On March 30, 2015, the Ministry of Finance (“MoF”) and the SAT jointly released Caishui  No. 41 (“Circular 41”) to expand nationwide the tax payment installment policy applicable in the Shanghai Free Trade Zone to income derived from non-monetary asset investment made by individuals.
Circular 41 defines non-monetary asset investment and includes the contribution of non-monetary assets to establish a new company, to participate in company capital increase, private placement of stock, stock exchange and corporate restructuring.
When an individual makes a non-monetary asset investment, two transactions take place at the same time: (i) the transfer of the non-monetary asset and (ii) the investment. The transfer of the non-monetary asset is subject to individual income tax (“IIT”) as “gain from transfer of property.”
The gain from transfer of property is calculated as the difference between the income derived from the transfer of the non-monetary asset, equal to its fair value after valuation, and the sum of the original cost of the transferred asset and the related reasonable taxes and fees.
The individual must declare IIT within the first 15 days of the month following the month in which the transaction took place. If the individual has difficulty paying the IIT in a lump sum, it can pay through installments within five years from the transaction date. The taxpayer may decide on the installment payment plan and record it with the tax authorities.
If the individual receives cash as part of the payment, the cash must be used against the tax payment, while the remaining tax due can be paid in installments. If, during the installment period, the taxpayer totally or partially transfers the investment for cash, the cash must also be used against the tax payment.
The installment tax payment policy became effective on April 1, 2015. However, non-monetary investments made before April 1, 2015, for which tax treatment has not yet been processed, may apply the policy provided the investment took place within the previous five years and during the period remaining to the completion of the five years.
Date of issue: March 30, 2015. Effective date: April 1, 2015.