Limited partnerships are flexible in terms of industrial and commercial registration, partnership affairs execution, rights and obligations arrangement among partners, mainly including:

A. Flexible business registration arrangements

All partners can authorize the executive partner to independently decide and sign relevant legal documents on behalf of other partners through the partnership agreement, including but not limited to the partnership agreement, change decision and application documents for industrial and commercial change registration, so as to reduce the cost of signing and sealing time involved in industrial and commercial change registration and other matters, and effectively avoid the inability to make decisions and not signing legal documents due to disagreement among partners.

B. Flexible partnership management arrangements

The executive partner of a limited partnership shall carry out the partnership affairs and represent the limited partnership externally. The other partners shall not carry out the partnership affairs. The Partnership Law gives the right to authorize the executive partner to have more authority through partnership agreement or partner resolution, thus improving the decision-making and execution effectiveness of partnership affairs. In addition, the partnership affairs of a limited partnership can also be entrusted to a third party professional organization for execution and management by agreement.

C. Flexible arrangement of partners' rights and obligations

a) Exclusion mechanism for priority of property share transfer of partnership

Through the agreement of the partnership agreement, when a partner transfers his share of the partnership property to a third person other than the partner, the preemptive right of other partners under the same conditions can be excluded.

b) Flexible distribution arrangement of profits and liquidation property

All or part of the profits of the limited partnership can be distributed to some partners through the partnership agreement, and the distribution order, proportion, amount and method of the liquidation property of the limited partnership can be flexibly agreed.

c) Flexible arrangement of project investment income and loss

The paid-in capital of some partners can be used to invest in one or some specific projects through the agreement of the partnership agreement, and it is agreed that the investment income of such specific projects will only be distributed to such partners, and other partners will not participate in the investment and distribution.

D. The supervision of state-owned assets is relatively flexible

Compared with limited companies, government-funded industrial investment funds, government-guided funds, state-owned enterprises and other foreign investment projects through limited partnerships have certain flexibility in post-investment management (such as subsequent capital increase and capital reduction) and project withdrawal (such as equity transfer and capital reduction). According to the relevant regulations issued by the State-owned Assets Supervision and Administration Commission, the Ministry of Finance, the National Development and Reform Commission and some provinces and cities, it is allowed to agree on the way of project withdrawal in the investment agreement and/or the articles of association of the project company.

The balance of the total income of a limited partnership [1] in each tax year after deducting costs, expenses and losses, as the production and operation income of a natural person partner, shall be subject to the individual income tax at the 5-level excess progressive tax rate of 5% - 35%, in accordance with the taxable item of "production and operation income of individual businesses" in the individual income tax law.

According to the provisions of the Notice of the State Administration of Taxation on Practically Strengthening the Collection and Administration of Individual Income Tax for High-income Persons, the income obtained from the trading of equity (notes), futures, funds, bonds, foreign exchange, precious metals, resource exploitation rights and other investment products of individual proprietorship enterprises and partnership enterprises shall be fully included in the production and operation income, and the individual income tax shall be levied according to law.

The interest, dividends and bonuses obtained from the external investment of a limited partnership shall not be incorporated into the income of the limited partnership, but the income from interest, dividends and bonuses obtained as a natural person partner shall be subject to individual income tax according to the taxable item of "income from interest, dividends and bonuses".

It is worth noting that there is "interest income" in the tax items of operating income and "interest, dividend and bonus income". How can we distinguish them?

A. Obtaining dividends and bonus income distributed by the invested enterprise

The interest, dividends and bonuses distributed by the invested enterprise by the limited partnership through external investment shall not be incorporated into the income of the limited partnership, but the interest, dividends and bonus income obtained by the limited partnership as a natural person partner shall be subject to personal income tax at the rate of 20% of the "interest, dividends and bonus income".

What should be paid attention to is that for the limited partnership 1 investing in the equity/shares of the invested enterprise through the subordinate limited partnership 2, generally speaking, it is necessary to penetrate the nature of the income source used by the limited partnership 2 to distribute to the limited partnership 1, that is, the income from the transfer of the equity of the invested enterprise by the limited partnership 2 or the income from the dividends distributed by the invested enterprise.

In addition, in the case of multi-layer nesting, there are disputes about the nature of the interest, dividend and bonus income of natural person partners, that is, the income from the interest, dividend and bonus distributed by the limited partnership 2 from the invested enterprise is distributed to the limited partnership 1, and when the limited partnership 1 distributes to its natural person partners, whether to pay the individual income tax according to the tax items of interest, dividend and bonus income or according to the tax items of business income. In most cases, it will be defined as the personal income tax paid at the rate of 5% - 35% on business income. Therefore, it is recommended to fully communicate with the competent tax department in advance.

B. Income from gambling, liquidated damages and compensation, and interest income from cash management

The business income of the limited partnership (i.e. the balance of the total income of each tax year minus costs, expenses and losses) shall be subject to individual income tax at the rate of 5% - 35%. Generally speaking, the income from gambling, liquidated damages and compensation, as well as the interest income from cash management obtained by the limited partnership from external investment, are part of the total income. However, it is also necessary to comprehensively consider the specific situation of gambling.

C. Capitalized capital reserves of invested enterprises

For the conversion of capital reserve into capital stock of a limited company, in general, except for the exemption of individual income tax on the conversion of capital reserve into capital stock generated from the premium issuance of shares by joint-stock enterprises, other circumstances should be taxed according to the provisions, but there are also relevant disputes in practice:

In addition, the competent tax authorities in some regions believe that if the shareholder of a joint-stock enterprise is a limited partnership, the provision of exemption from individual income tax on the conversion of capital stock by natural persons is not applicable. Therefore, full communication should be made with local competent tax authorities in advance.

It is worth considering that the retained earnings such as surplus reserves and undistributed profits of the limited company are converted into capital reserves, and whether the natural person partners of the limited partnership, as the shareholders of the limited company, pay personal income tax [4].

A. Transfer of partnership shares by natural person partners

According to the relevant provisions of the Individual Income Tax Law and its implementing regulations, income from property transfer shall be subject to personal income tax at the rate of 20%. The term "income from property transfer" refers to the income obtained by individuals from the transfer of securities, equity, property shares in partnerships, real estate, machinery and equipment, vehicles and vessels and other property.

Therefore, if a natural person partner of a limited partnership transfers his/her share of the partnership property, his/her transfer income shall be subject to personal income tax at the rate of 20%.

B. Transfer of equity/stock of invested enterprise by limited partnership

The income of limited partnership enterprises other than "interest, dividend and bonus income" is business income, and shall be subject to individual income tax at the rate of 5-35%, unless the state has other provisions on the accounting of venture capital partnerships as a single investment fund and the investment in listed companies or stocks of companies listed on the New Third Board.

C. Liquidation and cancellation of limited partnership

According to the provisions of the Announcement of the State Administration of Taxation on the Issue of Individual Income Tax on the Recovery of Individual Investment and Operation, individuals terminate their investment, joint operation, business cooperation and other acts for various reasons, and obtain equity transfer income, liquidated damages, compensation, compensation and other amounts recovered in other names from the invested enterprise or cooperative project, other investors of the invested enterprise and operating partners of the cooperative project, All are taxable income of individual income tax, and the individual income tax shall be calculated and paid according to the applicable provisions of the "income from property transfer" item.

Taxable income=total amount of equity transfer income, liquidated damages, compensation, compensation and other receivables obtained by individuals - original actual contribution (investment) and relevant taxes

It is worth noting that the "Provisions on the Individual Income Tax Collection of Solely Owned Enterprises and Partnership Investors" [5] stipulates that the individual income tax shall be paid according to the operating income, which is inconsistent with the above provisions.

D. Not distributed according to the proportion of contribution

According to the provisions of the Partnership Law, a limited partnership can distribute all or part of its profits to some partners through the partnership agreement.

According to the provisions of the Notice of the Ministry of Finance and the State Administration of Taxation on the Income Tax Issues of Partnership Partners, the partners of the partnership shall determine the taxable income (the balance of total income minus costs, expenses and losses) according to the following principles:

(1) The partners of the partnership shall determine the amount of taxable income according to the distribution proportion agreed in the partnership agreement based on the production and operation income and other income of the partnership.

(2) If the partnership agreement is not agreed or clearly agreed, the taxable income shall be determined according to the distribution proportion determined by the partners through consultation, based on the total production and operation income and other income.

(3) If the negotiation fails, the amount of taxable income shall be determined according to the proportion of the partners' paid-in capital contribution based on the total production and operation income and other income.

(4) If the proportion of capital contribution cannot be determined, the taxable income of each partner shall be calculated on the basis of the total production and operation income and other income and the number of partners.

According to the above provisions, a limited partnership may not distribute according to the proportion of its capital contribution, but it shall be clearly agreed in advance through the partnership agreement, and there shall be commercial rationality. In practice, some limited partnership enterprises temporarily modify the profit distribution provisions of the partnership agreement before obtaining investment income, which risks being recognized by the competent tax authorities as "having unreasonable commercial purposes". Therefore, when a limited partnership is registered and established, the investment distribution plan should be designed in advance, and clearly agreed in the partnership agreement and other documents. When a limited partnership distributes, it should also prepare a complete profit distribution plan, and after the resolution of the partners' meeting, keep the relevant archived data [6] for inspection.

E. Individual income tax practice of capital increase, capital reduction, membership and withdrawal

a) Capital increase and partnership

With regard to the capital increase of the original partners of the limited partnership and the admission of new partners (including the capital increase and the admission of the transferred partnership shares), the main consideration is to consider the unfair capital increase and the tax issue of the admission, as well as how to determine the investment cost of the capital increase and the admission.

b) Capital reduction

According to relevant regulations, when a limited partnership reduces its capital, the limited partnership shall liquidate its property. The natural person partner shall pay individual income tax according to the business income tax item for the liquidation income distributed from the limited partnership [7].

c) Withdrawal

There is uncertainty as to whether the provisions of the Announcement of the State Administration of Taxation on the Issue of Individual Income Tax on the Recovery of Funds from the Termination of Investment and Operation by Individuals are applicable to the case of withdrawal of a limited partnership due to the reduction of its capital or the transfer of its property shares by partners. That is, if a partner withdraws from the partnership after capital reduction, whether he can pay personal income tax at the rate of 20% on the income from property transfer or at the rate of 5-35% on business income according to the above provisions; If a partner withdraws from the partnership by transferring the property share of the partnership, whether the income tax item of property share transfer is applicable and pay the individual income tax at the rate of 20%.

Reply from the official website of Shenzhen Municipal Taxation Bureau: The investors of the partnership hold the shares of the partnership rather than the shares of the enterprise, which reflects the form of withdrawal of the original partner and admission of the new partner. Therefore, first, if a partner withdraws from the partnership, the individual income tax of the "operating income" item shall be levied on the undistributed profits attributable to the partner's unpaid operating income in the current year. The second is that the partners transfer their investment shares, and from the level of the partnership, the individual income tax of the "operating income" item shall be levied on the liquidation income of the partners; At the partner level, the individual income tax of the "income from property transfer" item of the original partner shall be levied on the premium paid by the new partner for the share of the original partner.

F. Non-cash distribution

At present, under the system of the Enterprise Income Tax Law, the invested company distributes physical assets to the shareholder investment company, which is generally treated as capital reduction. At the level of the invested company, the enterprise income tax revenue and the sales cost are recognized as sales, and the enterprise income tax is paid; At the level of shareholders' investment in the company, it is regarded as distribution.

It is worth noting that at present, China has no clear rules for investors to invest in physical assets in limited partnerships and for limited partnerships to distribute physical assets to investors. Whether to refer to the treatment method of corporate income tax, that is, at the level of limited partnerships, the income is recognized as sales and personal income tax is paid according to the operating income, At the level of natural person partners, it is deemed that the distribution of profits or liquidation property is subject to individual income tax.

A. Give priority to return the investment cost and then allocate the investment income

In the private equity industry, it is a common practice to return the investment cost first and then distribute the investment income, but this practice is the "calculation method" for profit distribution agreed between partners, which is not recognized by the competent tax department. For the investment withdrawal of a project, the operating income shall be recognized according to the investment income of the project withdrawal minus the investment costs, expenses and losses, and the individual income tax shall be paid according to law.

B. Handle in accordance with relevant provisions of general limited partnership

The individual income tax of private equity fund partnerships is generally handled according to the individual income tax policy of general limited partnerships.

According to the Notice of the Ministry of Finance, the State Administration of Taxation, the Development and Reform Commission and the Securities Regulatory Commission on Issues Concerning the Income Tax Policy of Individual Partners in Venture Capital Enterprises (CS [2019] No. 8), Partnership venture capital enterprises that comply with the relevant provisions of the Interim Measures for the Administration of Venture Capital Enterprises (Order No. 39 of the Development and Reform Commission and other 10 departments) or the Interim Measures for the Supervision and Administration of Private Investment Funds (Order No. 105 of the Securities Regulatory Commission) and have completed the filing and standardized operation in accordance with the foregoing provisions can choose one of two ways: accounting by a single investment fund or accounting by the annual income as a whole, The individual income tax payable shall be calculated for the income of its natural person partners from the venture capital partnership.

A. Accounting of single investment fund

If a venture capital partnership chooses to account for a single investment fund, it shall file a single investment fund accounting method with the competent tax authority within 30 days after completing the filing of the venture capital fund of the China Securities Investment Fund Association or the filing of the venture capital enterprise of the provincial development and reform commission; If the record is not filed according to the regulations, it shall be deemed to be calculated as a whole according to the annual income of the venture capital enterprise.

If an accounting method needs to be adjusted after three years, it shall be filed with the competent tax authority again before January 31 of the next year after three years.

If a venture capital partnership chooses to be accounted for as a single investment fund, its individual partners' share of equity transfer income and dividend income from the venture capital partnership shall be calculated and paid personal income tax at the rate of 20%, and the equity transfer income and dividend income obtained from different venture capital projects in a tax year shall be calculated and paid separately according to the following methods:

(1) Income from equity transfer. The income from equity transfer of a single investment project shall be calculated according to the balance of the annual equity transfer income after deducting the original value of the corresponding equity and the reasonable costs of the transfer process. The income from equity transfer of a single investment fund shall be calculated according to the balance after the income and losses of different investment projects are offset each other in a tax year. If the balance is greater than or equal to zero, it shall be recognized as the annual income from equity transfer of the fund; If the balance is less than zero, the annual equity transfer income of the fund shall be calculated as zero and cannot be carried forward across years.

(2) Dividend income. The dividend and bonus income of a single investment fund shall be calculated based on the full amount of the dividends, bonus income and other fixed income securities distributed by the invested project.

(3) In addition to the above deductible costs and expenses, other expenses incurred by a single investment fund, including the management fee and performance remuneration of the investment fund manager, shall not be deducted during accounting.

B. 70% of the corresponding investment amount of the transferred project is deducted from the operating income

According to the provisions of the Notice of the State Administration of Taxation of the Ministry of Finance on the Relevant Tax Policies for Venture Capital Enterprises and Angel Investment Individuals (CS [2018] No. 55), those who have directly invested in start-ups through equity investment for more than 2 years, The individual partner of the venture capital partnership can deduct 70% of the corresponding investment amount of the transferred project from the business income that can be obtained from the venture capital partnership, and then calculate the amount of personal income tax that should be paid. If the loss is accounted for annually, it is allowed to carry forward to the next year according to relevant regulations.

A venture capital partnership enjoying the above tax policies shall meet the following conditions at the same time:

(1) A resident enterprise or venture capital partnership that is registered in China (excluding Hong Kong, Macao and Taiwan) and is subject to audit collection, and is not the sponsor of the invested start-up technology enterprise;

(2) Comply with the provisions of the Interim Measures for the Administration of Venture Capital Enterprises (Order No. 39 of the Development and Reform Commission and other 10 departments) or the special provisions of the Interim Measures for the Supervision and Administration of Private Investment Funds (Order No. 105 of the CSRC) on venture capital enterprises, and complete the filing and standardized operation in accordance with the above provisions;

(3) Within two years after the investment, the total equity ratio of the venture capital partnership and its related parties in the invested start-ups should be less than 50%.

Start-up technology enterprises should meet the following conditions at the same time:

(1) Resident enterprises registered and established in China (excluding Hong Kong, Macao and Taiwan) and subject to audit and collection;

(2) When accepting investment, the number of employees shall not exceed 300, among which the number of employees with bachelor's degree or above shall not be less than 30%; Total assets and annual sales revenue shall not exceed 50 million yuan;

(3) The establishment time when accepting the investment shall not exceed 5 years (60 months);

(4) Not listed on domestic and foreign stock exchanges at the time of investment acceptance and within 2 years after investment acceptance;

(5) In the year of receiving the investment and the next tax year, the proportion of the total R&D expenses to the cost expenses shall not be less than 20%.

A. No deferred tax filing

At the time of exercise, employees shall apply the taxable item of "salary and salary income" of employees according to the difference between the fair market price of equity at the time of exercise [8] and the actual purchase price of the employees to obtain the corresponding equity, calculated at the seven-level progressive excess tax rate of 3% to 45%, and the individual income tax shall be withheld and remitted by the company implementing the equity incentive at the domicile of the company implementing the equity incentive [9]. At the time of exit (i.e., the employee transfers the company's equity), the employee shall apply the "property transfer income" and pay the personal income tax at the rate of 20% according to the difference between the equity transfer income minus the corresponding cost of obtaining equity and reasonable taxes.

B. Handling deferred tax filing

If certain conditions are met, after filing with the competent tax authority, the employee will not pay personal income tax according to the "salary and salary income" when the option is exercised or the restricted equity is lifted temporarily, and will pay personal income tax at the rate of 20% according to the difference between the equity transfer income minus the corresponding cost of obtaining equity and the reasonable tax, Individual income tax shall be withheld and remitted by the equity incentive company at the domicile of the equity incentive company [10].

Based on the relatively flexible advantages of the partnership in terms of industrial and commercial registration, partnership affairs execution, rights and obligations arrangement between partners, many enterprises to be listed use limited partnerships as the shareholding platform for employee shareholding and equity incentive, but in practice, there is a large dispute about whether the equity incentive indirectly held through the shareholding platform can enjoy deferred tax.

A. Handling deferred tax filing

In practice, some employee-owned partnerships have passed the deferred tax filing procedures of the tax authorities. Through deferred tax filing, the individual income tax can be deferred to the time when the shareholding platform reduces the company's shares and withdraws profits. However, there is no clear policy guidance on whether to pay the individual income tax according to the "property transfer income" at the rate of 20% or the "production and operation income" at the rate of 5% - 35%. It is recommended to communicate with the local tax authorities in advance.

In addition, no matter whether the company enjoys the deferred tax policy or not, when the company distributes dividends and bonuses to incentive employees, employees should apply the taxable item of "interest, dividend and bonus income" to the dividends and bonuses directly or indirectly obtained through the shareholding platform, and pay individual income tax at the rate of 20%.

B. No deferred tax filing

If the deferred tax filing formalities are not handled, the employee shall calculate and pay the individual income tax according to the difference between the fair market price of the equity at the time of exercise and the actual purchase price of the employee to obtain the corresponding equity, applying the item of "wage and salary income". The income obtained by employees when transferring the equity of the company through the employee-holding partnership shall be subject to the taxable item of "production and operation income", which shall be calculated at the 5-level progressive excess tax rate of 5% - 35%, and shall be subject to individual income tax at the place of residence of the partnership [11].

According to the provisions of the Individual Income Tax Law and its implementing regulations, foreign individuals shall pay individual income tax according to law on the business income or interest, dividends and bonus income distributed from foreign-invested partnerships. If they comply with the provisions of the tax treaties, they shall comply with the provisions.

According to the provisions of the Notice of the Ministry of Finance and the State Administration of Taxation on Several Policy Issues Concerning Individual Income Tax (CS Zi [1994] No. 020), the income from dividends and bonuses obtained by foreign individuals from foreign-invested enterprises is temporarily exempted from individual income tax. It is worth noting whether the aforementioned "foreign-funded enterprises" include foreign-funded partnerships.

According to the provisions of the Announcement of the State Administration of Taxation on Expanding the Scope of Application of the Policy of No Withholding Income Tax on Direct Investment by Foreign Investors with Distributing Profits (Announcement No. 53 of the State Administration of Taxation in 2018), the profits distributed by foreign investors from domestic resident enterprises in non-prohibited foreign investment projects and fields are not subject to withholding income tax for domestic direct investment.

It can be seen from the above analysis that foreign individuals should pay individual income tax at the rate of 5-35% and 20% respectively for the business income or interest, dividends and bonus income distributed from foreign-invested partnerships. However, if an overseas individual acts as a limited partner of a foreign-funded partnership through a limited company established overseas, or as a non-resident enterprise, if it does not have an institution or place in China, or if it has an institution or place but has no actual connection with its institution or place, the enterprise income tax shall be levied at a reduced rate of 10% on its income from sources in China. In case of compliance with the tax treaty, the provisions thereof shall prevail.

In view of this, for cross-border investment, the relevant structure should be designed according to the expected nature of income. For example, if it is intended to obtain investment income mainly from dividends and bonuses distributed by the invested enterprises, overseas individuals can directly invest in limited companies in China, thus enjoying the individual income tax exemption policy; If it is intended to obtain investment income mainly through the transfer of equity/stock of the invested enterprise, the foreign individual can act as the limited partner of the foreign-invested partnership enterprise through its limited company established overseas, so that the enterprise income tax can be levied at a reduced rate of 10% in accordance with the provisions of the Enterprise Income Tax Law. As the relevant cross-border tax policies involved in foreign-funded partnerships are not clear, and there are different practices in practice, it is suggested to fully communicate with the competent tax authorities for handling.

B. Policy basis

According to the provisions of Article 21 of the Foreign Investment Law, foreign investors' capital contributions, profits, capital gains, income from asset disposal, intellectual property licensing fees, compensation or compensation obtained according to law, and income from liquidation in China can be freely remitted in and out in RMB or foreign exchange according to law.

According to the first paragraph of Article 22 of the Regulations for the Implementation of the Foreign Investment Law, foreign investors' capital contributions, profits, capital gains, income from asset disposal, royalties of intellectual property rights obtained, compensation or compensation obtained according to law, and income from liquidation in China can be freely remitted and remitted in RMB or foreign exchange according to law, and no unit or individual may illegally exchange currency, amount, and The frequency of remittance shall be limited.

According to the provisions of the Notice of the State Administration of Foreign Exchange on Further Promoting the Reform and Perfection of Foreign Exchange Management and the Authentic Compliance Audit, banks handling the outward remittance of profits equivalent to more than US $50000 (excluding) for domestic institutions should review the profit distribution resolution of the Board of Directors (or the profit distribution resolution of partners), the original tax filing form and the audited financial statements related to the outward remittance of profits in accordance with the principle of true transactions, The original of the relevant tax filing form shall be stamped with the amount and date of this remittance. Before the profits of domestic institutions are remitted, the losses of previous years shall be compensated according to law.

According to the provisions of the Notice of the State Administration of Foreign Exchange on Printing and Distributing the Guidelines for Foreign Exchange Business under Current Accounts (2020), the external payments under the profits, dividends and bonuses of foreign-invested enterprises shall be handled in accordance with the regulations on the management of the outward remittance of direct investment profits. In principle, the bank may not review the transaction documents when handling the service trade foreign exchange income and expenditure business with a single value of less than 50000 US dollars (including). To handle a single service trade foreign exchange revenue and expenditure business with an equivalent of more than 50000 US dollars (excluding), the bank shall confirm that the transaction subject, amount, nature and other elements listed in the transaction document are consistent with the foreign exchange revenue and expenditure applied for （3） The bank shall review the relevant materials of the return of the original inward or outward remittance according to the nature of the transaction of the original inward or outward remittance. In principle, the amount of the return shall not exceed the original inward or outward remittance amount. The overseas payer who repatriates the remitted funds shall be the original payee, and the domestic payee shall be the original payer. The domestic payer who repatriates the remitted funds shall be the original payee, and the overseas payee shall be the original payer. If the payee and payer under the refund item are inconsistent with the provisions, the domestic institution shall provide the bank with relevant explanations, and the bank shall handle it after reviewing the authenticity and rationality of the refund. （4） To handle a single foreign payment of service trade equivalent to more than US $50000, domestic institutions and individuals should first go through the filing procedures in accordance with the relevant provisions on the tax filing of foreign payment of service trade, and banks should verify the paper or electronic tax filing forms for foreign payment of service trade and other items.

Notes

[1] For the transfer of equity at a low price, the competent tax department has the right to verify and require the taxpayer to pay tax or make up tax and late payment fine (if any) according to the result of verification.

[2] Article 13 The income from equity transfer that meets one of the following conditions is obviously low, which is deemed to be justified: (1) it can provide valid documents to prove that the invested enterprise has been significantly affected by the national policy adjustment, resulting in the transfer of equity at a low price; （2） Inherit or transfer the equity to the spouse, parent, child, grandparent, grandparent, grandchild, grandchild, brother and sister who can provide the valid identity certificate, and the dependant or support who bears the direct support or support obligation to the transferor; （3） The internal transfer of shares held by employees of the enterprise that cannot be transferred to the outside world, as stipulated by relevant laws, government documents or the articles of association of the enterprise, and with relevant materials fully proving that the transfer price is reasonable and true; （4） Other reasonable circumstances where both parties to the equity transfer can provide effective evidence to prove its rationality.

[3] The total income refers to all kinds of income obtained by enterprises engaged in production and operation as well as activities related to production and operation, including sales income of goods (products), operating income, labor service income, project price income, property rental or transfer income, interest income and other business income.

[4] In practice, there are three views on whether natural person shareholders pay individual income tax in this case: First, natural person shareholders of the company do not need to pay individual income tax. This view is the reply of the State Administration of Taxation in 2010, but the reply can no longer be retrieved on its official website; Second, the natural person shareholders of the company need to pay personal income tax, and some provincial and municipal tax bureaus hold this view, which is to regard the surplus reserve, undistributed profits and other retained earnings converted into capital reserve as the company's profit distribution to shareholders; Third, pay individual income tax in accordance with relevant provisions on non-monetary capital contributions.

[5] Article 16 of the Provisions on the Collection of Individual Income Tax by Investors of Wholly Owned Enterprises and Partnership Enterprises stipulates that when an enterprise is liquidated, investors should settle relevant tax matters with the competent tax authorities of the place where the business management is located (the place of registration) before canceling the industrial and commercial registration. The liquidation income of the enterprise shall be regarded as the annual production and operation income, and the investors shall pay individual income tax according to law.

[6] Generally, the following information shall be kept: (1) partnership agreement; (2) Partners' meeting resolutions and profit distribution plans; (3) Audit report of the partnership (if any), individual income tax return and its attachments; (4) Detailed ledger or monthly summary of investment income and dividend receivable.

[7] The term "liquidation income" refers to the part of the fair value of all assets or properties at the time of liquidation of an enterprise that exceeds the paid-in capital after deducting various liquidation expenses, losses, liabilities and profits retained in previous years.

[8] The fair market price of shares (rights) of non-listed companies shall be determined in accordance with the net asset method, analogy method and other reasonable methods. The net assets method is determined according to the net assets at the end of the previous year when the stock (right) is acquired.

[9] Policy basis: Article 4 (1) of the Notice of the Ministry of Finance and the State Administration of Taxation on Improving the Income Tax Policies Related to Equity Incentive and Technology Investment (CS [2016] No. 101), and Article 2 (2) of the Notice of the Ministry of Finance and the State Administration of Taxation on the Issue of Individual Income Tax on Individual Stock Option Income (CS [2005] No. 35)

[10] Policy basis: Article 1 (1) of the Notice of the Ministry of Finance and the State Administration of Taxation on Improving the Income Tax Policies Related to Equity Incentive and Technology Investment (CS [2016] No. 101)

[11] Article 4 of Annex 1 of the Notice of the Ministry of Finance and the State Administration of Taxation on Printing and Distributing the Provisions on the Collection of Individual Income Tax by Investors of Wholly Owned Enterprises and Partnership Enterprises (CS [2000] No. 91), and Item 2 of Article 2 (3) of the Notice of the State Administration of Taxation on Effectively Strengthening the Collection and Management of Individual Income Tax for High-income Persons (GSF [2011] No. 50)

[12] Hengqin Guangdong-Macao Deep Cooperation Zone Macao Residents' Individual Income Tax Preferential Treatment Operation Guidance - Business Income Chapter Hengqin Guangdong-Macao Deep Cooperation Zone Macao Residents' Individual Income Tax Preferential Treatment Operation Guidance - Comprehensive Income