China's tax law on equity incentive related tax burden is relatively scattered, equity incentive scheme design slightly improper will not only increase the incentive object's tax burden cost, but also may bring tax risks. When formulating the equity incentive scheme, the incentive party must carefully consider the tax burden cost. The Tax Burden Analysis of Equity Incentive (I) discusses the tax burden of non-listed companies' virtual equity incentive model and direct equity incentive model. Regarding the tax burden of the equity (ticket) incentive mode of indirect shareholding of non-listed companies, lawyer Jiao Hanwei of Shanghai Guoling Law Firm will discuss in this paper based on practical experience, so as to provide reference for operators when formulating equity incentive schemes. The equity incentive mode of indirect shareholding involves many links such as equity authorization, exercise, dividend and sale, and the tax burden is complicated. There are three tax-related links in both indirect shareholding and direct shareholding, namely, acquisition, dividend and transfer. However, the tax burden of indirect shareholding is more complicated because the incentive platform of indirect shareholding has two types: company and partnership. The details are as follows:

Tax burden on the acquisition link

According to the individual income tax law of our country, in the equity incentive model of indirect shareholding, the incentive object should pay individual income tax when it obtains equity or partnership interests. Generally, the incentive object should pay individual income tax according to the "wage and salary income" item according to the difference between the actual purchase price of the equity and the open market price when it obtains the equity, the restricted equity is released or the equity option is exercised, and the applicable tax rate is 3-45%. If the incentive object is a resident individual, the individual income tax shall be calculated in accordance with the tax year. If the incentive target is non-resident individuals, individual income tax shall be calculated on a monthly or itemized basis. It should be pointed out that in order to support the implementation of the national strategy of mass entrepreneurship and innovation and promote the transformation and upgrading of China's economic structure, in 2016, the Ministry of Finance and the State Administration of Taxation issued the Notice on Improving the Income Tax Policy on Equity Incentive and technology Investment [2016] 101]. According to the notice, if the stock options, equity options, restricted shares and equity awards granted by the non-listed company to the employees of the company meet certain conditions, the tax deferral policy may be implemented after filing with the competent tax authorities, that is, the employees may suspend tax payment when they obtain the equity incentive and defer tax payment until the transfer of the equity; At the time of equity transfer, the difference of equity transfer income less equity acquisition costs and reasonable taxes shall apply to the item "property transfer income", which shall be calculated and paid individual income tax at a tax rate of 20%. Of course, the equity incentive model of direct shareholding is applicable to Circular 101, but is the equity incentive model of indirect shareholding applicable to Circular 101? The key to the problem is that under the equity incentive model of indirect shareholding, the incentive object obtains the equity of the incentive platform or partnership, but not the equity of the incentive party's company. Does this situation comply with the deferred tax policy of Article 101? The conclusion of tax part in each region is different. The incentive provider should communicate with the local tax authorities when formulating the incentive plan. In summary, if the equity incentive scheme of indirect shareholding is identified as conforming to the deferred tax policy, the incentive object does not need to pay income tax temporarily when it obtains the equity. Otherwise, the incentive object needs to pay individual income tax in accordance with the "wage and salary income" item when acquiring equity, and the applicable tax rate is 3-45% of the 7 excessive progressive tax rate.

On the issue of tax burden in the dividend link

According to China's individual income tax regulations, under the equity incentive model of indirect shareholding, when the incentive object obtains dividends based on equity, it needs to pay the corresponding individual income tax. As far as the company type holding platform is concerned, China's enterprise income Tax law stipulates that dividends, bonuses and other equity investment income between qualified resident enterprises are tax-free income. The term "resident enterprise" refers to an enterprise established in China according to law, or an enterprise established in accordance with the laws of a foreign country (region) but with its actual management organization in China. As far as equity incentive in China is concerned, non-resident enterprises are very few and not representative, so this paper will not discuss. As far as incentive dividends are concerned, if the holding platform is a resident company, the incentive platform does not need to pay income tax when it obtains dividends from the incentive party; Employees only need to pay personal income tax when the dividends received by the holding company are redistributed. According to China's individual income tax law, individual dividend income is subject to a proportional tax rate of 20%. As far as the partnership type shareholding platform is concerned, China's Notice of the State Administration of Taxation on the Implementation of the Provisions on the Imposition of Individual Income Tax on investors of sole proprietorship enterprises and partnership enterprises (State Tax Letter (2001) No. 84) stipulates that the interest or dividends and bonuses returned from foreign investment of sole proprietorship enterprises and partnership enterprises shall not be incorporated into the income of the enterprise. The individual income tax shall be calculated and paid according to the taxable items of "interest, dividend and bonus income", which shall be obtained separately as an individual investor. Therefore, under the partnership type shareholding platform model, the partnership of incentive platform does not need to pay corporate income tax when it receives dividends from the incentive party. When employees receive personal dividends from the distribution of shareholding partnerships, they shall pay personal income tax according to the principle of "division first and tax later". According to China's individual income tax law, individual dividend income is subject to a proportional tax rate of 20%. To sum up, when employees receive dividends from resident enterprises based on incentive shares, whether it is direct or indirect shareholding, whether it is a company type shareholding platform or a partnership type shareholding platform, the current income tax burden is 20%.

On the issue of tax burden in the transfer link

According to the individual income tax law of our country, as far as the equity incentive model of indirect shareholding mode is concerned, the incentive object should pay individual income tax for transferring the equity of the incentive platform company or the partnership. The incentive object shall pay individual income tax based on the value-added portion between the transfer income and the price at the time of acquisition of the equity, and the transfer income tax shall apply a proportional tax rate of 20% according to the item of "property transfer income". As mentioned above, the tax implications for the transfer of an incentive Platform company equity or partnership interest are relatively simple. However, under the equity incentive model of indirect shareholding, the income tax problem involved in the transfer of the equity of the incentive party from the incentive platform will be much more complicated. As we all know, the incentive platform is very closed, and the liquidity of the equity of the company or the partnership equity of the equity incentive platform is very poor, which is also one of the disadvantages of the equity incentive model of indirect shareholding. At this time, if the major shareholder promises to buy back, the incentive object can withdraw by transferring the equity of the incentive platform company or the partnership equity to the major shareholder; As mentioned above, the tax burden in this case is relatively simple and the 20% tax rate applies. If the major shareholder does not commit to buyback, it is difficult for the incentive object to withdraw the company equity or partnership equity of the incentive platform held by the incentive platform through transfer. In this case, the only way to withdraw is to sell the incentive platform's equity and then obtain the income from the transfer of the incentive platform's equity. In the event of the withdrawal of the incentive object in this path, for the equity incentive platform of the company type, first of all, the income of the equity incentive platform from the sale of the equity of the incentive party shall be applicable to 25%, 20% or 15% of the enterprise income according to the enterprise income Tax law; When the incentive object obtains the equity income from the incentive platform, it also needs to pay 20% individual income tax according to the individual income tax law, which will involve the problem of double tax burden. As for the partnership type equity incentive platform, the equity incentive platform does not need to pay corporate income tax when it obtains the income from the transfer of the incentive party's equity. When the incentive object obtains the equity income of the incentive party from the incentive platform, it only needs to pay the corresponding individual income tax according to the principle of "division first and tax later". Although this situation does not involve the problem of double tax burden, the incentive object is generally an individual limited partner, and the individual income tax on the individual limited partner's income from the transfer of the incentive party's equity from the limited partnership is another more complicated issue. At present, there is a clear conclusion on the equity transfer income of the individual LP of the venture capital partnership from the partnership, that is, if the venture capital enterprise chooses to be accounted for by a single investment fund, the equity transfer income and dividend income payable by the individual partner from the fund shall be subject to individual income tax at a tax rate of 20%. If a venture capital enterprise chooses to calculate the total annual income, its individual partners shall pay individual income tax on the income obtained by the venture capital enterprise according to the excess progressive tax rate of 5%-35% for the "business income" item. However, for the individual limited partner of a partnership that is not a venture capital equity incentive platform, the equity transfer income from the partnership is subject to an excess progressive tax rate of 5-35% according to the individual business income item. Or apply a 20% income tax rate? At present, there is no conclusion, and it is basically determined by the tax departments in each region, with regional differences. When determining the equity incentive plan, the local tax department should be communicated and confirmed.

In order to have a clearer understanding of the tax burden of the equity incentive mode of indirect shareholding, we make a simple comparison for managers to refer to when determining the specific incentive mode.