Compliance
Complying with New Rules on Corporate Restructuring Tax Treatment in China
China has refined its rules governing corporate restructuring (mergers, divisions) to allow more flexible application of ‘special tax treatment’ for resident enterprise shareholders—especially in setting standards for thresholds and consistency.
By NomadicTax Research Team • 5-8 min read • August 13, 2026
## What’s New in Corporate Restructuring Income-Tax Management
In July 2026, China’s State Taxation Administration issued **Nationwide Announcement No. 13 (2026)** clarifying **the tax administration issues relating to corporate restructuring**—specifically for mergers, divisions and similar events.([fgk.chinatax.gov.cn](https://fgk.chinatax.gov.cn/zcfgk/c100012/c5251155/content.html?utm_source=openai)) The update particularly modifies expectations around **which shareholders** may claim *特殊性税务处理* (special tax treatment) under the Corporate Income Tax (CIT) laws. It takes effect for restructuring **with a restructuring date on or after 1 January 2026**.([chinatax.gov.cn](https://www.chinatax.gov.cn/chinatax/n810219/n810724/c5251170/content.html?utm_source=openai))
## Key Provisions and Conditions
### 1. **Ownership Thresholds Adjusted**
- Previously, only shareholders who held **100%** of a listed or private resident enterprise could jointly meet consistency requirements and claim special treatment. Now, the threshold is **lowered to 50%**: if resident enterprise shareholders whose combined share exceeds 50% and who reach agreement with the merged/divided entity, the eligible portion may qualify.([chinatax.gov.cn](https://www.chinatax.gov.cn/chinatax/n810219/n810724/c5251170/content.html?utm_source=openai))
### 2. **“Front-10” and 5% Shareholders Participation**
- Among those participants required: resident enterprise shareholders holding **at least 5%** and/or the **top 10 resident enterprise shareholders** must reach agreement and not transfer their shares for **12 months following restructuring**. If any of these parties transfer their shares within 12 months, special tax treatment may be forfeited.([fgk.chinatax.gov.cn](https://fgk.chinatax.gov.cn/zcfgk/c100012/c5251155/content.html?utm_source=openai))
### 3. **Mixed Treatment for Different Parts of the Transaction**
- Only the agreed-portion of assets, liabilities, or equity above the 50% ownership threshold and from shareholders who meet consistency and no-sale rules can receive special tax treatment. The rest is taxed under **general tax treatment**, but may use simplified tax methods.([chinatax.gov.cn](https://www.chinatax.gov.cn/chinatax/n810219/n810724/c5251170/content.html?utm_source=openai))
### 4. **Dates, Adjustment, and Compliance**
- Applies to restructuring transactions **from 1 January 2026 onwards**.([fgk.chinatax.gov.cn](https://fgk.chinatax.gov.cn/zcfgk/c100012/c5251155/content.html?utm_source=openai))
- If a shareholder within the required group transfers stock during the 12-month post-restructure period, then the special tax treatment must be **adjusted**, basically undoing the preferential treatment.([fgk.chinatax.gov.cn](https://fgk.chinatax.gov.cn/zcfgk/c100012/c5251155/content.html?utm_source=openai))
## Why This Matters for Tax Compliance
- **Lower threshold** (50%) increases eligibility for many resident enterprise shareholders in listed companies or large joint ventures. Previously the 100% threshold was often unattainable. Companies planning mergers now should map the share ownership to ensure the group that reaches 50%.
- **Lock-up risk**: Top 10 shareholders and ≥5% shareholders must avoid share transfers for 12 months. If trading is typical for certain shareholders, that may be infeasible—so planning needed to get compliance.
- Transactions spanning multiple entities or involving partners such as private equity funds, non-residents, asset management companies or non-resident enterprise shareholders are not disqualified per se, but only resident enterprise shareholders in the specified group can benefit for their portion.([fgk.chinatax.gov.cn](https://fgk.chinatax.gov.cn/zcfgk/c100012/c5251155/content.html?utm_source=openai))
## Case Example
A listed company **A Ltd**, merging with **B Ltd**, has several large resident enterprise shareholders: X Ltd (30%), Y Ltd (25%), Z Ltd (15%), and many smaller ones. X+Y combine for 55%, so they exceed 50%. If both X and Y reach agreement with B and the merged entity, and neither sells shares in 12 months, then 55% of the transaction—i.e. the equity and assets linked to those shareholdings—can use special tax treatment. The remaining 45% must use general tax treatment.
If Y Ltd transfers shares early, dropping combined resident shareholder holding below 50%, the previously claimed benefits must be reversed or adjusted.
## Actionable Steps for Entities Considering Restructuring
1. **Map ownership**: Identify resident enterprise shareholders, particularly those with ≥5% holdings, and the top-10 resident enterprise shareholders.
2. Draft **share-transfer lock-up agreements** for relevant shareholders for 12 months post-restructure.
3. Structure merger/division so that ≥50% resident shareholding can sign on to special treatment agreements.
4. Ensure transaction documents include clear statements of which shareholders are included and which portion(s) will apply special treatment.
5. Track dates: only those restructuring transactions officially with **restructure date ≥ 1 Jan 2026** are eligible under these new conditions.
6. Stay ready to adjust if any transfers or changes happen within the 12-month period—this should be in risk assessment.
## Strategic Insight
Lowering thresholds for special tax treatment reflects China’s goal to **ease tax burdens** and support enterprises engaging in **corporate restructuring**, especially listed companies or entities with dispersed ownership. However, compliance risk has increased: documentation, shareholder consistency, and lock-ups are necessary.
**Bottom line**: entities must plan early, lock-in shareholder agreements, and perform precise ownership tracing to benefit from special tax treatment, while being ready to adapt if share ownership changes in the post-transaction period.