Restricted Stock Units (RSUs) in China are generally taxed at vesting together with an employee's salary income and it is the local employer's obligation to withhold the individual income tax. Where share plan awards are post-IPO and registered with the local tax authorities under Circular 35, a preferential tax calculation method would apply.
Generally any public company that wants to grant RSUs in China is required to submit applicable documents translated into Chinese to the relevant local tax authority through its Chinese subsidiary for preferential tax treatment to employees in accordance with the requirements of Circular 35. This permits employees to enjoy favorable tax treatment in connection with their awards. The documents that must be submitted vary by region, but typically include: an application form, the plan, award agreement and grant notice. Private companies are not entitled to the favorable tax treatment.
Because China does not generally allow monies to flow to and from employees directly, approval from the People's Republic of China (PRC) State Administration of Foreign Exchange (SAFE) under Circular 7 is also required, which typically takes three months. Approval enables SAFE to monitor and enforce that all proceeds realized by individuals from equity-based awards be immediately repatriated to the PRC through a special "dedicated" foreign exchange account set up by the company in the PRC. Having a local team on the ground who can assist in communicating with SAFE officials and local banks through the SAFE registration process is critical.
Our experience is that Chinese employees are very keen on becoming shareholders in overseas listed companies.
Computershare Plan Managers Asia has successfully issued RSUs in China over the past 15 years for over 80 clients. We have extensive experience in working with SAFE officials and different local banks. We can also provide support with the Circular 35 tax registration. Our proprietary plan management system automatically calculates and withholds China tax for the local employer and allows participants to see the estimated tax amount when they elect the release method, so that they can decide if they would like to hold all, sell to cover, or sell all for the vesting.
These solutions have helped many of our clients successfully navigate the complex China market compliantly, efficiently, and effectively. Learn more about Computershare's
China Share Plan Solutions.