How to declare income tax when selling stocks of unlisted companies?

The Northern District National Taxation Bureau of the Ministry of Finance stated that the nature of income from an individual selling stocks of unlisted (OTC) companies, whether it is securities exchange income or property exchange income, depends on whether the stocks sold have completed the statutory issuance visa procedures in accordance with the law. If the stocks of unlisted companies sold by an individual have been issued and certified in accordance with the provisions of the Company Law, the transaction income is considered securities trading income and should be included in the individual's basic income for taxation starting from January 1, 2011. However, if the stocks have not completed the statutory issuance and certification procedures, the transaction income must be included in the property transaction income declared in the comprehensive income tax return.

The bureau further explained that when an individual sells legally issued unlisted (OTC) company stocks, the trading income, together with other amounts that should be included in the basic income amount, plus the net comprehensive income calculated in accordance with the Income Tax Law, minus the tax-free amount (adjusted to NT$7.5 million starting from 2014), the basic tax amount is calculated at 20%. If the "general income tax amount" is lower than the "basic tax amount", in addition to the original comprehensive income tax amount, income tax should be paid on the difference between the "basic tax amount" and the "general income tax amount".

The Bureau gives the following examples:
(Example 1) The unlisted (OTC) company stocks of Company A sold by Mr. A have been legally issued. Mr. A subscribed for 1 million shares of Company A at a par value of RMB 10 in 2017, and sold all of them at RMB 40 per share in 2014, with a total transaction amount of RMB 40 million. He paid securities transaction tax of RMB 120,000 (RMB 40 million × 3‰) and handling fee of RMB 100,000 (RMB 40 million × 0.25%), and calculated his transaction income as RMB 29.78 million (RMB 40 million - RMB 10 million - RMB 120,000 - RMB 100,000). Assuming that Mr. A's original net comprehensive income was 500,000 yuan, there was no investment tax deduction in the current year, and the "general income tax" was 25,000 yuan (500,000 yuan × tax rate 5%). Since this income was securities trading income, it should be included in the personal basic income according to the Basic Income Tax Regulations. After adding the net comprehensive income of 500,000 yuan, deducting the 114-year tax exemption of 7.5 million yuan, the basic tax amount is calculated to be 4.556 million yuan {〔(29.78 million + 500,000) - tax exemption of 7.5 million yuan〕× tax rate 20%〕}. Therefore, in addition to the original general income tax of 25,000 yuan, Mr. A should also pay income tax on the difference of 4.531 million yuan between the "basic tax" of 4.556 million yuan and the "general income tax" of 25,000 yuan. The total tax payable is 4.556 million yuan.
(Example 2) The unlisted (OTC) stock of Company A sold by Mr. A did not complete the legal issuance procedures in accordance with the law. The income from the sale of the stock by Mr. A is a property transaction income and should be included in the total personal comprehensive income. After deducting all tax exemptions and deductions, the tax payable is calculated according to the 2014 comprehensive income tax rate brackets (net income of more than 4,980,001 yuan, applicable tax rate of 40%; progressive difference of 911,700 yuan) as 11.203 million yuan [(29.78 million yuan + 500,000 yuan) × tax rate of 40% - progressive difference of 911,700 yuan].

The bureau reminds that when individuals sell stocks of unlisted companies, they should first confirm whether the stocks have been issued in accordance with the law, pay attention to the nature of the proceeds from the stock transaction and the applicable laws and regulations, and declare and pay taxes in accordance with the law to avoid negligence and penalties for tax overdue payments. If you still have questions, please visit the bureau’s website ( https://www.ntbna.gov.tw ) to check relevant laws or use the toll-free service number 0800-000321 for inquiries.

Contact person for press release: Mr. Zhong, Inheritance Tax Group, HSI Contact number: (03) 3396789 ext. 1420