颁布日期：20050328 实施日期：20050701 颁布单位：财政部、 国家税务总局
Caishui  No. 35
Ref no： 3230/2005.03.28
（Issued by the Ministry of Finance and State Administration of Taxation on 28 March 2005 and effective as of 1 July 2005.）
To the finance departments （bureaux） and local taxation bureaux of all provinces， autonomous regions， municipalities directly under the central government and municipalities with independent development plans：
To adapt to the remuneration system reform in enterprises （including domestic enterprises， foreign-invested enterprises and establishments set up by foreign enterprises in China） and strengthen the levy and administration of individual income tax， we hereby issue the following circular on issues relevant to the levy of individual income tax on income derived from enterprise stock option scheme in which the employees （including individuals with or without residence in China） participate：
1. Issues relevant to the levy of tax on income derived from stock option of employees
In accordance with the relevant provisions of the PRC， Individual Income Tax Law and its implementing regulations， individual income tax shall be levied on income derived from stock option granted employees by enterprises that operate stock option scheme.
The term “employee stock option” （Stock Option） refers to the right granted by a listed company to employees of the company and employees of the enterprises in which the company owns a controlling share according to the stipulated procedure. Such right allows authorized employees to purchase a fixed quantity of shares of the company at a specific price on a future date.
The term “specific price” mentioned above shall be referred to as “the grant price” or “the strike price”， namely the price at which stocks may be purchased under Stock Option scheme. Normally， it is the market price or the discounted price thereof on the grant date， or it may be a price agreed as per the predetermined calculation method. The “grant date”， also known as “the authorization date”， refers to the date on which the company grants the aforementioned right to its employees. “Exercise of option”， also known as “execution”， refers to the process during which the employees choose and purchase the stocks according to the Stock Option scheme. The day on which the employees exercise the aforementioned right shall be the “exercise date”， also known as “the subscription date”。
2. Recognition of the nature of income derived from Stock Options and the detailed provisions on levy of tax
（1） When an employee accepts Stock Option granted by the enterprise that implements Stock Option scheme， no taxable income shall be levied in general， unless stated otherwise.
（2） When an employee exercises his option， if the actual purchase price of the stock from the enterprise （the strike price） is lower than the fair market price of the stock on the exercise date （here and hereinafter refers to the closing price of the stock on the said date）， and the difference is the work-related income obtained due to the employee‘s performance and business results in the enterprise， individual income tax shall be levied according to the provisions applicable to “wage and salary income”。
Where the employee transfers his Stock Options prior to the exercise date in special circumstances， individual income tax shall be levied on the net income from the transfer of Stock Options as wage and salary income.
The taxable amount of wage and salary income during the period in which the employee exercises his Stock Options shall be calculated as per the following formula：
The taxable amount of the wage and salary income in the form of Stock Option = （market price per share – strike price per share paid by the employee to obtain the said Stock Option） x quantit
y of stocks
（3） Where an employee transfers his stocks after exercising his option at a higher price than the fair market price on the subscription date， and the difference is the proceeds from the transfer of negotiable securities such as shares on the secondary stock market， individual income tax shall be levied according to the provisions applicable to “income from transfer of property”。
（4） The income received by the employee from the distribution of profit after enterprise tax as a result of equity ownership shall be subject to individual income tax in accordance with the provisions applicable to “income from interest， dividends and bonus ”。
3. Classification of wage and salary income sourced from China and overseas
If， pursuant to the relevant provisions of the State Administration of Taxation， Issues Relevant to the Determination of Tax Liability of Individuals Without Domicile in China for Wage and Salary Income Received in the Form of Negotiable Securities Circular （Guoshuihan  No. 190）， there is a need to determine the wage and salary income received by an employee from his participation in the enterprise‘s Stock Option scheme are from domestic or foreign source， the calculation shall be based on the percentage of working months of the employee in China and abroad to obtain the aforementioned income.
4. Calculation of taxable income
（1） Calculation of taxable income derived from the subscription of stock （Option Exercise Income）。 If the income received by an employee in China from his participation in a Stock Option scheme shall be subject to tax as wage and salary income according to this Circular， such income in the form of Stock Option may be distinguished from other wage and salary income in that month， and the taxable income for the month shall calculated separately according to the following formula：
Taxable amount = （Taxable wage and salary income in the form of Stock Option／stipulated number of months × applicable tax rate – quick calculation deduction factor） × stipulated number of months
The “stipulated number of months” in the formula of the preceding paragraph refers to the number of months in which the employee works within the territory of China to obtain his wage or salary income in the form of Stock Option. If the period is longer than 12 months， it shall be calculated as 12 months. The applicable tax rate and quick calculation deduction factor in the formula shall be determined by matching the quotient from dividing the taxable amount of wages and salaries in the form of Stock Option by the stipulated number of months to the tax rate table appended to the State Administration of Taxation， Printing and Distribution of Circular （Guoshuifa  No. 89）。
（2） Calculation of tax amount on the income derived from transfer （sale） of stocks. The income received by an employee from the transfer of negotiable securities such as stocks shall be exempted from individual income tax according to the provisions of existing tax laws and policies. Namely， no individual income tax shall be levied for the time being on the income received by an individual from the transfer of stocks issued by domestic listed companies after the exercise of his options. The amount of taxable income and the amount of tax payable for income received by an individual from the transfer of stocks issued by overseas listed companies shall be calculated according to the provisions of tax laws， and the tax thereon shall be paid according to law.
（3） Calculation of tax on income from participation in the distribution of after-tax profit. Tax on income received by an employee in the form of dividend and/or bonus from participation in distribution of after-tax profit as a result of equity ownership shall be calculated on the full amount according to the stipulated tax rate， except where there is tax exemption or reduction under the relevant p
5. Levy and administration
（1） Withholding agents. Enterprises in China that operate Stock Option schemes shall be the withholding agent for individual income tax， and shall fulfil the obligations for withholding and making payment of individual income tax according to the provisions of tax laws.
（2） Filing of tax returns and paying tax of one‘s own accord. Where an employee receives wage and salary income in the form of Stock Option from two or more sources and he does not have a withholding agent， such individual shall be obliged to file tax returns and pay tax himself within the period for tax filing and payment as stipulated in the individual income tax law.
（3） Submission of relevant information. Enterprises in China that operate Stock Option schemes shall， prior to the implementation of the Stock Option scheme， submit such information as their Stock Option scheme or implementation plan， Stock Option agreement and notice of authorization to the competent tax authority； and shall， prior to the exercise of Stock Options by their employees， submit the Stock Option exercise notice and option exercise adjustment notice to the competent tax authority.
（4） When filing tax returns or withholding and making tax payment， withholding agents and individuals that file tax returns themselves shall submit information on the Stock Options they accepted or transferred as well as their subscription of stocks （including type， quantity， grant price， exercise price， market price， transfer price， etc.） to the competent tax authority within the period for filing tax returns stipulated in tax laws.
（5） Penalty. Where an enterprise that operates Stock Option scheme or an employee that files tax returns by himself and that obtains taxable income from Stock Option scheme fai
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