On December 7, 2014, the State Council issued the Circular on the (Pilot) Administrative Measures for Individual Income Taxes on Equity Transfer Income (hereinafter, the "Measures"), which became effective on January 1, 2015.
The Measures specifically stipulate the following seven scenarios of equity transfer, which are subject to individual income taxes: equity sale; corporate equity buyback; initial public offering of new shares by the issuers; equity sold to investors by the shareholders of the enterprise so invested through initial public offering; compulsory transfer of equity by judicial or administrative agencies; outbound investment or other nonmonetary investment via equity; equity used to satisfy obligations; and other acts of equity transfer. The Measures also specifically provide that the withholding agent of individual income taxes on equity transfer income shall be the transferee.
Furthermore, the Measures specifically provide for the method of determining equity transfer income and also treat subsequent income generated by a taxpayer after the conditions of an agreement are satisfied as equity transfer income.
The Measures provide for circumstances where "equity transfer income is obviously low" and provide that although equity transfer income is obviously low under circumstances of inheritance or policy adjustment, such circumstances will still be deemed justified.
In addition, the Measures also provide for the method for determining the original value of transferred equity and six scenarios where tax filings with the tax authorities are required and contain relevant provisions concerning tax levy administration and thorough implementation of taxation.