Entity Setup
Entity Setup & Reorganization: Income Tax Simplified for Mergers After July 2026
China’s Authority relaxed rules for tax treatment in corporate reorganizations like mergers and acquisitions—ideal for business structuring and entity setup.
By NomadicTax Research Team • 5-8 min read • August 16, 2026
## The Reform at a Glance
In mid-July 2026, the **SAT** issued **国家税务总局公告2026年第13号** (“公告”)—**Announcement 2026-13** concerning the **tax treatment in enterprise reorganization** (mergers, absorptions, splits) and specifically the scope for applying **“special (deferred) tax treatment**. Importantly, the required consensus among shareholders for the special tax treatment is now loosened. ([shanxi.chinatax.gov.cn](https://shanxi.chinatax.gov.cn/web/detail/sx-11400-2641-1822937?utm_source=openai))
## What Changed
- **Effective** from **January 1, 2026**, resident enterprises may be eligible for special taxation even if not all shareholders reach agreement—provided certain criteria are met. ([shanxi.chinatax.gov.cn](https://shanxi.chinatax.gov.cn/web/detail/sx-11400-2641-1822937?utm_source=openai))
- Previously, **100% of shareholders** needed consensus. Now, unity is needed only among **resident enterprise shareholders** who hold at least **50% total equity**, including the top 10 such shareholders or those holding 5% or more each. ([shanxi.chinatax.gov.cn](https://shanxi.chinatax.gov.cn/web/detail/sx-11400-2641-1822937?utm_source=openai))
- The types of entities eligible have expanded to include those with complex ownership—including **publicly listed companies**, **contractual asset-management products**, and **non-resident enterprise shareholders**—as long as the resident portion meets the threshold. ([shanxi.chinatax.gov.cn](https://shanxi.chinatax.gov.cn/web/detail/sx-11400-2641-1822937?utm_source=openai))
## Why This Matters for Entity Setup & Investment Structures
- **M&A structuring becomes easier**, especially for listed companies where unanimous shareholder agreement is hard to achieve.
- **Reduced tax leakage and volatility**: special treatment allows rolling over gains; you avoid immediate recognition of capital gains on transferred assets in qualifying reorganizations.
- **Foreign or institutional investors** can benefit indirectly if the resident enterprise portion satisfies thresholds—even if some shareholders are foreign.
## Practical Use Cases
- A **listed company** (Company A) merges with Company B, and 70% of its shares are held by resident enterprise shareholders who agree to special treatment. Under the new rule, only those resident shareholders need to agree—not all foreign or smaller non-resident holders.
- A group restructuring where some deferred gains are spread over years—this policy improves cash flow and planning certainty.
## Compliance Checklist
- Obtain **documentation** showing share ownership structures: resident vs non-resident, percentage holdings, and the top 10 resident shareholders.
- Ensure **resident shareholder holdings exceed 50%** or meet the 5%/top-10 thresholds.
- Prepare agreement among these qualifying shareholders and submit with application for special tax treatment.
- Maintain coherent records reflecting the date of restructure, asset values, liabilities, and consistency of treatment across layers.
## Summary
Announcement 2026-13 makes China’s corporate reorganization tax regime more practical. It lowers barriers to obtaining special (deferred) tax treatment in mergers, which can influence decisions on entity setup, group structure, and cross-border investment. For anyone contemplating M&A or restructuring, it’s a powerful change that’s already in effect.