According to the State Administration of Taxation (SAT), a notice was issued lately clarifying issues concerning income tax on the transfer of restricted shares of listed companies by enterprises.

Under the notice, when an enterprise transfers restricted shares held by the enterprise on behalf of an individual as a result of the split share reform, it must handle the transfer according to the following stipulations:

The income derived by the enterprise from transferring the restricted shares should be treated as the enterprise’s taxable income and is subject to tax payment. The taxable income from the transfer of restricted shares is the balance after deducting the original value of the restricted shares from the income from transferring the restricted shares. For enterprises which cannot furnish complete and genuine proof of the original value of the restricted shares and thus cannot accurately assess the original value of the restricted shares, the supervisory tax department will charge 15% of the income from the transfer of the restricted shares as the original value of the restricted shares plus reasonable tax and fees.

In cases where the enterprise directly transfers the restricted shares held on behalf of the individual to the name of the actual owner through a securities registration and settlement institution under a court decision or adjudication, such act is not deemed the transfer of restricted shares. The notice also points out that if an enterprise transfers the restricted shares it holds to other enterprises or individuals (transferees) before the lifting of restrictions over sales, its enterprise income tax should be handled according to the following stipulations:

The enterprise should treat all the income derived from the reduction of the restricted shares which are registered with a securities registration and clearing institution as taxable income of the current year for computation of tax payable.