Key Changes in China’s 2026 VAT Law and Implementing Regulations: Scope, Tax Rates, and Compliance

VAT Implementation Regulations released – major changes effective on 1 January 2026

• Cross-Border Transaction Rules: The new regulations clarify the “place-of-consumption” principle, stating that services consumed overseas by Chinese entities are not considered domestic sales, thus avoiding double taxation. Zero-rated cross-border services have been defined, including R&D and technology transfers, contingent on being “completely consumed overseas,” which requires careful documentation.
• Input VAT Management Framework: A significant change is the introduction of a threshold for input VAT credits on long-term assets, where assets valued under RMB5 million allow full credit, while those over this threshold require annual adjustments for mixed-use scenarios. Additionally, non-creditable input VAT categories have expanded, affecting purchases related to non-VAT transactions, and a new resale exception for catering services allows input VAT credit for purchased services intended for resale.
• Anti-Avoidance Provisions and Compliance Changes: The regulations introduce general anti-avoidance measures, enabling tax authorities to adjust transactions lacking reasonable commercial purpose that affect VAT obligations. Businesses are now responsible for initiating annual input VAT reconciliations, shifting the burden from tax authorities and requiring enhanced tracking systems to manage input VAT allocations effectively.

Source EY

---

• The new VAT Law and its Implementing Regulations took effect on January 1, 2026, introducing major changes to VAT in China.
• The definition of taxable transactions was revised to focus on where services or intangible assets are consumed in China or where the seller is a domestic entity/individual, aligning with global standards and reducing double taxation.
• Overseas services directly related to domestic goods are now considered taxable in China, though further clarification is needed on what constitutes “directly related to.”
• The three-tiered VAT rates (13%, 9%, 6%) are retained, with a 3% simplified tax method rate; the 5% rate and difference-based taxation require further clarification.
• The VAT rate for individuals selling real estate is set at 3%, and new rules clarify which tax rate applies when multiple rates are involved in a transaction.

Source: roedl.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.

---

---