Is the income derived from the transfer of the sole proprietorship by the sole proprietor the income from the transfer of property or from the operation of the sole proprietorship? The tax rate on income from transfer of property is20%, the maximum tax rate on operating income can be reached35%The huge tax gap means that this is a problem worth thinking about and a business worth planning.
In addition, Article 22, 23, 24 and 73 of the Partnership Enterprise Law specifically regulate the transfer of the share of partnership property, while the sole proprietorship Enterprise Law does not contain the expression of the transfer of sole proprietorship. It should be noted that Article 17 of the Sole proprietorship Enterprise Law stipulates that "the sole proprietor of the sole proprietorship enterprise has the ownership of the property of the enterprise according to law, and the relevant rights of the sole proprietorship enterprise may be transferred or inherited according to law." In this clause, the investor can legally transfer not the whole enterprise, but the property of the enterprise. The reason is that the property of a sole proprietorship belongs to the individual investor, not the sole proprietorship.
The Regulations for the Implementation of the Individual Income Tax Act are very strict in that they only enumerate the share of property in the transfer of property by an individual in a partnership and exclude the sole proprietorship. This is a disguised statement of attitude - does not support the transfer of sole proprietorship as property transfer income.
However, we know that market regulatory authorities in some regions allow sole proprietorships to change their investors, and courts in judicial practice also recognize the legality of transferring property rights in this way. (However, the Supreme Court does not believe that all property in a sole proprietorship will be transferred with the change of ownership of the sole proprietorship. For details, please refer to the article "The Risk of Tax Planning for Real Estate through the Transfer of Sole Proprietorship.")
How should the sole proprietorship change its investors?
I think we should settle personal income tax and settle relevant tax matters with the competent tax authorities. The sole proprietor of a sole proprietorship is required to "assume unlimited liability for the debts of the business on his or her personal property." If the sole proprietorship is transferred as a whole, the liability of the first and second investors will be difficult to distinguish. In contrast, the Partnership Enterprise Law has detailed regulations on the responsibilities of partners before and after they enter a partnership, transfer their share of property, and withdraw from the partnership.
When a sole proprietorship has changed its investors, it is necessary to liquidate the sole proprietorship from the creditor's point of view or from the tax point of view to clarify the relevant liability to the person.
Of course, it may be that the State Administration of Taxation did not expect that some regional market regulators would allow sole proprietorships to change their investors. Therefore, the Regulations on the Taxation of Individual Income Tax for Sole Proprietorship and Partnership Investors (Finance and Taxation91Article 16 only stipulates: "In the event of liquidation of an enterprise, the investor shall settle the relevant tax matters with the competent tax authorities before the cancellation of the industrial and commercial registration. The liquidation income of an enterprise shall be regarded as the annual income from production and operation, and individual income tax shall be paid by the investor according to law." This makes the basic tax authorities in the original investors to carry out personal tax settlement settlement tax matters lack of confidence. Moreover, the market supervision department will not transmit the information of the sole proprietorship enterprise's change of investors to the tax authorities, which also makes the change of investors become a hot topic of tax planning.
Now, the new Regulations for the Implementation of the Individual Income Tax Law list the income from the transfer of property without transferring the sole proprietorship enterprise, which indirectly shows the attitude of the State Administration of Taxation towards this business. It is conceivable that there will probably be a new normative document to clarify the tax administration of this business. That strategy, too, will come to an end.
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