Personal equity incentive income refers to a form of salary that enterprises use as an incentive means by issuing equity or stock options to employees. In terms of tax treatment, individual equity incentive income is usually affected by specific tax policies and regulations. According to the laws of different countries and regions, individual equity incentive income may be regarded as wage income, capital income or other forms of income, and different tax rates and tariffs apply accordingly. Generally speaking, individual equity incentive income will not generate tax liability immediately when it is distributed, but will trigger tax events under certain conditions (such as exercising or selling equity).

1. What does equity incentive mean?

Equity incentive is a way for enterprises to take out part of equity to motivate senior managers or outstanding employees. Generally speaking, there are conditional incentives, such as how many years employees need to work in the enterprise, or to achieve a specific goal. When the motivated personnel meet the incentive conditions, they can become shareholders of the company, thus enjoying shareholder rights. It is a long-term incentive mechanism for enterprises to motivate and retain core talents, and it is one of the most commonly used methods to motivate employees at present. Equity incentive is mainly to give employees some shareholders' rights and interests by attaching conditions, so that they can have a sense of ownership, thus forming a whole body of interests with enterprises, promoting the growth of enterprises and employees, and then helping enterprises achieve the long-term goal of stable development.

Second, the mode of equity incentive

1. Performance Unit

It means setting reasonable performance targets at the beginning of the year. If the incentive object reaches the predetermined target at the end of the year, the company will grant it a certain number of shares or withdraw a certain incentive fund to buy shares of the company. The circulation and realization of performance stocks are usually limited by time and quantity. Another long-term incentive method similar to performance stocks in operation and function is performance unit, which is different from performance stocks in that performance stocks are awarded to stocks, while performance units are awarded to cash.

2. Stock option

Refers to a right granted by the company to the incentive object. The incentive object can buy a certain number of circulating shares of the company at a predetermined price within a specified time, or give up this right. The exercise of stock options also has time and quantity restrictions, and the incentive object needs to pay cash for the exercise itself. At present, the virtual stock option applied by some listed companies in China is a combination of virtual stock and stock option, that is, the company grants the incentive object the right to subscribe for virtual stock, and the incentive object obtains the virtual stock after exercising.

3. Virtual stocks

It refers to a kind of virtual stock granted by the company to the incentive object, according to which the incentive object can enjoy certain dividend rights and stock price appreciation income, but it has no ownership and voting rights, cannot be transferred and sold, and automatically becomes invalid when it leaves the enterprise.

4. stock appreciation rights

Refers to a right granted by the company to the incentive object. If the company's share price rises, the incentive object can obtain the corresponding amount of share price appreciation income by exercising. The incentive object does not have to pay cash when exercising, but obtains cash or equivalent company shares after exercising.

5. Restricted stock

It refers to granting a certain number of company shares to the incentive object in advance, but there are some special restrictions on the source and sale of shares. Generally, only when the incentive object completes a specific goal (such as turning losses into profits) can the incentive object sell restricted stocks and profit from them.

6. Deferred payment

It refers to a package of salary and income plans designed by the company for the incentive object, part of which belongs to equity incentive income. Equity incentive income is not paid in the current year, but converted into shares according to the fair market value of the company's shares, and paid to the incentive object in the form of company shares or in cash according to the market value of the shares at that time after a certain period.

7. Operator/employee stock ownership

It refers to letting the incentive object hold a certain number of company shares, which will be given to the incentive object by the company free of charge, or purchased by the company with subsidies to the incentive object, or purchased by the incentive object at its own expense. The incentive object can benefit when the stock appreciates and suffer losses when the stock depreciates.

8。 Management/employee acquisition

It means that the management or all employees of the company use leveraged financing to buy shares of the company, become shareholders of the company, and share risks and benefits with other shareholders, thus changing the ownership structure, control structure and asset structure of the company and realizing shareholding operation.

9. Book value appreciation right

Specifically divided into two types: purchase type and virtual type. Purchase type means that the incentive object actually buys a certain number of company shares according to the net asset value per share at the beginning, and then sells them back to the company according to the net asset value per share at the end of the period. Virtual type means that the incentive object does not need to spend money at first, and the company grants the incentive object a certain number of nominal shares. At the end of the period, the income of the incentive object is calculated according to the increment of net assets per share and the nominal number of shares, and the cash is paid to the incentive object accordingly.

The specific situation of equity incentive needs to be handled strictly in accordance with the above-mentioned legal provisions, especially the matters that need to be handled under different equity confirmation situations are different. Companies and enterprises should make clear the relevant matters of equity incentive according to their own actual conditions, and those who have objections can be dealt with through legal channels.

Personal equity incentive income refers to a form of salary that enterprises use as an incentive means by issuing equity or stock options to employees. In terms of tax treatment, individual equity incentive income is usually affected by specific tax policies and regulations. According to the laws of different countries and regions, individual equity incentive income may be regarded as wage income, capital income or other forms of income, and different tax rates and tariffs apply accordingly. Generally speaking, individual equity incentive income will not generate tax liability immediately when it is distributed, but will trigger tax events under certain conditions (such as exercising or selling equity). Therefore, the tax treatment methods of individual equity incentive income include reasonable tax declaration opportunity, tax calculation method and compliance with relevant reporting obligations. In order to ensure compliance with tax laws, beneficiaries of individual equity incentive income usually need to consult professional tax consultants or lawyers to ensure compliance and minimize tax risks.

Legal basis:

Company law of People's Republic of China (PRC) (revised on 20 18);

Chapter v issuance and transfer of shares of a joint stock limited company

Section 1 Stock Issuing Banks Article 134 When a company publicly issues new shares with the approval of the the State Council Securities Regulatory Authority, it must announce the prospectus and financial accounting report of the new shares and make a subscription. The provisions of Articles 87 and 88 of this Law shall apply to the company's public offering of new shares.