Baoxin View
Prudential View | How much do you know about tax savings for equity changes?
Release time：2020-08-20
In the 21st century business era, economic exchanges are frequent, and company equity transactions cannot be more common. Common ways to obtain company equity include equity transfer and capital increase and share expansion. In practice, because a large number of transaction subjects do not understand tax laws, they tend to ignore tax issues when negotiating equity transactions. In this article, the author will discuss the general tax issues involved in equity transactions between natural person shareholders.Equity transfer is a civil legal act in which a company’s shareholders transfer their shareholders’ rights and interests to others in accordance with the law to enable others to obtain equity. The company’s registered capital remains unchanged after the equity transfer.The main tax consideration for the transfer of equity by natural persons is personal income tax. When a natural person transfers equity, the balance of the equity transfer income after deducting the original value of the equity and reasonable expenses is the taxable income, and the individual income tax is paid according to the "property transfer income". Therefore, the taxes paid by different transfer modes are different.There are three types of equity transfer models, namely premium transfer, parity transfer and low-price transfer.Literally speaking, premium transfer means that the transfer price is higher than the company value; parity transfer means that the transfer price is equal to the company value; low price means that the transfer price is lower than the company value.In order to make it easier for everyone to understand the tax payment issues of these three equity transfer modes, let’s give a simple example. For example, A Investment has established a company A with a registered capital of 1 million yuan, and the actual investment amount is 1 million yuan, and the company has accumulated surplus. 200,000 yuan, A does not intend to continue to operate Company A. If A sells all shares to B at a price of 2 million yuan, then A must pay 200,000 yuan of personal income tax [(200-100)*20%], which is a premium transfer. If A transfers to B at a price of 1.2 million yuan, the personal income tax that A has to pay is 40,000 yuan [(100+20-100)*20%], which is a parity transfer. If A transfers at a price of 800,000 yuan, then the personal income that A has to pay is also 40,000 yuan [(100+20-100)*20%], and the personal income tax is calculated based on the company's value-added part. This is a low-cost transfer. (Why do you still need to pay taxes on low-cost transfers? Because the income from equity transfers is obviously low and there is no justifiable reason, the competent tax authority may approve the equity transfer income according to the net assets verification method.)Capital increase and share expansionThe acquisition of equity by increasing capital and shares generally means that the company increases its registered capital, and the increased registered capital is subscribed by new shareholders or both new and old shareholders, and the company increases its registered capital.New shareholders invest in the company and obtain the company’s equity, which is a shareholder’s investment behavior, which can directly increase the company’s paid-in capital, without obtaining income taxable income, not collecting income tax as taxable income, and there is no taxation problem. Using the same example above, A invested and established company A with a registered capital of 1 million yuan, and the actual investment amount was 1 million yuan. The company has a cumulative surplus of 200,000 yuan. Company A used 1 million yuan to purchase a piece of land 8 years ago. Valued at 10 million, A does not intend to continue to operate Company A. If Company A transfers the equity by way of parity transfer, the personal income tax to be paid is 1.84 million yuan [(1000+100+20-100-100)*20%]. If the capital is first increased and then transferred, if B increases the capital to Company A by 9 million yuan, after the capital increase, the registered capital of Company A is 10 million yuan, of which A holds 10% of the shares and B holds 90% of the shares. There is no need to pay tax when increasing capital, and then A transfers all the shares of Company A at a parity price (consistent with the equity transfer price approved by the tax authority), then A should pay personal income tax of 184,000 yuan [(900+100+20+1000)- 100-100-900]*20%*10%]Through the comparison of the above two models, do you suddenly feel that the increase in capital and stocks makes people's eyes bright? Is it ready to come to a capital increase and stock expansion? Don't worry, I will talk about the corresponding risks.If Company A’s main asset is land, and if it directly transfers all of its “equity”, it is very likely that the tax department will collect land value-added tax. According to the relevant approval of Guoshuihan [2011] No. 415, the determination that "Beijing Guotai Hangsheng Investment Co., Ltd. uses equity transfer to transfer land use rights is essentially a real estate transaction" shall be determined in accordance with the provisions of the "Interim Regulations on Land Value Added Tax" , Levy land value-added tax.It is indeed reasonable to raise capital by increasing capital and shares, but will A transfer his company and land without any economic benefits? Under normal circumstances, certainly not. In practice, when A agrees to B's appreciation and expansion, under normal circumstances, B will be required to give a compensation.Tax saving is actually to make more use of tax incentives to enjoy the preferential benefits that should be enjoyed in accordance with the law, in compliance with regulations, appropriately and reasonably. The entitlement policy is the right of the state to taxpayers. Don't spend a lot of money to evade, evade, or defraud taxes, but don't use the existing concessions. While conducting equity transactions, the author recommends that transaction entities should consult professional tax lawyers, accountants or tax agents to achieve a win-win transaction within the framework permitted by law.
