As mentioned above, in modern enterprise management, equity incentive is one of the most important means for enterprises to attract and retain talents. Equity incentive appeared as early as the Jin Dynasty in China. "Top stock" is a set of effective equity incentive methods that Shanxi merchants have explored and perfected in the course of doing business for hundreds of years. It is through this equity incentive system that Jin businessmen will push their business, especially the ticket number business to the whole country, which has far-reaching influence. At present, many enterprises are planning or implementing equity incentive plans. In the practice of equity incentive, the incentive object usually has no capital inflow in the process of obtaining equity incentive, but at this time, the individual needs to pay a certain consideration of equity incentive on the one hand, and the individual income tax issue on the other hand, and the incentive object will often face greater cash flow pressure, which affects the incentive effect of equity incentive to a certain extent. In order to support the implementation of the national strategy of mass entrepreneurship and innovation, the Notice on Improving the Income Tax Policy on Equity Incentives and technology Investment [Finance and Taxation [2016] No. 101] issued by the Ministry of Finance and the State Administration of Taxation in 2016 introduced the deferred tax policy on income tax in equity incentives. The introduction of the deferred tax policy mentioned in No. 101 has reduced the tax burden cost of enterprise equity incentive to a certain extent. How can enterprises enjoy the deferred tax policy, reduce the tax burden cost and improve the effect of equity incentive? This paper will discuss the problem of income tax deferral in the equity or stock incentive of non-listed companies, so as to provide reference for managers in the formulation of equity incentive schemes.

Tax deferred policy

In 2016, the Ministry of Finance and the State Administration of Taxation issued the Notice on Improving the Income Tax Policy on Equity Incentives and Technology Investment [Finance and Taxation [2016] No. 101], which stipulates that stock options, equity options, restricted shares and equity awards granted by non-listed companies to their employees meet certain conditions. After filing with the competent tax authorities, the deferred tax policy can be implemented, that is, the employee can temporarily not pay tax when he obtains the equity incentive, and defer the 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%. Therefore, the qualified equity incentive program can defer tax income tax, and the incentive object does not pay income tax when it obtains the equity interest, but only needs to pay 20% income tax in accordance with the "property transfer income" project when the equity is transferred. After the introduction of this policy, if the incentive program applies the deferred tax policy stipulated in document 101, it can not only reduce the financial pressure, reduce the tax burden and improve the incentive effect in the link of the incentive object to obtain equity.

Deferred tax policy applicable conditions

According to Document 101, a non-listed company's equity incentive plan must meet the following conditions at the same time to enjoy the deferred tax policy:

(1) Equity incentive plans belonging to domestic resident enterprises. 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. This does not apply to non-resident enterprises established in accordance with the laws of a foreign country (region) and whose actual management institutions are not in China, but which have established institutions or establishments within China, or non-resident enterprises which have not established institutions or establishments within China but have income derived from sources within China.

(2) The equity incentive plan shall be reviewed and approved by the Board of Directors and the shareholders (general) meeting of the company. A state-owned unit without a shareholders' (big) meeting shall be examined and approved by the competent department at a higher level. The equity incentive plan shall specify the incentive purpose, object, subject, validity period, determination method of various prices, conditions and procedures for the incentive object to obtain rights and interests.

(3) The incentive object shall be the equity of the Company of the domestic resident enterprise. The object of the equity award may be the equity obtained from the investment of technological achievements into other domestic resident enterprises. The incentive underlying shares (rights) include shares (rights) granted to the incentive object through additional issuance, direct transfer by major shareholders and other reasonable ways permitted by laws and regulations.

(4) The object of incentive shall be the technical backbone and senior management personnel decided by the board of directors or shareholders (large) meeting of the company, and the cumulative number of incentive objects shall not exceed 30% of the average number of employees in the company in the last 6 months.

(5) Stock (option) options shall be held for at least 3 years from the grant date, and at least 1 year from the discretionary date; Restricted shares shall be held for at least 3 years from the grant date, and at least 1 year after the lifting of the ban; Equity awards shall be held for three years from the date of award. The above time conditions shall be set out in the share incentive plan.

(6) The period from the grant date to the exercise date of stock options shall not exceed 10 years.

(7) The industries of the companies implementing equity awards and the target companies of equity awards are not included in the Catalogue of Industries subject to Preferential Tax Policies on Equity Awards, specifically mining, tobacco products, real estate, catering and accommodation industries.

Among the above conditions, the provision in article (3) that "the object of incentive shall be the equity of the company of the domestic resident enterprise" has brought great challenges to many incentive schemes, and is also a pain point for many enterprises to generate confusion. Because in the practice of equity incentive of non-listed companies, the mainstream equity incentive model is the equity incentive scheme of indirect shareholding, and the object of many enterprises' incentive is not the equity of domestic resident enterprises in the strict sense, but the equity or partnership equity of the incentive platform.

Scope of application of tax deferred policy

In the practice of equity incentive, there are two ways of holding stock: direct holding and indirect holding. Direct shareholding refers to the equity or stock (hereinafter referred to as equity) directly granted to the incentive object by the incentive party when implementing equity incentive; The incentive object is directly registered as the incentive shareholder and enjoys the rights of the shareholder. In the direct shareholding method, the subject of the incentive is the equity of the enterprise itself, and there is no substantial obstacle to the application of Article 101. Indirect shareholding means that when the incentive party implements the equity incentive, it does not directly grant the equity or stocks of the incentive party, but sets up an incentive platform to grant the company equity or partnership interests of the incentive platform, and the incentive object enjoys the property rights and interests of the incentive party through the incentive platform. Under the indirect shareholding model, the incentive object is not directly registered as the incentive shareholder, and does not enjoy the rights of the shareholder. Compared with the direct shareholding mode, the indirect shareholding mode can not only motivate employees well, but also isolate the risks of equity incentive well, taking into account the needs of both operation and law, so it is the mainstream shareholding mode in the practice of equity incentive. At present, in the practice of equity incentive, 90% of non-listed companies use indirect shareholding. The key to the problem is that under the equity incentive mode of indirect shareholding, the incentive object obtains the equity of the incentive platform or the partnership equity, but not the equity of the incentive party's company. Does this situation meet the applicable conditions of the deferred tax policy stipulated in Article 101? This involves how to interpret the "incentive object should be the equity of the company of the domestic resident enterprise" in document No. 101? From the perspective of textual interpretation, the equity of domestic resident enterprises should only refer to the equity incentive in the form of direct shareholding, because only in the form of direct shareholding, the object of incentive is the equity of the motivating enterprise itself. However, from the perspective of legislative purposes, indirect shareholding should also be applicable. Because direct shareholding or indirect shareholding, it is only a technical problem, in essence, the object of incentive in the two shareholding methods is the company's technical equity and senior managers, the value of the incentive target is ultimately related to the value of the incentive side, the purpose is to improve the enthusiasm of mass entrepreneurship and innovation, and there is no substantial difference between the two shareholding methods. In terms of the understanding of this condition, in practice, the conclusion of the tax part of each region will be different, but the mainstream opinion of the tax department adopts a strict interpretation of the text, and the indirect shareholding method does not apply to the 101 document. This means that the current mainstream equity incentive scheme of non-listed companies will meet great challenges when applying Article 101. This means that until the tax and finance departments clarify the issue, only the share incentive scheme of direct shareholding can apply the income tax deferred policy stipulated in Article 101; It is difficult to apply the deferred tax policy to most of the non-listed companies with indirect shareholding scheme.