Parents transfer equity to their children for free, do the children need to pay individual income tax?

2022-06-12 0 By

Equity free gift to the children who can provide legal proof of identity relationship, belongs to the case with legitimate reasons, no matter the donor or donee do not need to pay individual income tax.Article 10 of the Announcement of the State Administration of Taxation on Issuing Measures for the Administration of Individual Income Tax on Equity Transfer Income (Trial Implementation) (Announcement No.67, 2014 of the State Administration of Taxation) : Equity transfer income shall be determined in accordance with the principle of fair trade.Article 11, paragraph 1: Where the declared income from equity transfer is obviously low without justifiable reasons, the competent tax authority may verify the income from equity transfer.The second paragraph of article 13: as justified circumstances: inheritance or equity transfer to the offer has the legal effect to prove identity relationship of spouse, parents, children, grandparents, maternal grandparents and grandchildren or maternal grandchildren, brothers and sisters, and commitment to raising or directly support endorser of the supporter or support.Therefore, if the equity is donated to the children who can provide legal proof of identity relationship, it belongs to the case of justified reasons and does not need to pay individual income tax.What is equity gift equity gift from the literal meaning of shareholders will belong to their own equity gift to others, it is worth noting that China’s “Company Law” did not set the equity gift directly related provisions.But in fact, equity gift and equity inheritance should be a special form of equity transfer, equity gift should be regarded as a free equity transfer.Equity gift is usually divided into two kinds, one is the shareholder’s internal equity gift, the other is the shareholder’s external equity gift.A gift of equity within a shareholder will only cause a change in the shareholding ratio of each shareholder or a decrease in the total number of shareholders. Such gift is exercised by a shareholder without the consent of other shareholders.The shareholder’s external equity gift refers to giving all or part of the company’s equity to a third party, which will cause the increase of the total number of shareholders of the company and destroy the company’s personal integrity.Equity donates what notes to have above all, the equity donates that accepts limited company is donative completely no matter be donative still is partial donative it is to change shareholder circumstance, need undertakes change to industrial and commercial register branch to register.Secondly, if the equity of a one-person company is donated in full, according to the provisions of China’s current company law, if the shareholder of a one-person company cannot prove that the company’s property is independent of the shareholder’s own property, it should bear joint and several liability for the company’s debt, thus losing the limited liability significance of the shareholder to bear liability for the company’s debt with its capital contribution.Finally, for the recipient, the civil Code stipulates that the donor can revoke the gift before the transfer of the right of the gift property, except the gift contract with the nature of social public welfare and moral obligation such as disaster relief and poverty alleviation or the gift contract notarized can be irrevocable before the transfer of the gift property.In order to avoid the donator to go back on his word and revoke the gift, the gift agreement should be notarized in time.Equity gift from the literal meaning of shareholders will belong to their own equity gifts to others.If the equity is donated to the children who can provide legal proof of identity relationship, it belongs to the case of justified reasons and does not need to pay individual income tax.# Equity transfer #