Entity Setup
How to Leverage China’s Reorganized Tax Treatment for Corporate Restructurings
China’s July 2026 update widens eligibility for preferential tax treatment in corporate mergers and splits—delaying tax on asset transfers and easing ownership thresholds.
By NomadicTax Research Team • 5-8 min read • August 17, 2026
## Overview of Restructuring Tax Relief
In July 2026, the **State Taxation Administration** issued **Announcement 2026-No. 13** to streamline how **enterprise income tax** is treated on corporate **restructuring transactions** (mergers, divisions) where preferential tax treatment is available. ([chinatax.gov.cn](https://www.chinatax.gov.cn/chinatax/n810219/n810724/c5251170/content.html?utm_source=openai)) Previously, full unanimous agreement among *all* shareholders was required to delay recognition of gains; now the threshold has been reduced. ([chinatax.gov.cn](https://www.chinatax.gov.cn/chinatax/n810219/n810724/c5251170/content.html?utm_source=openai))
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## Key Changes and Details
- **Shareholding requirement lowered**: If resident enterprise shareholders holding **≥ 50%** ownership reach agreement, they can apply “special tax treatment” (i.e., defer tax recognition on asset transfers) even if other shareholders are non-resident entities or financial/intermediary structures. ([chinatax.gov.cn](https://www.chinatax.gov.cn/chinatax/n810219/n810724/c5251170/content.html?utm_source=openai))
- **Expanded types of parties**: Natural persons, partnership-type entities, contractual asset management products, and non-resident enterprise shareholders are now explicitly acknowledged. While they may not vote on the special treatment, their inclusion in processes is clearer. ([chinatax.gov.cn](https://www.chinatax.gov.cn/chinatax/n810219/n810724/c5251170/content.html?utm_source=openai))
- **Conditions for qualification**: These include maintaining holding requirements for at least **12 months**; if shareholders transfer more than 5% shares (or top ten resident shareholders or those holding over 5%) within 12 months post-restructure, special treatment may be lost. ([chinatax.gov.cn](https://www.chinatax.gov.cn/chinatax/n810219/n810724/c5251170/content.html?utm_source=openai))
- **Effective date**: These provisions apply to restructuring events occurring from **January 1, 2026** onwards. ([chinatax.gov.cn](https://www.chinatax.gov.cn/chinatax/n810219/n810724/c5251170/content.html?utm_source=openai))
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## Practical Example
Company A, a listed company, merges with Company B. Before this change, to defer recognition of gains related to asset transfers, **all** shareholders—including numerous minority shareholders—would need to agree, which was often impractical. Under the new rule, if resident enterprise shareholders holding more than 50% consent, they may apply special treatment, **even if other non-resident or indirect stakeholders do not**. This eases compliance and tax burden. If within 12 months one of the qualifying shareholders transfers their shares and causes total qualifying ownership to fall below 50%, the special treatment is revoked. Tax must be recognized retroactively. Apply accounting carefully.
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## Actionable Steps for Companies & Advisors
- Review all past or ongoing restructuring plans to assess whether they meet the new threshold and other conditions.
- Confirm the identities and residency status of shareholder base; ensure resident enterprise shareholder percentage is ≥ 50%.
- Account for share transfer activity among key shareholders after restructure; clamp down on potential triggers that would invalidate special treatment.
- Maintain documentation of shareholder agreements, voting, timelines; prepare for tax authority audits verifying “continuous interest” over 12 months.
- Coordinate with tax authorities early when planning: obtaining consensus declarations, doing pre-filing assessments.
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## Implications of This Reform
- **Reduced tax burden**: By lowering the shareholding threshold from 100% to 50%, many more companies—especially listed and complex ownership structures—can qualify for deferred tax treatment.
- **Improved certainty**: Clearer rules around timing, who qualifies, and when special treatment may be lost reduce ambiguity and risk.
- **Compliance diligence will increase**: Companies will face closer scrutiny on share transfer windows, residency status of shareholders, and adherence to agreement thresholds.
For companies engaging in mergers, acquisitions, spinoffs or reorganizations, these changes mark a crucial opportunity to optimize transactions—but only if compliance, timing and shareholder structures are managed proactively.