Note on four special sources of incomes

Stock trading and dividends

In line with relevant regulations, individual’s dividend income derived from trading public company stocks at primary and secondary markets should be taxable at 20 percent below the category of interest and dividend income.

Since September 8, 2015, individual income from holding stocks of public companies purchased on primary or secondary markets more than one year ago is temporarily exempted from individual income tax.

For those holding stocks purchased at the primary or secondary markets for no more than one month (inclusive), total dividend income is taxable. For those holding stocks for more than one month but less than a year (inclusive), the taxable amount is temporarily 50 percent of the dividend income. The 20 percent tax rate is eligible for both scenarios.

For individual investors already holding public company stocks in their stock accounts as of the effective date, the holding-time shall run from the date of acquisition.

One-off compensation for terminating employment

According to relevant regulations, one-off compensation, from the perspective of taxation, means a one-off payment made by an employer to an ex-employee for terminating the employment relationship upon restructuring, organizational change, or employee reduction for greater efficiency.

The one-off compensation (including economic compensation, any allowances or subsidies) for terminating employment shall not be taxable for amounts not exceeding three times the local annual average salary for the previous year. Any excessive amount is taxable under the category of salary and wage.

Considering that one-off compensation typically involves large sums of money, and the fired employees may not be able to gain fixed income for an extended period, the individual one-off compensation can be regarded as salary and wage income over a couple of months and be averaged over a certain period. The following approach of calculation should be followed:

The one-off compensation should be divided by the number of working years the individual has worked for the employer. The result shall be taxable as monthly salary and wage income and the corresponding amount of tax shall be paid in line with the Tax Law. The number of working years shall be counted as the actual year of employment with the employer. It shall be counted as 12 if the employment exceeds 12 years.