Global Equity

China | Recent updates in SAFE requirement on Equity Incentive Plans

Summary

Removal of “6-month Forced Sale” requirement

In a significant regulatory development, the Shanghai Branch of China’s State Administration of Foreign Exchange (SAFE) has removed the mandatory “6-month forced sale” requirement for equity awards held by terminated employees participating in overseas-listed companies’ incentive plans.

This change applies to all plans that are subject to SAFE’s foreign exchange registration procedures, providing greater flexibility in the administration of equity awards while maintaining the necessary compliance framework.

The detail

For companies with existing SAFE Shanghai registration:

•  May now remove the “6-month forced sale” condition for terminated participants in their next SAFE registration update.
• Must submit a confirmation letter affirming continued compliance with SAFE requirement for monitoring and handling the funds derived from the registered equity incentive plans for the terminated participants.

For companies filing initial SAFE registration in Shanghai:

•  Must ensure their treatment of terminated participants aligns with SAFE requirements.

What’s next?

The above change offers companies with enhanced flexibilities in managing their China equity incentive plans while allowing participants greater autonomy in determining when to dispose their vested share awards. On the other hand, this enhanced flexibility may bring additional administration considerations for companies choosing to allow departed employees to retain their shares.

Companies should anticipate potential operational impacts, including the need to maintain ongoing communication with former participants, monitor pending transactions, and provide necessary documentation support. Furthermore, companies will need to promptly update all relevant plan materials (including official documents and employee FAQs) and implement clear communication strategies to ensure both current and former participants fully understand the revised policy. While these changes offer welcome flexibility, companies should carefully assess whether their current infrastructure can support the associated administrative requirements while maintaining compliance.

Contact us

For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:

Jacky Chu
China Leader

Monica Xu
Partner

Suzy Sun
Associate Director

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