China has released draft VAT Implementation Regulations for a new VAT Law taking effect on January 1, 2026. The proposed changes include significant restrictions on input VAT credits, particularly for long-term assets over RMB5 million and for non-VAT transactions like loan services and advisory fees. New mandatory annual reconciliation requirements and general anti-avoidance provisions have also been introduced to target arrangements lacking a commercial purpose. The regulations clarify the rules for cross-border transactions, specifying when services are considered consumed in China, which affects both domestic and overseas entities. Companies are advised to review the draft regulations and assess their current VAT practices, as these changes will require robust documentation to prove overseas consumption and may impact the recoverability of input VAT credits.
Source: ey.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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