the Form with relevant supporting documentation for any implemented ESOP.
Ongoing reporting is required in accordance with prevailing laws and regulations.
The reporting obligation extends to domestic companies participating in overseas ESOPs.

3. Impact on Companies

Category 1: Companies that have approved implementation of ESOPs in China (both public and private).
Category 2: Companies that are currently implementing ESOPs in China (both public and private).

4. KPMG's Observations and Recommendations

KPMG believes the STA aims to strengthen ESOP administration, enforce IIT collection, and regulate the use of preferential tax treatment.
Companies should establish a compliance calendar and standard operating procedures to meet the new reporting requirements.
By December 2021, companies should complete any outstanding equity-related tax reporting.
Starting from 1 January 2022, new plans and new grants/vest/exercise must be reported by the 15th of the following month.
The Form includes basic company and participant information, type of awards, and approval dates.
The STA may use data from end-of-year reporting to assess the extension of current preferential tax treatment for equity incentives beyond 2021.

5. Special Considerations

VIE structure (Variable Interest Entities) participants may face inconsistent IIT treatment across different tax bureaux.
The Form explicitly requires reporting under VIE structures, which raises questions about the applicability of preferential tax treatment.
Indirect shareholding platforms, such as Limited Liability Partnerships (LLPs) and Employee Benefits Trusts, may also be subject to increased scrutiny in the coming year.

Conclusion

The Circular marks a significant shift in the regulatory environment for ESOPs in China, with enhanced reporting obligations and tightened compliance measures. Companies must proactively adjust their tax practices and consult with tax professionals to ensure compliance and optimize tax benefits. KPMG remains attentive to local tax authority interpretations and will continue to provide guidance on these evolving regulations.

Related Resources

This summary is derived from the KPMG China Tax Alert titled "STA tightening tax compliance on ESOP" (Issue 36, November 2021).
The Circular includes references to Circular 35 and Cai Shui [2016] No. 101.