With a view towards improving mainland employers' incentive processes for employees, the Ministry of Finance and the State Administration of Taxation have jointly issued a new Circular clarifying tax treatment and liabilities surrounding stock option schemes of listed companies.
The Provisions aims to establish a constraining mechanism to combat the abuse of control of listed companies and to protect the lawful righjts and interests of shareholders.
To encourage technology imports and standardize the procedure for tax reductions and exemptions, this Circular states that a foreign investor who wishes to apply for an income tax reduction or exemption may entrust the technology import transferee to carry out the relevant procedures.
This Circular address issues of income tax on the stock options of employees, nature of the income from stock options, domestic and foreign sources of income, and calculation of tax payable.
China has made considerable efforts in overhauling its IP legal regime since the country's accession to the WTO in 2001. Still it will be some time yet before these reforms transpire into meaningful ground-level improvements in the enforcement of IP rights.
As the principal market for strategic acquisition investments, Chinese outbound investments face a rigorous approval process with the US increasingly wary of foreign investment in knowledge-based industries in the post-September 11 world.