Circular on Issues Concerning the Imposition of Individual Income Tax on Income from the Transfer of Restricted Stocks of Listed Company by Individuals

Circular on Issues Concerning the Imposition of Individual Income Tax on Income from the Transfer of Restricted Stocks of Listed Company by Individuals

Cai Shui [2009] No. 167

December 31, 2009

To the finance departments (bureaus), state taxation bureaus and local taxation bureaus of all provinces, autonomous regions, municipalities directly under the Central Government and cities specifically designated in the state plan, the finance bureau of the Xinjiang Production and Construction Corps, the Shanghai Stock Exchange and Shenzhen Stock Exchange, and the China Securities Depositary and Clearing Cooperation Limited:

For the purposes of further improving relevant systems after the share division reform, giving full play to the role of tax in adjusting the income of high-income earners, and promoting the long-term, stable and sound development of the capital market, following approval from the State Council, issues concerning the levying of individual income tax on income from individuals' transfers of listed company restricted negotiable stocks (hereinafter referred to as "restricted stocks") are hereby set out as follows:

I. From January 1, 2010, income from individuals' transfers of restricted stocks shall be treated as "income from property transfers" and be subject to individual income tax at the proportional tax rate of 20%.

II. For the purpose of this Circular, "restricted stocks" shall include:
1. Non-negotiable stocks held by shareholders after the completion of a listed company's share division reform and prior to the date on which such stocks resume trading, in addition to bonus issues and swapped stocks derived from the aforesaid stocks from the date on which such stocks resume trading to the date on which restrictions are lifted (hereinafter collectively referred to as "restricted stocks subject to reform");
2.
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