Entity Setup
Entity Structuring under China’s New Corporate Reorganisation Tax Rules
Recent changes for corporate mergers and splits lower thresholds and broaden eligible shareholders for favourable tax treatment, offering new planning paths for domestic groups.
By NomadicTax Research Team • 5-8 min read • August 12, 2026
## What’s New: Revised Rules for Corporate Reorganisation (July 2026)
The **Announcement 2026-No. 13** (“国家税务总局关于企业重组业务所得税处理有关征管问题的公告”) introduced several important changes effective **January 1, 2026**, to how tax is managed for **enterprise mergers, divisions, and reorganisations**. The state has made these reforms, among others: relaxing shareholder agreement conditions, expanding eligible parties, and offering deferred or simplified tax recognition under “special tax treatment” (特殊性税务处理) for certain reorganisations. ([chinatax.gov.cn](https://www.chinatax.gov.cn/chinatax/n810219/n810724/c5251170/content.html?utm_source=openai)).
## Key Provisions: What Has Changed
- **Shareholder agreement threshold lowered**: Previously 100% of shareholders had to agree to special tax treatment. Now only *residents companies representing ≥50% of shareholders’ equity* need to agree. The parties of agreement must include resident companies holding ≥5% each or among the top 10 shareholders. ([chinatax.gov.cn](https://www.chinatax.gov.cn/chinatax/n810219/n810724/c5251170/content.html?utm_source=openai)).
- **Allowed shareholder types broadened**: Eligible parties now can include *natural persons, partnerships*, **contractual asset management products**, and *non-resident enterprises*. This includes shareholders that are foreign or noncorporate. ([jiangsu.chinatax.gov.cn](https://jiangsu.chinatax.gov.cn/art/2026/7/8/art_23638_8921.html?utm_source=openai)).
- **Deferred tax or partial recognition**: Only the agreed portion qualifies for special tax treatment—other parts must follow general rules. For the general portions, a simplified method permits using original tax bases and amortizing excess over 10 years. ([tianjin.chinatax.gov.cn](https://tianjin.chinatax.gov.cn/11200000000/0300/030004/03000418/20260720102336123.shtml?utm_source=openai)).
- **Holding period restrictions**: Shareholders qualifying for the special treatment must maintain acquired post-restructure shares for at least **12 months**—otherwise, general regime applies and adjustments made. ([chinatax.gov.cn](https://www.chinatax.gov.cn/chinatax/n810219/n810724/c5251170/content.html?utm_source=openai)).
## Planning Strategies & Structuring Guidance
- To maximise benefit, aim for **resident company shareholders** to collectively hold >50% and include several with ≥5% holdings, especially top-10. Natural persons, contract fund investors, and foreign enterprises still included—but lower influence or weights may exclude them if threshold not met.
- In planning a merger/division, clearly separate which shareholders will explicitly “reach consensus” for special treatment ahead of the deal. Document unanimous or majority resolutions as needed.
- For mixed shareholder base (resident and non-resident), consider converting or reorganising shareholding structures so that resident companies with ≥5% become part of the consensus group.
- Ensure holding for **12 months** post-reorganisation for those receiving assets or shares under special treatment; premature transfers will lose benefits and force restatement of gains or tax bases.
## Examples
- **Example 1**: Company A (resident) and Company B merge. Resident company shareholders representing 60% agree; natural persons and foreign shareholders (holding remaining 40%) do not. The 60% portion enjoys special tax treatment; other 40% follows general tax rules. Shareholders in first group must hold post-merger shares for 12 months. ([chinatax.gov.cn](https://www.chinatax.gov.cn/chinatax/n810219/n810724/c5251170/content.html?utm_source=openai)).
- **Example 2**: Division of a business where resident companies hold only 45%, and others are non-residents or individuals. Threshold not met → entire restructured deal must use general tax recognition unless restructuring of shareholder composition. ([jiangsu.chinatax.gov.cn](https://jiangsu.chinatax.gov.cn/art/2026/7/8/art_23638_8921.html?utm_source=openai)).
## Implications for Compliance
- **Audit documentation**: Necessary to evidence shareholder identities, holdings, agreement timing, and duration of share retention. Courts and tax authorities will scrutinise agreements closely.
- **Tax basis tracking**: For assets recognized under general rules, establishing original cost (tax basis) is essential; excess over fair value must be amortised or handled under general rules properly.
- **Monitoring transfers**: If eligible shareholders transfer shares within 12 months, this triggers recalculation and possible reversal of special treatment benefits.
## How This Fits Within Global Trends
- Aligns with international business-friendly tax reforms; similar relaxations seen elsewhere to reduce friction in M&A transactions. Compared to stringent rules in earlier years, this provides more **certainty** and **reduced cost** for reorganisations.
- Still keeps anti-avoidance safeguards, especially via holding period and controlling thresholds.
## Action Plan for Entities
- Review current corporate group structure: who are major resident shareholders? ≥5% each? In top 10? Does cumulative exceed 50%?
- Prior to signing reorganisation plan, negotiate and document shareholder agreement among these resident companies.
- Plan for share holding retention to meet 12-month requirement.
- Engage tax authority for pre-filing clarity if deal involves non-resident shareholders or complex structures.
- Maintain robust valuations, legal documents, and disclosures.
## Conclusion
China’s updated corporate reorganisation rules, effective from Jan 1, 2026, provide more flexible, inclusive paths to apply special tax treatment in mergers and divisions. For companies considering reorganisation, early planning, clear documentation, and compliance with shareholding thresholds and retention periods are critical. With the right structure, tax cost can be deferred, compliance burdens reduced, and corporate restructuring made more predictable.