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Q：
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If an individual terminates their investment, joint venture, or business cooperation for various reasons and obtains equity transfer income, liquidated damages, indemnity, compensation and other amounts recovered from the invested enterprise or cooperative project, other investors of the invested enterprise, and business partners of the cooperative project, do they need to pay personal income tax?
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A：
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Yes, personal income tax should be calculated and paid according to the regulations applicable to the "income from property transfer" project.
Taxable income = the total amount of equity transfer income, liquidated damages, compensation, indemnity, and other amounts recovered by individuals minus the original actual capital contribution (investment amount) and related taxes and fees.
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Q：
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If an individual transfers equity and the declared income from equity transfer is significantly low without justifiable reasons, how should tax be calculated?
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A：
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The withdrawal of funds by individual shareholders is funded by the company and constitutes the company's recovery of equity, as well as an act of equity transfer. If the declared equity transfer income is significantly low and without justifiable reasons, the competent tax authority may verify and determine the equity transfer income and calculate and pay personal income tax based on the equity transfer.
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Q：
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If an individual transfers equity and the declared equity transfer income is significantly lower but there are legitimate reasons, how should tax be calculated?
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A：
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If all individual shareholders reduce their capital proportionally, and the reduction amount does not exceed the difference between the subscribed capital and the actual paid capital, and they have not obtained cash, in-kind or other economic benefits from the company, they are not required to pay personal income tax.
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Q：
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How to handle corporate income tax for corporate shareholders who reduce or withdraw capital?
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A：
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If an investing enterprise withdraws or reduces its investment from the invested enterprise, the portion of its acquired assets equivalent to the initial capital contribution should be recognized as investment recovery; The portion equivalent to the accumulated undistributed profits and accumulated surplus reserves of the invested enterprise calculated based on the proportion of reduced paid in capital should be recognized as dividend income; The remaining portion is recognized as income from the transfer of investment assets.
Dividends, interests, and other equity investment income between eligible resident enterprises are tax exempt income, exempt from corporate income tax. Therefore, the dividend income recovered from the reduction or withdrawal of capital by corporate shareholders is exempt from corporate income tax, and only the income from the transfer of investment assets needs to pay corporate income tax.
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Q：
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How do companies pay stamp duty for capital reduction?
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A：
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The tax basis for taxable business books is the total amount of paid in capital (share capital) and capital reserves recorded in the books. If the total amount of paid in capital (share capital) and capital reserves recorded in the business account books that have already paid stamp duty, in future years increases compared to the total amount of paid in capital (share capital) and capital reserves that have already paid stamp duty, the taxable amount shall be calculated based on the increased amount.
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