China's State Administration of Taxation has issued the new formula for calculating the tax of stock option income in Guoshuihan [2006]902#.

The new formulae are showing below:
tax amount = [ (yearly stock option taxable amount) / Average Number of Months * applicable tax rate -quick reckoning deduction) *Average Number of Months - (yearly tax paid for income from stockoption)

Here Average Number of Months is:
Average Number of Months = SUM [(each stock option taxable amount)*(each number of months)] / (yearly stock option taxable amount)

* The number of month can not exceed 12.
Example: an employee gained stock option twice in one fasical year.

Tax_1= ( 2000/2 * 10% - 25 )* 2 = 150
Tax_2= ((2000+5000)/7.71 * 10% - 25)*7.71 -150 = 357.25

Note
Average Number of Months =( 2000*2 + 5000*10 )/(2000+5000) = 7.71

China stock option, weighted average, program HCNFTAX0, form SOT001

Legal change

Note
This solution does not support calculation in the following cases:

• An employee gains more than one time of stock options in one payroll period

• Stock option tax retro calculation

These cases will be considered in next phase.

For more information, visit website:
http://www.chinatax.gov.cn/view.jsp?code=200610181358585457

Apply the HR support package or the correction instructions in this note.