What Are Stock Appreciation Rights?

Stock Appreciation Rights (SARs) are usually used in conjunction with subscription rights. Among them, the stock appreciation right does not require the actual purchase of shares. The manager directly obtains a sum of the value-added portion of the company's stock at the end of the period (= the market price of the stock at the end of the period-the agreed price). For remuneration, managers can choose to add cash or buy company stock. In addition, since the manager does not actually purchase the stock, "hedging behavior" can be avoided.

Stock appreciation right

Stock Appreciation Rights (SARs) are usually used in conjunction with subscription rights. Among them, the stock appreciation right does not require the actual purchase of shares. The manager directly obtains a sum of the value-added portion of the company's stock at the end of the period (= the market price of the stock at the end of the period-the agreed price). For remuneration, managers can choose to add cash or buy company stock. In addition, since the manager does not actually purchase the stock, "hedging behavior" can be avoided.

Chinese name

Stock appreciation right

Foreign name

Stock Appreciation Rights

Short name

SARs

Stock appreciation

= End-market stock price-agreed price

With the use of

Subscription rights

(1)

(1) The difference between stock options and stock appreciation rights mainly lies in the choice of incentive objects. The object of the stock option incentive is the company's stock, and the incentive object can obtain complete shareholders' equity after exercise. The stock appreciation right is a virtual

Overview of stock appreciation rights

Stock appreciation rights are just another manifestation of stock options, and their substance is as described in Article 4 of the State Administration of Taxation's Supplementary Notice on Issues Concerning the Payment of Personal Income Tax on Income from Individual Stock Options (Guo Shui Han [2006] No. 902) That is, "every employee who obtains a stock option does not actually buy or sell stocks on the exercise date, but obtains the spread income directly from the authorized enterprise according to the difference between the market price and the exercise price of the stock specified on the exercise date. The income from the price difference shall be used as the salary and salary income of employees in the form of stock options, and shall be calculated and paid according to the relevant provisions of the Ministry of Finance and the State Administration of Taxation on the "Notice of Levying Personal Income Tax on Individual Stock Option Income" (Caishui [2005] No. 35) "Income tax" is basically the same.

Processing of stock appreciation rights

Our tax treatment of stock appreciation rights should focus on the following links:

1 Grant date: The grant date is generally determined by the board of directors after the relevant listed company's incentive plan is reported to the shareholders' meeting for approval. As the stock appreciation rights plan was granted on the grant date, it only granted relevant personnel to obtain the gains on the stock price and the stock price difference granted on the grant date on the exercise date, not the property determined to the employees. Therefore, stock appreciation rights are not taxable on the grant date.

2. Exercisable date: Generally, the stock appreciation rights plan will stipulate an exercise restriction period. The day after the expiration of the exercise restriction period is the exercise date. Only after the exercisable date, employees can exercise the option within the validity period. Therefore, for stock appreciation rights plans, employees did not obtain any form of income on the vesting date. Therefore, the exercisable right date should not be used as the time when the tax obligation occurs.

3. Exercise date: The date on which the grantee of the stock appreciation right exercises the right and can obtain the income. Only when the grantor actually exercises the right, the tax authority can calculate the stock appreciation right actually obtained by the grantor. Therefore, the actual exercise date is the time when the tax liability for personal income tax on stock appreciation rights occurs.

4. Calculation of prescribed number of months. According to the Caishui [2005] No. 35 document, it refers to the number of months of domestic work period during which employees obtain wages and salaries from stock appreciation rights in China. If it is longer than 12 months, it is calculated as 12 months. The interval between the granting date of the stock appreciation right plan and the day of exercisable rights shall not be less than one year in accordance with the relevant provisions of the "Administrative Measures for the Equity Incentives of Listed Companies" (trial). Therefore, for China's resident taxpayers, the required number of months is generally 12 months. For the non-resident taxpayers who have no residence in China, the income from stock appreciation rights should be based on the Notice of the State Administration of Taxation on the Issues Concerning the Determination of Tax Obligations on the Income of Wages and Salaries from Individuals without Residence in China. (Guo Shui Han [2000] No. 190) stipulates that income shall be divided between domestic and overseas income.