China Releases Draft VAT Implementation Rules Ahead of 2026 Rollout
- Expanded Definitions & Scope The draft clarifies “consumption within the territory” and introduces broader criteria for taxing cross-border services and intangible assets—potentially increasing VAT exposure for foreign suppliers.
- Input VAT Restrictions & Refund Mechanisms New rules tighten creditability for input VAT related to non-taxable transactions, mixed-use assets, and loan services. A refund mechanism is introduced for overpaid VAT under simplified calculation methods.
- Compliance & Anti-Avoidance Measures Annual reconciliation of input VAT becomes mandatory, export refund deadlines are capped at 36 months, and a general anti-avoidance clause empowers tax authorities to challenge artificial arrangements.
Source PwC
- Draft VAT implementation regulations released by China’s Ministry of Finance and State Taxation Administration on 11 August 2025
- Public consultation open until 10 September 2025
- Regulations maintain continuity with current VAT system but introduce key refinements
- New compliance requirements for allocating input VAT and anti-avoidance rules
- Cross-border transactions focus on determining “consumed in China”
- Services deemed supplied in China if consumed domestically or related to Chinese goods, real estate, or resources
- New concepts introduced for place of consumption, requiring further guidance
- Foreign taxpayers leasing property in China must appoint a domestic agent for VAT obligations
- Unclear if requirement extends to other taxable services or intangible assets
- Deemed sales rules exclude free-of-charge services from taxable transactions
- Uncertainty remains about the application of anti-avoidance rules to gratuitous services
Source: taxathand.com
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
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