Background
In July 2026, China introduced the "Notice on Issues Concerning the Administration of Enterprise Reorganization Income Tax Treatment" (国家税务总局公告2026年第13号), which relaxed the threshold for resident corporate shareholders to be eligible for special income tax treatment in mergers and splits. Previously, 100% of shareholders had to agree, which was particularly challenging for listed companies with numerous or complex shareholder structures.(fgk.chinatax.gov.cn)
Key Changes and Implications
- From January 1, 2026, resident corporate shareholders holding 50% or more—instead of previously requiring unanimous agreement—can apply for special tax treatment when certain conditions are met.(fgk.chinatax.gov.cn)
- Eligible transaction types include mergers, splits, or absorptive mergers. Special treatment covers assets/liabilities related to the restructuring that those shareholders agree on.(fgk.chinatax.gov.cn)
- The remainder of shareholders—or assets they hold—without such agreement must follow general tax treatment. For those parts: companies may choose to adopt the original tax basis and amortize increases in asset value over 10 years.(fgk.chinatax.gov.cn)
Actionable Planning Advice
- Due diligence of shareholder structure: For listed companies with many shareholders (including natural persons, fund vehicles, non-resident entities), focus on aligning at least those accounting for 50% ownership for agreement. This significantly simplifies process.
- Draft agreements ahead of time: Use shareholder resolutions or protocols to document agreement among major shareholders on applying special treatment before the reorganization.
- Amortization vs immediate taxation: For non-agreed shareholders, weigh whether opting for general treatment and using the 10-year amortization might still offer tax benefits vs missing out on full deferral.
Examples
- Example 1: Company A (listed) merging with Company B. Major shareholders controlling 55% agree to special tax treatment; remaining 45% do not. For the 55%, assets/liabilities they hold are deferred; for the 45%, general treatment with amortizable basis.
- Example 2: A private resident company with 60% owned by two companies and 40% by individuals. If the two companies agree but individuals do not, only the assets/ownership comprising 60% can benefit from the special regime.
Impacts and Risks
- High impact: Enables more M&A activity, greater policy certainty, and reduces tax-related friction in restructurings.
- Riskier for non-compliance: Misalignment among shareholders or missing documentation can lead to full denial of special treatment.
Bottom Line: If you're planning a corporate reorganization in China — mergers, splits, absorbing or being absorbed — this policy makes it much more feasible to access favorable tax deferral options. Ensure ownership alignment ≥50%, get agreements documented early, and plan carefully with tax advisers to ensure compliance.