Pursuant to Bulletin 35 published on March 14, 2019, the Ministry of Finance and the State Taxation Administration extended preferential tax treatment to equity compensation income realized by non-PRC tax residents, effective January 1, 2019. Previously, uncertainty existed regarding whether preferential tax treatment was available to non-PRC tax residents on income derived from equity compensation awards.

Under Bulletin 35, non-PRC tax residents are allowed to spread the income realized from equity compensation awards within a calendar year over a six-month period for the purpose of determining the applicable income tax rate. In this regard, the income tax rate and quick calculation deduction applied in the formula for non-PRC tax residents under Bulletin 35 are the monthly income tax rate and quick calculation deduction, which contrasts to those for PRC tax residents who use the annual income tax rate and quick calculation deduction. For the sake of clarity, Bulletin 35 should not be confused with Notice 35 (dated March 28, 2005), which historically provided preferential tax treatment for PRC tax residents and has since been replaced by Notice 164 (dated December 27, 2018).