Entity Setup
Entity Setup: Structuring for Reorganization — How New Rules in China Help Companies with M&A and Splits
China’s new 2026 announcement eases the stringent ownership agreement requirement for reorganization tax benefits, making it easier for many businesses to qualify.
By NomadicTax Research Team • 5-8 min read • August 11, 2026
## What changed in the 2026 Announcement
In July 2026, China’s State Taxation Administration issued **Announcement No. 13 of 2026**, titled “关于企业重组业务所得税处理有关征管问题的公告,” which revised how corporate reorganizations (mergers/splits) can apply the special tax treatment for income tax purposes. ([fgk.chinatax.gov.cn](https://fgk.chinatax.gov.cn/zcfgk/c100012/c5251155/content.html?utm_source=openai))
Key changes:
- The required threshold for shareholder agreement to apply special tax treatment has been lowered **from all shareholders (100%) to just those **resident enterprise shareholders holding a combined 50% or more of shares**. ([chinatax.gov.cn](https://www.chinatax.gov.cn/chinatax/n810219/n810724/c5251170/content.html?utm_source=openai))
- Shareholders who must agree include any resident enterprise holding **5% or more**, and the top ten resident enterprise shareholders. If, within 12 months after reorganization, any of these agreeing shareholders transfer their shares, this treatment is lost. ([fgk.chinatax.gov.cn](https://fgk.chinatax.gov.cn/zcfgk/c100012/c5251155/content.html?utm_source=openai))
- As before, the special treatment defers recognition of gains until later periods, alleviating immediate tax burdens during a reorg. ([chinatax.gov.cn](https://www.chinatax.gov.cn/chinatax/n810219/n810724/c5251170/content.html?utm_source=openai))
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## Why this matters to businesses setting up entities or planning reorganizations
### Practical benefits:
- **Easier eligibility**: Previously, achieving unanimous agreement among all shareholders was a roadblock, especially for public companies or those with nonresident or special types of shareholders. Now that only resident enterprise shareholders holding 50%+ need alignment, many reorganizations will qualify.
- **Reduced tax cash flow burden**: By applying special treatment, a company can defer recognition of gain, reducing immediate tax payments, which is crucial for deal-making, capital preservation, and integration.
- **Strategic planning of ownership stakes**: Entities must now identify whether enough resident enterprise shareholders with sufficient stakes exist and whether their commitments can be secured for 12 months post-reorg.
### Key compliance notes:
- Make sure resident enterprise shareholders holding ≥50% collectively agree in writing to the special tax treatment *before* the deal execution.
- Among those, the largest 10 shareholder enterprises and all with ≥5% stake must participate. If any of them exit in 12 months, you lose the benefit.
- The portion of assets and equity held by non-agreeing shareholders will receive general (ordinary) treatment.
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## Example Scenarios
### Scenario A: Public Company Merger
A public company (Resident A) merges with Resident B. Resident A’s shares are broadly held; no single non-agreeing shareholder controls more than 5%, but none of them formally agrees. Resident B and Resident enterprise shareholders with ≥5% stake and among the top 10 agree. Their combined holding is 60%. They qualify for special tax treatment on that 60%. The remaining 40% of shares/assets tied to non-agreeing shareholders follow general treatment.
### Scenario B: Split Involving Special Shareholders
Resident enterprise shareholders meeting the above thresholds agree. The company also has foreign nonresident shareholders. Under the new rules, presence of nonresidents or individuals does *not* block eligibility, so long as the resident enterprise shareholder group meets the threshold.
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## Action Steps for Companies Considering Reorganization
1. **Review your shareholder register**: Identify resident enterprise shareholders with ≥5% stakes and the top 10 by size.
2. **Secure formal consents** early, especially from top shareholders to meet thresholds and commit to 12-month retention.
3. **Structure transactions** considering which portions will get special vs general treatment; sometimes splitting components or asset blocks can help.
4. **Document everything carefully**, including dates of agreement, retention, and transfers if any.
5. **Consult tax authorities** via advanced ruling if unsure, especially if there are complicating factors like nonresident enterprises or mixed ownership.
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This change shows China’s intent to make reorganization tax policy more operational and supportive of business transformations. For companies setting up or restructuring, aligning the right shareholders for agreement and planning for retention are now essential for unlocking these benefits.