Tax Planning
Structuring M&A in China: Optimizing via the New Special Tax-Treatment Rules
New rules now allow greater flexibility for enterprises in structuring mergers and splits while benefiting from special income-tax treatment if certain consistency and ownership thresholds are met.
By NomadicTax Research Team • 5-8 min read • September 16, 2026
## Introduction
In mid-2026, China introduced expanded flexibility for **enterprise mergers and splits (“企业重组”)**, particularly for resident corporate shareholders. The recent tax administration bulletin clarifies when **special tax treatment**—which defers recognition of gains—can apply, even if not all shareholders unanimously agree. Here’s what you need to know to optimize structuring, lower tax burdens, and maintain compliance.
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## What Is Special Tax Treatment for M&A?
Special tax treatment allows for **recursive or deferred taxation** of gains (on transferred assets or liabilities) during mergers, splits, or consolidations when certain conditions are met—essentially delaying tax on the “paper gains” until later recognition. Under prior rules, **all parties to the reorganization** had to reach agreement. This was often impossible for companies with many shareholders or non-resident/non-corporate stakeholders. ([fgk.chinatax.gov.cn](https://fgk.chinatax.gov.cn/zcfgk/c100012/c5251155/content.html?utm_source=openai))
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## The Key Policy Update
The **国家税务总局公告2026年第13号** issued on **July 8, 2026**, amends the consistency requirement: now only **resident enterprise shareholders** meeting certain thresholds must agree to special treatment, rather than all shareholders. Specifics:
- Resident enterprise shareholders whose holdings are **5% or more**, as well as the **top 10 resident enterprise shareholders**, must reach agreement.
- Combined shareholding of those agreeing must exceed **50%** of the relevant equity.
- These shareholders must retain their newly acquired shares for **12 months** post-reorganization; otherwise, special treatment is lost. ([fgk.chinatax.gov.cn](https://fgk.chinatax.gov.cn/zcfgk/c100012/c5251155/content.html?utm_source=openai))
- The rule is retroactive to **January 1, 2026**, for reorganizations happening that day or later. ([fgk.chinatax.gov.cn](https://fgk.chinatax.gov.cn/zcfgk/c100012/c5251155/content.html?utm_source=openai))
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## Structuring Strategies
To benefit from this special tax treatment:
1. **Map your shareholder composition**: Identify all resident enterprise shareholders, their percentages, and whether they are among top holders.
2. **Obtain early consensus**: Ensure that all prominent resident corporate shareholders (≥5%) plus the top 10 corporates agree and commit to supporting special treatment. Document this clearly via shareholder resolutions or equivalent.
3. **Hold for minimum period**: Maintain your qualifying shareholdings for at least **one year after reorganization**, especially for those agreeing shareholders. Any transfers could void benefits.
4. **Track assets & liabilities clearly**: Sustain accounting continuity—ensure transferred assets and liabilities are valued consistent with prior basis.
5. **Plan with non-resident shareholders**: Their lack of agreement doesn’t block special treatment, but lack of contribution to the qualified group may reduce the share of the reorganized value eligible.
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## Hypothetical Case
**Company A**, a large resident enterprise, merges with **Company B**. Prior to merger:
- Resident enterprise shareholders of Company B: **住企业甲** holds 30%, **住企业乙** holds 15%, **非居民** holds the rest.
- Only 住企业甲 & 住企业乙 vote in favor. Together they represent 45% (甲) + 15% = 60% >50% threshold; both ≥5%. Both are resident enterprise shareholders. Top ten list includes them.
- Merger occurs on March 1, 2026. Agreement holds; both retain post‐merger holdings for 12 months.
- Hence, **甲 and 乙** and assets/ liabilities corresponding to their share can use special treatment; the remaining shareholders are treated under general taxing rules.
If **乙** transfers its post-merger shares within 12 months, its share would lose special treatment condition. The assets/liabilities allocated to **乙** may then be immediately taxable.
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## Implications for Tax Planning
| Objective | What to Ensure | Risk if Not Compliant |
|---|---|---|
| Secure tax deferral | Obtain required group consensus, exceed 50% stake among resident enterprise shareholders, avoid share transfers during 12 months | Reorganization treated under general rules: immediate gain recognition, higher tax payments |
| Transaction certainty | Proper documentation & registration, secure valuation and accounting basis | Loss of trust, disputes, unexpected tax liabilities |
| Lower compliance burden | Plan ahead for which shareholders rise to qualifying thresholds | Missed opportunity, fallback to less favorable taxation |
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## Takeaways
- The **July 2026 update** greatly eases the hurdle for companies (especially those with mixed shareholder bases) to access **special tax treatment**.
- Critical to act early: identify qualifying shareholders, document agreements, maintain holding periods, and track cost basis.
- For cross-border or investment group structures including non-resident/non-corporate shareholders, these changes may tilt the scales in favour of reorganizing sooner rather than later.
By leveraging these updated rules, enterprise groups in China may use restructuring as a more efficient tool in tax planning—so long as all compliance thresholds are respected.