China's three top financial regulators set a uniform 20% tax rate on individual gains from selling restricted shares of listed companies, effective immediately under Announcement No. 26 issued 28 August 2026. The directive establishes new cost-reporting requirements for companies and introduces a settlement process for shareholders to reconcile withheld taxes with actual liability.
China’s Ministry of Finance, the State Taxation Administration, and the China Securities Regulatory Commission released Announcement No. 26 on 28 August 2026 to establish uniform rules for taxing the sale of restricted shares by individual shareholders of listed companies.
New tax rate and scope
The authorities set the individual income tax rate at 20% on gains from transferring restricted shares. This rate applies to the original restricted shares covered under prior guidance (Cai Shui [2009] No. 167), along with bonus shares and shares sold after restrictions lift and registered following the announcement’s effective date.
When companies issue bonus shares, split shares, or consolidate shares, the securities registration and settlement company must adjust the cost basis of restricted shares proportionally.
Requirements for listed companies
Listed companies trading on the Shanghai Stock Exchange or Shenzhen Stock Exchange must provide the original cost information for restricted shares when applying for initial registration. They must also submit verification reports from accounting firms or tax firms. This requirement stems from earlier guidance (Cai Shui [2011] No. 108).
Companies that fail to submit cost documentation face consequences when shareholders sell shares. Securities institutions will withhold tax at the full 20% rate on the entire transfer income. Shareholders can then file a final tax settlement by 30 June following the year of sale to claim refunds or pay any shortfall.
For companies that registered shares before the announcement but never declared original costs, securities institutions may withhold 15% as a prepayment based on transfer proceeds. Shareholders remain required to file their final settlement.
Settlement process
Shareholders bear responsibility for filing liquidation declarations with tax authorities if their calculated tax differs from the withheld amount. The 30 June deadline applies to the year after the share sale occurs. Supporting documentation of original costs and expenses must accompany all settlement filings.
Coverage of other markets
The rules extend to original shares sold on the National Equities Exchange and Quotations and the Beijing Stock Exchange. For shares that complete initial registration before the announcement, then list publicly on the Beijing Stock Exchange afterwards, securities institutions may withhold 15% in advance. These shareholders must also complete liquidation declarations under the same process.
The announcement takes effect from its publication date, superseding any conflicting prior regulations.
