How to pay the VAT on the transfer of Individual equity of Chinese enterprises?

2020/11/21

-- I am an individual shareholder planning to sell my stake in a Chinese company. How should I pay tax?

-- Do I need to pay VAT on the initial public offering of the Chinese company I worked so hard to start?

About "equity transfer" is one of the hot issues asked by users. Today for everyone detailed analysis of "individual equity transfer in the VAT should be how to pay", together to learn it!

Lift to ask:

Does a natural person, Zhang X, need to pay VAT when he transfers the equity of a listed company?

Reply;

No VAT is required. Individual transfer of listed Chinese enterprises (main board, small and medium board, gem board, science innovation board) is exempted from VALUE-ADDED tax.

Policy Basis:

According to the Notice of the State Administration of Taxation of the Ministry of Finance on comprehensively promoting the Pilot Program of Replacing Business Tax with VALUE-ADDED Tax (Caisai [2016] No. 36), Annex 3 of the transition policy of replacing business Tax with VALUE-ADDED Tax: "The following items are exempted from VALUE-ADDED tax (22) the income from the transfer of the following financial commodities.

1. Qualified Foreign Investor (QFII) entrusts Domestic Chinese enterprises to engage in securities trading business in China.

2. Investors in The Hong Kong market (including companies and individuals) buy and sell A-shares listed on the Shanghai Stock Exchange through the Shanghai-Hong Kong Stock Connect.

3. Investors (including units and individuals) in the Hong Kong market buy and sell Shares of Mainland funds through mutual recognition of funds.

4. The manager of securities investment fund (closed-end securities investment fund, open-end securities investment fund) USES the fund to buy and sell stocks and bonds.

5. Individuals engaged in the transfer of financial commodities.

First, what is equity transfer?

Equity transfer is a civil legal act in which the shareholders of A Chinese enterprise transfer their shares to others in accordance with the law so that others become shareholders of a Chinese enterprise. Chinese Enterprise Law stipulates that shareholders have the right to transfer all or part of their equity through legal means.

Second, how to pay VAT?

First of all, we carry out a classification of equity transfer, divided into three categories. This includes the transfer of the stocks of listed Chinese enterprises (including the main board, sme Board, gem Board and Science and Innovation board), the transfer of the stock rights of general Chinese enterprises, and the transfer of the stocks of listed Chinese enterprises (New Third Board).

1. Individuals transferring the shares of listed Chinese enterprises (including the main board, small and Medium board, gem board and Science innovation Board) shall be exempted from VAT in accordance with article 36 [2016] of Finance and Taxation Administration.

2. Individual transfer of the equity of a general Chinese enterprise does not fall within the scope of VAT, and no VAT is levied.

3, the new three board the transfer of equity, "new three board" share transfer system, namely the national small and medium-sized enterprises (smes) is approved by the State Council of the third national securities exchange, mainly for innovative, entrepreneurial, growth development of micro, small and medium enterprises to provide financing services, all eligible shares in Chinese companies may be applied for by hosting the securities firms listed in the "new three board", the public transfer of shares, equity financing and debt financing, asset restructuring, etc.

According to the "Decision of the State Council on Issues related to the National Sme Share Transfer System" (GUO Fat [2013] No. 49), "Tax policies involved in market construction shall, in principle, be treated in accordance with the tax policies of listed Chinese enterprise investors". Therefore, the transfer of equity of NeeQ enterprises shall be subject to VAT in accordance with the transfer of equity of listed Chinese enterprises.

The implementation in different regions is different. The following policies are for your reference:

Question on the comprehensive implementation of the pilot Policy of replacing business tax with VALUE-ADDED Tax by The State Taxation Bureau of Jiangxi (viii) Whether enterprises on the New Third Board should pay VAT when transferring equity?

A: According to the State Council's Decision on Issues related to the National Sme Share Transfer System (Guofa [2013] No. 49), "Tax policies involved in market construction shall, in principle, be treated in accordance with the tax policies of listed Chinese enterprise investors." Therefore, the transfer of equity of NeeQ enterprises shall be subject to VAT in accordance with the transfer of equity of listed Chinese enterprises.

[Xiamen Tax] Whether the shares transferred on the New Third Board should be subject to VAT?

A: The New Third Board market is a national equity trading platform for Chinese enterprises with limited non-listed shares. The current trading forms include agreement transfer and market making, and there is a certain difference in liquidity between the two. Before the general Administration makes clear further, regard as equity transfer, do not collect value added tax temporarily.

Conclusion:

The main tax issues involved in equity transfer on the New Third Board include individual income tax, enterprise income tax, stamp tax and value-added tax. In terms of income tax and stamp tax, the tax law has made clear provisions on the taxation of equity transfer in the New Third Board. However, at the level of VALUE-ADDED tax, there is a lack of unified and clear tax law provisions on whether a corporate enterprise needs to pay VALUE-ADDED tax for the equity transfer of the New Third Board. The New Third Board market is a national equity trading platform for Chinese enterprises with limited non-listed shares. At present, there are differences in the implementation in different regions. Some regions are regarded as equity transfers and VAT is not levied temporarily. Some regions temporarily pay VAT on the transfer of financial commodities. Before the general Administration further clarifies, we suggest that you further communicate with the tax bureau to avoid the corresponding tax risks.

Relevant Case Analysis

Suppose an enterprise is established by a partnership of three people, party A has invested 50,000 RMB when entering the partnership, and now Party A wants to quit and transfer the equity to Party B. The transfer price is stated in the contract as 100,000 RMB, and the intermediary service fee of 5,000 RMB is incurred during the transfer. So what's the total amount of tax a should pay?

Analysis:

Individual transfer of shares of listed Chinese enterprises is exempted from VAT according to the "transfer of financial commodities". Individual transfer of equity in an unlisted Chinese company does not fall within the scope of VAT.

Policy Basis:

(Item (22) of Article 1 of Annex 3 of Caijie tax [2016] No. 36) Since A is an individual and not an enterprise, this equity transfer does not need to pay VALUE-ADDED tax, only individual income tax and stamp tax.

Tax calculation:

The individual income tax payable by Party A shall be (transfer income 100,000 RMB - equity cost 50,000 RMB - intermediary service fee 5,000 RMB) and the applicable tax rate shall be 20% and the final result shall be 9,000 RMB.

The stamp duty payable by Party A is 100,000 * tax rate of transfer income 5/10,000 *50%=25 RMB.

So a's equity transfer a total of 9,025 RMB to pay taxes.