On 28 August 2026, the Ministry of Finance (MOF), the State Taxation Administration (STA) and the China Securities Regulatory Commission (CSRC) jointly issued the Announcement on Standardising Individual Income Tax Policies for the Transfer of Restricted Shares of Listed Companies (Announcement No. 26 of 2026, referred to here as Bulletin 26), effective on publication. This is the most substantial revision of the regime since individual income tax (IIT) of 20% was first imposed on restricted share transfers in 2010, and it closes two long-standing avoidance routes while moving administration from broad principles towards detailed source control.
The 20% statutory rate is unchanged. The effect of the new rules is to remove two familiar avoidance techniques, bring cost declaration forward to the listing stage, make annual settlement a standing obligation and apply one set of rules across all listed markets. This article works through the changes across five areas: the two avoidance routes now closed, the restructured cost declaration mechanism, the extended settlement deadline, the look-through treatment of indirect holdings and the harmonisation of rules across the Shanghai, Shenzhen, Beijing and NEEQ markets. For each, it sets out the regulatory position, the unsettled points and the practical response for companies and shareholders.
Two avoidance routes now closed
The first set of changes removes two techniques that had let some shareholders reduce or defer tax on restricted share disposals: post-lockup bonus issues and reliance on the deemed-cost deduction.
Regulatory interpretation
Individual transfers of domestic listed shares were temporarily exempt from IIT from 1994. From 2010 China levied 20% IIT on transfers of restricted shares, covering restricted shares formed at IPO and the bonus or transferred shares derived from them between listing and lock-up expiry. Over the following decade two gaps became routine planning tools.
Post-lockup bonus shares
Under the old rules, only bonus and transferred shares derived between listing and lock-up expiry counted as taxable restricted shares. Shares derived after expiry were treated as ordinary tradable shares and were exempt on sale. A company could roll out a large bonus issue, for example 10-for-10, immediately after lock-up expired, which halved the ex-rights price. Shareholders would sell the newly derived, tax-exempt shares first, cutting the effective burden.
The deemed-cost deduction
Where a taxpayer could not provide complete cost vouchers, authorities could assess original cost at a deemed 15% of transfer revenue. For shares that had appreciated many times over, 15% was far below actual cost, so some holders declined to declare true costs and defaulted to the deemed rule.
Bulletin 26 closes both. It expands the taxable scope so that restricted shares include the traditional restricted shares defined in Caishui [2009] No. 167 and any bonus or transferred shares derived after lock-up expiry and registered after the Bulletin takes effect. Post-lockup bonus shares therefore carry the same treatment as the original restricted shares. Li Xuhong, Vice President of the Beijing National Accounting Institute, notes that this aligns the treatment of pre- and post-lockup bonus shares.
The Bulletin also removes the 15% deemed deduction for newly registered shares. Where a listed company completes initial share registration after the Bulletin takes effect and original cost is not declared, the securities institution withholds IIT at 20% on the full transfer revenue on disposal. The taxpayer then files a clearance return with actual cost documentation to recover any overpayment or settle a shortfall.
The change is not retroactive. Shares that completed initial registration before the Bulletin took effect without a declared cost keep the 15% deemed withholding, and post-lockup bonus shares generated before the Bulletin are not taxed retrospectively.
Potential controversies
- Record date for post-lockup bonus shares. Consultation responses asked for a clearer cut-off for the combined conditions of derived after lock-up expiry and registered after the Bulletin, to avoid disputes arising from differences in market timing.
- Evidence standards for full withholding. The burden of proof for establishing actual cost is not yet standardised, which may create friction until supporting guidance appears.
Practical responses
- Bonus schemes designed mainly to ease major-shareholder disposals are expected to decline, and companies planning dividends or bonus issues tend to weigh the tax effect alongside market-capitalisation considerations.
- Shareholders generally keep complete acquisition-cost records, including capital contribution agreements, bank statements, registration amendment files and capital verification reports, since these support later cost authentication.
- Disposal timing is being planned around the grandfathering cut-off, because disposals after 28 August 2026 that involve post-lockup bonus shares registered after the Bulletin fall under 20% withholding.
- Pre-IPO companies are building cost declaration into listing preparation, documenting each individual holder’s acquisition cost.
A restructured cost declaration mechanism
The second change turns cost declaration from an optional fallback into the point where tax on a disposal is effectively controlled.
Regulatory interpretation
The 15% deemed deduction was designed as a simplified fallback for missing historical cost records, but it became an arbitrage channel, since holders of very low-cost shares could default to it. MOF data show that IIT revenue reached CNY 1.0662 trillion in the first seven months of 2026, up 14.9% year on year, and tighter oversight of high-income individuals and of capital-gains administration has become an explicit policy aim.
Bulletin 26 sets up a differentiated framework, with strict control on new shares and continuity for existing stock. For companies listed after the Bulletin, cost declaration moves from optional to a fixed part of registration. When applying for initial share registration, the listed company files the detailed cost data provided by restricted shareholders together with assurance reports from intermediaries, meaning CPA or CTA firms. Where cost is not declared, disposal triggers 20% withholding on the full transfer revenue, which ties up capital until settlement.
For existing shares, the 15% deemed withholding is retained, but the broker’s withholding is no longer the final position. The taxpayer files a clearance return, recovering overpayments or paying shortfalls.
Potential controversies
- Cash-flow effect of full withholding. Where actual cost is genuinely low, full withholding can tie up more capital than the eventual liability, and refund cycles after documents are submitted can be long.
- Assurance quality. If intermediaries do not scrutinise shareholder cost data closely, inflated costs create later exposure, and commentators have suggested more post-issue sampling of assurance reports.
Practical responses
- All parties are consolidating cost vouchers for shares acquired pre-IPO through capital increases, equity transfers or incentives.
- Pre-IPO companies are bringing cost declaration into listing preparation, using the weighted-average method to establish per-share cost where shares were acquired in tranches.
- Holders of existing stock who disposed of shares within the year file for clearance by 30 June of the following year, recovering a refund where actual cost exceeds the 15% deemed rate or paying the difference where cost data is absent.
A longer settlement deadline
The third change replaces a short, little-used filing window with one aligned to the annual income tax cycle.
Regulatory interpretation
The previous rule required taxpayers to file for final clearance within three months from the first day of the month after the securities institution withheld the tax. The window was narrow, filing rates were low and many disposals ended up treating the withheld amount as final because cost data could not be assembled in time.
Bulletin 26 extends the clearance deadline to 30 June of the year following the transfer, in line with the annual reconciliation of comprehensive income. Where the tax due on actual revenue and actual cost differs from the amount withheld, the taxpayer provides cost documentation to the competent tax authority and files for clearance by that date, settling any shortfall or refund. A disposal in a given year therefore carries a clearance filing by 30 June of the next year whether tax is owed or a refund is due, which makes clearance a standing obligation rather than an optional step. Together with withholding by securities institutions, this forms a closed loop of prepayment and annual clearance.
Potential controversies
- Multiple tranches. Individuals disposing in several batches within a year keep a ledger of cost and revenue per batch, since consolidating late makes the year-end filing difficult.
- Late filing. The Bulletin does not set out a penalty for missing the clearance deadline. Commentators note that a late-payment surcharge of 0.05% per day may apply.
Practical responses
- Keeping a disposal ledger through the year supports reconciliation of prepayments against the final liability.
- The 30 June deadline is treated as fixed.
- Restricted share settlement is being folded into the standard annual comprehensive income filing to avoid omissions.
Look-through treatment of indirect holdings
The fourth change narrows the room for holding structures and deemed-assessment policies to lower the rate on a disposal.
Regulatory interpretation
Shareholders had used multi-tier partnership platforms and cross-regional deemed-taxation policies to bring restricted share disposals under lower business-income rates, on a 5% to 35% progressive scale, or in some cases close to zero. Regulators tightened this from 2021 by requiring audit-based assessment for partnership-held equity investments, and in 2024 fixed the taxing jurisdiction to the listed company’s location, which removed cross-regional arbitrage. Bulletin 26 adds a look-through principle: whether shares are held directly or indirectly through partnerships, a restricted share transfer is taxed at a uniform 20%, so arrangements aimed at lower business-income rates or regional fiscal rebates no longer achieve that result.
Enforcement practice already reflects this direction. In one published case, an employee holding platform that dissolved immediately after lock-up and passed shares to its partners was denied deemed-assessment treatment on the liquidation income, and one shareholder was assessed CNY 333m in back taxes and late fees. In another, authorities looked through a multi-tier partnership set up for jurisdictional arbitrage, resulting in more than CNY 19.4m in back taxes.
Potential controversies
- Look-through boundaries. For nested partnerships with offshore intermediate layers, how far authorities will pierce the structure in practice is still open.
Practical responses
- Complex structures built for tax reduction now tend to add accounting and filing cost without the former benefit, so planning is shifting towards compliance ahead of large disposals.
- Pre-IPO companies are reorganising equity structures around control concentration and exit convenience rather than tax arbitrage.
- For equity incentives, the combined burden at exercise and at transfer is being modelled together so the value to recipients stays clear.
- With the taxing location fixed to the listed company’s home, cross-regional planning no longer serves a purpose.
One set of rules across all listed markets
The final change puts the main listed markets on the same footing for restricted share IIT.
Regulatory interpretation
IIT rules for original shares on the Beijing Stock Exchange (BSE) and the National Equities Exchange and Quotations (NEEQ) had applied on a provisional or referenced basis and differed from the Shanghai and Shenzhen Stock Exchange (SSE and SZSE) rules, which allowed cross-market arbitrage. Article 5 of Bulletin 26 provides that IIT on transfers of original shares of NEEQ and BSE listed companies follows the same rules as the other markets.
The Bulletin sets a transitional path for the BSE and NEEQ. For original NEEQ shares registered before the Bulletin without a declared cost, securities institutions may still withhold at the 15% deemed rate if the shares later enter the BSE for public trading, with the taxpayer filing a clearance return afterwards. Non-original shares acquired after NEEQ listing and ordinary secondary-market trades remain exempt.
Potential controversies
- Transitional detail. While the framework is unified, technical points such as the interaction between bonus-share registration and tax-exempt conversion await supporting operational guidance.
Practical responses
- Pre-IPO companies heading to the BSE, and legacy NEEQ companies, are archiving initial registration cost data to avoid full-amount withholding on later disposals.
- Ordinary investors trading non-original NEEQ or BSE shares keep their existing exempt status.
- Companies are tracking the supporting guidance as it develops.
Conclusion
Bulletin 26 tightens the individual income tax regime for restricted shares without changing the headline rate. It closes the bonus-share and deemed-assessment routes, brings cost declaration forward to the listing stage, makes annual clearance a standing obligation and applies one set of rules across the Shanghai, Shenzhen, Beijing and NEEQ markets. The direction of travel is away from planning around gaps in the rules and towards compliance built on documented cost and transparent reporting.
For individual shareholders, the near-term focus is assembling and retaining cost vouchers and working with the withholding and clearance mechanism rather than around it. For companies, the focus moves earlier, to the treatment of acquisition cost and holding structures at the equity-incentive and IPO stages. Because outcomes depend heavily on individual facts and on guidance still to come, working through the position with a qualified tax adviser before a disposal or restructuring helps align current filings with future plans.
This article is based on Announcement No. 26 of 2026 and publicly available professional commentary. It is for general reference and does not constitute tax, legal or investment advice. The tax treatment of restricted share transfers is highly dependent on individual circumstances, and official policy texts prevail in all cases.
