China Issues New Tax Rules for Personal Transfers of Locked-Up Listed Shares

China's Ministry of Finance, the State Taxation Administration and the China Securities Regulatory Commission on August 28 issued a notice standardizing individual income tax policy for transfers of locked-up shares in listed companies, according to Jiemian News. The notice says gains from personal transfers of such shares will be taxed as property transfer income at a 20% rate, and defines locked-up shares to include those covered by a 2009 tax circular as well as bonus and stock dividend shares that accrue after the lock-up period and are registered after the notice takes effect. The notice also sets rules for how listed companies must report the original cost basis of locked-up shares when applying for initial share registration, and says securities firms should withhold tax based on the full transfer proceeds at 20% if the company failed to report the cost basis. For companies that had already completed initial registration before the notice but did not report the cost basis, securities firms may assess the cost basis and reasonable taxes at 15% of transfer proceeds. Taxpayers must file a final settlement by June 30 of the following year and pay any shortfall or receive any refund. The rules also apply to original shares transferred by companies listed on the National Equities Exchange and Quotations and Beijing Stock Exchange issuers, and take effect immediately.