Entity Setup
Navigating China’s New Entity Tax Rules: Non-Monetary Asset Exchanges for ICs & Industrial Machine Firms
Manufacturers of integrated circuits and industrial mother machines can now defer taxation on non-monetary asset exchanges over 5 years—learn how this policy works and how to plan accordingly.
By NomadicTax Research Team • 5-8 min read • August 24, 2026
## What’s New?
On **July 31, 2026**, China’s Ministry of Finance, State Taxation Administration, NDRC, and Ministry of Industry & Information Technology issued **公告2026年第23号**, introducing a tax policy for **non-monetary asset exchanges** by **integrated circuit (IC)** and **industrial mother machine** enterprises. ([shanghai.chinatax.gov.cn](https://shanghai.chinatax.gov.cn/gate/big5/shanghai.chinatax.gov.cn/zcfw/zcfgk/qysds/202608/t481290.html?utm_source=openai))
Key features:
- Period: from **January 1, 2026** through **December 31, 2028**.
- Qualified enterprises that conduct non-monetary asset exchanges may **defer** recognizing the resulting income over up to **5 years**, spreading the inclusion of taxable income evenly.
- Losses from such exchanges cannot be deferred.
- Enterprises subject to list-management must annually certify eligibility by end of March via NDRC and MIIT. Non-list firms are subject to eligibility checks by tax authorities.
- Existing policies on non-monetary asset investment and corporate restructuring are preserved and may be chosen instead. ([shanghai.chinatax.gov.cn](https://shanghai.chinatax.gov.cn/gate/big5/shanghai.chinatax.gov.cn/zcfw/zcfgk/qysds/202608/t481290.html?utm_source=openai))
## Who is Impacted?
- IC and industrial mother machine companies that either are on the preferential **list-managed** roster or can be verified via government authorities.
- Suppliers, partners, or business combinations that might exchange equipment, IP, plant/facilities or technology as part of non-cash arrangements.
## Practical Planning Advice
1. **Identify eligibility early**: Determine whether your entity is list-managed or likely to pass the audit for becoming eligible. Use prior years’ certifications and related departments to understand compliance expectations.
2. **Model deferred tax implications**: Deferring income for up to 5 years helps cash flow, but you must forecast tax liabilities for each year. Ensure that accounting and tax teams can track the deferred amounts properly.
3. **Consider losses carefully**: Since exchange losses cannot be deferred, avoid or limit such occurrences or ensure they are accounted for in the year incurred.
4. **Compare alternative policies**: Investments or restructuring policies (2014 and 2016 notices) may sometimes offer better or more flexible tax outcomes depending on circumstance. Choose one policy and stick with it.
## Example Scenario
Company A is an IC manufacturer on the approved list. In **2027**, it conducts non-monetary asset exchange valued at **¥20 million**. Under this new policy, instead of recognizing the full ¥20 million income in 2027, it records **¥4 million** each year from 2027 to 2031 as taxable income. Its losses, however, must be recognized upfront if incurred.
## Action Items
- **Internal audit**: Review past and planned asset exchanges—do they meet new policy eligibility?
- **Compliance calendar**: For list enterprises, ensure March submissions; for entity, set up deadlines to track deferrals.
- **Financial reporting**: Adjust books to split income over multiple periods and monitor deferred income disclosures.