In July 2026, the State Taxation Administration issued Announcement No. 13 of 2026, introducing new rules for the application of special tax treatment to enterprise mergers and divisions. The new rules apply to restructurings with an effective date on or after 1 January 2026.
The principal change is that special tax treatment may now be applied to part of a merger or division. Where resident enterprise shareholders holding more than 50% of the shares in aggregate agree to special tax treatment, the equity held by those shareholders and the corresponding assets and liabilities may qualify for special tax treatment. The remaining portion is subject to general tax treatment. This change prevents a minority shareholder's disagreement from automatically disqualifying the entire restructuring.
For assets and liabilities subject to general tax treatment, the merged or divided enterprise may elect to retain the original tax basis. The difference between fair value and the original tax basis is then recognised separately and deducted evenly over ten years beginning from the restructuring year. Once selected, this method cannot be changed.
The new rules also contain safeguards. Resident enterprise shareholders holding at least 5%, as well as the ten largest resident enterprise shareholders, must agree to special tax treatment and may not transfer the equity received within twelve months. If transfers by other participating shareholders reduce the aggregate participating shareholding to 50% or below, the previous special tax treatment must be adjusted.
The "more than 50%" requirement under the new rules applies specifically to shareholder participation in the special tax treatment of mergers and divisions. It does not replace the existing 50% acquisition threshold for equity or asset acquisitions, nor does it remove other requirements such as the 85% equity-consideration ratio.
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