Tax Planning
Tax Impacts of China’s 2026 Policy on Restricted Shares Transfer by Individual Investors
New rules change how private investors are taxed when transferring **restricted (locked-up) shares** in listed companies, especially around reporting and cost basis documentation requirements.
By NomadicTax Research Team • 5-8 min read • September 16, 2026
## What Changed and Why
On **August 28, 2026**, China’s Ministry of Finance, State Taxation Administration, and China Securities Regulatory Commission jointly issued *公告2026年第26号*, which establishes new rules governing the **individual income tax (IIT) treatment** for transfers of **limited tradable (restricted) shares** (“限售股”) held by individual shareholders in listed companies.([tianjin.chinatax.gov.cn](https://tianjin.chinatax.gov.cn/11200000000/0300/030004/03000418/20260831101738257.shtml?utm_source=openai))
Key changes include:
- Such transfers will now be taxed as **property transfer income (“财产转让所得”) at a 20% rate**.([tianjin.chinatax.gov.cn](https://tianjin.chinatax.gov.cn/11200000000/0300/030004/03000418/20260831101738257.shtml?utm_source=openai))
- When restricted shares undergo rights issue, stock splits, or conversion, the **cost basis** (成本原值) of the shares must be adjusted proportionately.([tianjin.chinatax.gov.cn](https://tianjin.chinatax.gov.cn/11200000000/0300/030004/03000418/20260831101738257.shtml?utm_source=openai))
- Individual investors must supply detailed statement of cost basis and a verification report from a CPA or tax agent when applying for initial registration of the shares in the securities registration and clearing system. If they fail to do so, the payer will withhold tax on **full transaction proceeds** at 20%. Else, for certain already registered shares lacking cost basis documents, there is a default cost basis equal to **15% of proceeds** plus reasonable fees, for withholding purposes.([tianjin.chinatax.gov.cn](https://tianjin.chinatax.gov.cn/11200000000/0300/030004/03000418/20260831101738257.shtml?utm_source=openai))
## Example Scenarios
- **Investor A** acquired restricted shares when their company went public. They later sold them but did not identify cost basis at registration—sale proceeds 1 million RMB. Under new rules, the securities agency must withhold 20% of the full proceeds (200,000 RMB) at transaction time. The investor could later apply for a **clearance filing** to declare actual cost and possibly reduce tax owed.
- **Investor B** obtained stock via rights conversion: original restricted share cost basis adjusted by conversion ratio. They hold all required documentation, cost basis is properly registered, so tax correctly calculated on sale with true capital gain.
## How to Stay Compliant
- At or before initial registration with a clearing agency, ensure **cost basis documents** and a report from an independent CPA or tax agent are submitted.
- Keep detailed transaction records, especially for rights issues, conversion, stock splits or dividends issued as shares.
- If cost basis documentation is missing, beware that default 15% cost base may apply to initial withholding.
- After withholding, investors should verify if actual cost is greater, then file **clearance statement** – by **June 30 of following tax year** – to settle actual IIT liability.
## Implications for Tax Planning
- For investors acquiring restricted shares, document everything meticulously. Even small omissions can lead to higher tax withheld upfront.
- Consider timing of registration: registering cost basis early unlocks better tax treatment.
- Use accounting and legal advisors to audit share grant agreements for cost adjustments and rights.
## Conclusion
The 2026 “限售股” announcement sharpens IIT rules for individuals selling restricted shares, especially around cost basis and documentation. Investors should act proactively to avoid unnecessary withholding and correctly compute tax liabilities.