As mentioned above, in modern enterprise management, equity incentive is one of the most important means for enterprises to attract and retain talents. China's tax law on equity incentive related tax burden is relatively scattered, the improper design of incentive scheme will not only increase the tax burden cost of incentive object, affect the incentive effect, but also bring tax risk in certain circumstances. Therefore, enterprises must consider the tax burden cost when formulating the equity incentive scheme, in order to maximize the effect of equity incentive. According to the relevant provisions of China's tax laws and regulations, different incentive modes and different shareholding modes will affect the tax burden cost of incentive schemes to a certain extent. In the practice of equity incentive, the tax burden costs of virtual equity incentive, equity incentive and equity option incentive are different. Even if it is the same equity incentive, the tax burden cost of direct shareholding and indirect shareholding is different. This paper will discuss the tax burden of the incentive object of the equity or stock (hereinafter referred to as equity) incentive scheme of non-listed companies, so as to provide reference for managers in the formulation of equity incentive scheme.

Virtual equity incentive tax burden cost

Virtual equity incentive means that the company grants a virtual equity to the incentive object, according to which the incentive object can enjoy a certain amount of dividend rights, but the incentive object is not the real sense of the company's shareholders, and does not enjoy ownership, voting rights, transfer rights, inheritance rights and other shareholder rights, and no longer enjoy the virtual stock rights when he leaves the company. Virtual equity is essentially a right to dividends, not equity, so the tax burden of the incentive object mainly occurs in the dividend link, does not involve the tax burden of the acquisition link and the transfer link. The bonus obtained by the incentive object based on the virtual equity is essentially a part of the salary of the employee, and it is a personal "salary and salary income" project, which belongs to the category of comprehensive income. According to China's individual income tax law, individual comprehensive income is subject to a progressive tax rate of three to forty-five percent. Where individual residents obtain comprehensive income from wages and salaries, individual income tax shall be calculated on a consolidated basis in the tax year; The individual income tax on wages and salaries obtained by non-resident individuals shall be calculated on a monthly or itemized basis. The term "resident individual" refers to an individual who has a domicile in China or who has no domicile and has resided in China for a total of 183 days in a tax year; Non-resident individuals refer to individuals who have neither domicile nor reside in China, or who have no domicile and have resided in China for less than 183 days in a tax year.

Tax burden cost of direct shareholding equity incentive

The equity incentive of direct shareholding means that when the incentive party implements the equity incentive, it directly grants the equity of the company to the incentive object; The incentive object is directly registered as the shareholder of the incentive company and enjoys the rights of the shareholder. Compared with virtual equity incentive, the equity incentive mode of direct shareholding involves many links such as equity authorization, exercise, dividend and sale, and the tax burden is complicated. In general, there are three tax-related links in direct shareholding incentive: acquisition, dividend and transfer. As far as the dividend link is concerned, employees should pay personal income tax when they obtain dividends based on equity in the dividend link. According to China's individual income tax law, individual dividend income is subject to a proportional tax rate of 20%. The tax burden of acquisition and transfer is divided into two cases: deferred tax and non-deferred tax. In order to support the implementation of the national strategy of mass entrepreneurship and innovation, 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 [Finance and Taxation [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%. Therefore, if the equity incentive plan conforms to the deferred tax policy, the incentive object can temporarily pay income tax when it obtains the equity interest, and only need to pay 20% income tax according to the "property transfer income" item when the equity is transferred. However, the equity incentives of non-listed companies enjoying the deferred tax policy must meet legal conditions such as industry restrictions, incentive ratio, shareholding time, and need to be filed in advance. If the equity incentive plan does not comply with the deferred tax policy stipulated in Article 101, the incentive object shall pay individual income tax according to the comprehensive income of "wage and salary income" according to the difference between the actual purchase price of the equity and the open market price when acquiring the equity, lifting the restriction stock or exercising the equity option. The tax rate is 3 to 45% of the 7 excess progressive tax rate. In the transfer process, when the incentive object transfers the above equity, it shall pay 20% individual income tax according to the value-added part between the transfer income and the cost at the time of acquisition of equity.

Indirect equity incentive tax burden cost

The equity incentive of indirect shareholding means that when the incentive party implements the equity incentive, it does not directly grant the equity or stock of the incentive party (hereinafter referred to as equity), but sets up an incentive platform to grant the 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. 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. As for the acquisition of equity rights, in the equity incentive mode of indirect shareholding, the incentive object shall pay individual income tax according to the "wage and salary income" item according to the difference between the actual purchase price of equity rights and the open market price when acquiring equity rights, the restricted equity rights are released or the equity options are exercised, and the applicable tax rate is 3-45%. In the case of indirect shareholding, does the incentive scheme apply to the tax deferred policy under Article 101 mentioned above? On this issue, the tax part of each region has different conclusions, but generally holds a negative attitude. The motivator should communicate with the local tax authorities when determining the incentive plan. As far as the dividend link is concerned, under the equity incentive model of indirect shareholding mode, the incentive object needs to pay the corresponding individual income tax when it obtains the dividend based on the equity. If the shareholding 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 20% personal income tax when the dividends received by the holding company are redistributed.

As for the partnership type shareholding platform, the partnership of the 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 pay 20% personal income tax according to the principle of "sharing first and tax later". As far as the exit link is concerned, in the equity incentive mode of indirect shareholding, the tax burden involved in the transfer of the equity of the incentive platform company or the partnership equity is relatively simple, and the individual income tax rate of 20% is applicable. However, under the equity incentive mode of indirect shareholding, the incentive platform is very closed, and the liquidity of the equity of the company or the partnership is very poor. It is not easy to transfer the equity of the company or the partnership directly, which is also one of the disadvantages of the equity incentive mode of indirect shareholding. If the platform equity or platform partnership equity withdrawal cannot be transferred through major shareholder buyback or third party transfer, the incentivizer can only sell the incentivizer equity through the incentive platform first, and then withdraw from the incentive platform in the form of capital reduction or partnership withdrawal. 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 the 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 partnership is another complicated issue. At present, there is a clear conclusion about the equity transfer income of individual LP from the partnership. However, for an individual limited partner of a partnership that is not a venture capital equity incentive platform, is the share transfer income from the partnership subject to an excess progressive tax rate of 5-35% or a 20% income tax rate according to the individual business income item? At present, there is no conclusion, and it is basically determined by the tax departments in each region, with regional differences. Operators should still communicate and confirm with the local tax department when determining the equity incentive plan.