Home   FAQ  Taxation  China  The Income Tax Issues under Relationship of Share-holding Entrustment 

FAQ

SHARE

Taxation - China

Question

The Income Tax Issues under Relationship of Share-holding Entrustment

Answer
On August 19, the Xiamen Municipal Taxation Bureau issued the "Letter on the Handling of Proposal No. 1112 of the Fourth Session of the 13th CPPCC", clarifying the issue of income tax under the relationship of share-holding entrustment.

Q:
What is the difference between a named shareholder and a dormant shareholder?
A:
Named shareholders refer to shareholders who have not actually contributed capital as recorded in the industrial and commercial registration documents, while dormantt shareholders are also called actual capital contributors, which refer to those who entrust others to hold equity on their behalf in accordance with written or oral agreements.

The difference between the rights and obligations of dormant shareholders and named shareholders is mainly reflected in the determination of shareholder qualifications and the convenience of exercising their rights.

Q:
How to determine the tax liability of named shareholders?
A:
Named shareholders, as shareholders registered on the shareholder register, may claim to exercise shareholder rights based on the shareholder register. It is a taxpayer who transfers equity and obtains investment income in compliance with the provisions of the tax law, and shall perform taxation obligations in accordance with the law for income from dividends and equity transfer.

Q:
When the dormant shareholder is a natural person, how to determine its tax liability?
A:
According to Article 2 of the "Personal Income Tax Law of the People's Republic of China", nine types of income that should be paid for personal income tax are clarified. The named shareholders shall transfer the income from after-tax dividends and equity transfers to the dormant shareholders (natural persons). Income that is not subject to personal income tax as required by law.
 
Q:
When the dormant shareholder is an enterprise, how will its tax liability be determined?
A:
The income generated by the dormant shareholder (enterprise) obtained from the named shareholder based on the holding contract relationship is not statutory non-taxable income and tax-free income, and shall pay enterprise income tax in accordance with the provisions of the Enterprise Income Tax Law.

Q:
When a named shareholder (company) obtains a dividend and transfers it to a dormant shareholder (company), is it possible to apply "the previous dividends, dividends and other equity investment income of eligible resident companies as tax-free income"?
A: Can't. This is because it is based on the fact that there is no equity investment relationship between the named shareholders (enterprise) and the dormant shareholders (enterprise), and the tax law also does not stipulate that it can "penetrate" as a dormant shareholder (enterprise) to obtain equity investment income tax exemption.

Language

繁體中文

简体中文

日本語

close