State Taxation Administration Announcement No. 13 of 2026, issued 8 July 2026, reduces the shareholder consent threshold for special tax deferral treatment on mergers and demergers to more than 50% from a prior consensus requirement, effective for restructuring transactions dated 1 January 2026 onwards.
China’s State Taxation Administration (STA) has issued Announcement No. 13 of 2026 on 8 July 2026, introducing rules on the special tax treatment applicable to corporate restructuring transactions, including mergers and demergers.
China has simplified access to deferral tax treatment for mergers and spin-offs, reducing the shareholder approval threshold to 50% from a previous consensus requirement. The change takes effect for all restructuring transactions dated 1 January 2026 onwards as per the Announcement No. 13 of 2026.
What qualifies for special treatment
Under the modified rules in Announcement No. 13, which implement provisions of the Enterprise Income Tax Law alongside Notices Cai Shui [2009] No. 59 and Cai Shui [2014] No. 109, restructuring gains are deferred when the relevant conditions are met.
If resident enterprise shareholders holding more than 50% of shares in a merged or divided enterprise agree to special treatment, their acquired equity and the corresponding assets and liabilities qualify for deferral. The remaining shareholders default to standard tax treatment.
When assets acquired by the reorganised enterprise fall under standard treatment, companies may elect to preserve the original tax basis and spread the difference between that basis and fair market value across a 10-year depreciation period from the reorganisation year. This election is permanent once made.
Lock-up and shareholder constraints
Resident shareholders owning 5% or more of the merged or divided enterprise on the restructuring date must sign onto the special treatment agreement. The same requirement applies to the top ten resident shareholders by stake.
All locked-in parties cannot transfer their shares for 12 consecutive months following the restructuring—a breach disqualifies the entire transaction from special treatment.
If other shareholders sell within 12 months and push the consenting bloc below 50%, special treatment also becomes unavailable, triggering retroactive adjustments.
Who counts as a shareholder?
Shareholders can be individuals, partnerships, contractual asset management products, or non-resident enterprises. Each category follows its own applicable income tax rules; the reorganisation rules don’t override those requirements.
