Tax at RS/RSU vesting. Taxable amount for RS is technically the average of fair market value at grant and vesting; taxable amount for RSU is fair market value at vesting.
*If Notice 35 (or the transitional Notice 164) filing completed (see Withholding & Reporting section) and certain other requirements met, tax may be calculated under a favorable formula which generally results in reduction of taxation. Notice 35/164 is set to expire on 31 December 2023.
Tax on sale.
Income Tax:
Withholding and reporting required at the taxable event.
Notice 35 (or the transitional Notice 164) and Notice 69 filings generally required with local tax bureau. Specific requirements vary by bureau and may include filing at plan implementation, at grant and/or at share issuance.
Social Insurance Contribution:
Although uncertain, social insurance contributions are likely not required.
Offers of listed shares under an employee share plan will not be deemed to be a public offering.
Offers of unlisted shares technically require approval from the China Securities Regulatory Commission ("CSRC"), but compliance is not feasible due to current lack of procedures.
Risk is reduced because RS/RSUs are offered for no consideration (thus, no funds are remitted).
Under Circular 7 issued by the Central Bank and State Administration of Foreign Exchange ("SAFE"), non-PRC public companies granting equity awards to PRC employees must register plan with local SAFE offices where PRC entities located.
As part of the registration, foreign companies are required to establish a special onshore bank account approved by SAFE through which all funds from the sale of shares under the plan must be funneled.
Companies are required to repatriate all equity plan proceeds realized by PRC employees through the approved onshore bank account.
Once registration is completed, quarterly reporting requirements apply in most provinces.
Finally, an amendment registration is required within 3 months of any material change (e.g., new/amended plan). Shorter deadlines may apply in certain circumstances.
Interpretations of Circular 7 by local SAFE offices are inconsistent and change frequently.
NOTE: Non-PRC private companies cannot register their equity plans pursuant to Circular 7.
Please contact Baker McKenzie for details.
Generally not, if the right to modify or terminate is stated in the plan and employees agree to such terms in writing.
Regulations require that part-time employees be given benefits based on the number of hours they work. This could be interpreted to apply to participation in an equity plan.
There is risk that equity awards could be deemed a payment of wages "in-kind" or in "negotiable securities," thereby constituting an illegal payment of wages in China.
However, it is unlikely that local labor authorities would object to the issuance of equity awards or stock under an employee stock plan, which are in the form of bonuses and are in addition to regular wages.
A valid basis is required to collect, process and transfer personal data.
The Personal Information Protection Law of the PRC (PIPL) became effective on 1 November 2021 and introduced new requirements. In February 2023, the Cyberspace Administration of China (CAC) released the final version of the Standard Contractual Clauses (SCCs) and SCC Measures for the cross-border transfer of personal data under the PIPL. As an alternative to the SCCs, organizations may instead be subject to a security assessment by the CAC or certification by designated institutions, depending on certain facts.
Accordingly, companies should review their approach to data privacy compliance in the context of equity plan administration, consider on which basis they may be able to rely to collect, process and transfer data and assess whether a security assessment or certification is required.