The Ministry of Finance (MOF) and State Taxation Administration (STA) have extended preferential individual income tax (IIT) for equity incentive income for another year, until 31 December 2023.
Taxpayers can also continue enjoying preferential IIT on annual bonuses and expatriates’ allowances for the remainder of the year.
The extension, announced on 16 January, is welcome news for taxpayers. The prevailing preferential IIT policy for equity incentive income was originally set to expire by the end of 2021, but the MOF and STA granted a one-year extension on 31 December 2021.
The latest extension is not surprising. In fact, it is common for the government to first set a limited effective period for tax incentives, and then grant extensions from time to time.
The approach provides the government with flexibility on whether to continue granting relevant tax incentives, depending on specific circumstances. It remains to be seen if these preferential IIT policies will be further extended after 2023.
Meanwhile, it is important to note that the tax authority has also been strengthening IIT compliance relating to equity incentive income.
In the past year, local tax bureaus have been actively enforcing reporting requirements imposed under Shui Zong Ke Fa  Notice no. 69 on equity incentive income.
In some cities, in addition to the grant and/or vesting filings in accordance with Cai Shui  Notice no. 35, Notice no. 69 filings must be completed for relevant employees to enjoy preferential IIT treatment.
In light of this, companies are recommended to take measures to ensure compliance with their IIT withholding and/or reporting obligations, and to address historic non-compliances, if any.