On December 25, 2024, China’s Standing Committee of the National People’s Congress passed a comprehensive Value Added Tax (VAT) law, which will take effect on January 1, 2026. This legislation aims to modernize and unify the VAT system, aligning it with international standards while maintaining the existing rate structure. The new law clarifies taxable transactions, updates exemptions, and establishes guidelines for nonresident enterprises, providing a more cohesive framework for VAT collection and taxpayer rights protection.
China Enacts Comprehensive VAT Law Set to Take Effect in 2026
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Author: Ivana Picajkić
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Fiscal subject related
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Content accuracy validation date:
16.01.2025
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10:05h
On December 25, 2024, China’s Standing Committee of the National People’s Congress enacted a comprehensive Value Added Tax (VAT) law, set to take effect on January 1, 2026. This law represents the first extensive VAT legislation in China, building upon regulations introduced in the early 1990s and aimed at consolidating various rules to create a more cohesive system.
The new VAT law seeks to modernize the tax framework, align it with international standards, and unify all VAT regulations into a single legislative document, with the primary goal of standardizing VAT collection and safeguarding taxpayer rights. While it revises existing rules, it maintains the current rate structure and overall framework.
The law clarifies what constitutes taxable transactions and provides specific guidelines for nonresident enterprises operating in China. It also updates exemptions by adding and removing certain items.
Comprising six chapters and 38 articles, the main changes include:
- Definition of Taxable Transactions:
- Sales of goods originating in China,
- Sales or leases of real estate or rights to natural resources located in China,
- Sales of financial commodities issued in China or sold by entities or individuals within China,
- Sales of services or intangible assets consumed within China or provided by entities or individuals based in China.
- Taxable Transactions:
- Use of self-produced or commissioned goods for personal consumption or collective welfare,
- Transfers of goods without consideration by businesses or individual industrial households,
- Transfers of intangible assets, real estate, or financial commodities without consideration.
- Multiple Tax Rates:
- For transactions involving multiple tax rates, the applicable rates will depend on the primary business activity. Taxpayers must separately account for sales subject to different rates; if not done, the higher rate will apply.
- Non-Deductible Input VAT:
- Includes input tax related to simplified tax calculation items, VAT-exempt items, abnormal losses, goods and services used for personal consumption, catering services, and other specified input taxes.
The new law also includes a list of VAT-exempt supplies with standards determined by the State Council. If sales amounts are deemed unjustifiably low or high, tax authorities may assess them according to relevant regulations. Additionally, mechanisms will be established for sharing VAT-related information among various governmental authorities.
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