China’s VAT regulations, in place for 31 years, will be replaced by a new VAT Law on January 1, 2026, marking a significant shift in the country’s tax system. On December 25, 2024, China’s legislature passed the Value-Added Tax Law, replacing the Interim VAT Regulations. The State Council is expected to issue Implementing Regulations to provide further guidance.
China's VAT Law: Main Changes & Implications for Tax Professionals
Public
Other countries
Author: Ivana Picajkić
Category:
Fiscal subject related
Views:
236
Content accuracy validation date:
04.02.2025
Content accuracy validation time:
09:09h
The new VAT law aims to improve tax efficiency, promote economic growth, and ensure fair tax collection while protecting taxpayer rights. It applies to all entities and individuals selling goods, services, intangible assets, real estate, or importing goods in China, with exceptions such as wages, government fees, compensation for expropriations, and deposit interest. As an extra-price tax, VAT must be itemized separately on invoices.
Generally, taxpayers can offset input tax against their VAT liability. Small-scale taxpayers, those with annual VAT sales under 5 million yuan (approximately USD 6.97 million), follow simplified tax calculations unless they choose the general taxation method.
Six main changes in the VAT Law are as following:
- Standardizing Taxable Transactions – VAT now applies to four main categories: goods, services, intangible assets, and real estate, eliminating “labor services” to reduce confusion,
- Simplifying Deemed Sales Rules – Free services are no longer deemed taxable, addressing enforcement and taxpayer burden issues,
- Adjusting Input Tax Deductions – Loan services are no longer listed as non-deductible, easing the VAT burden for inter-enterprise loans,
- Unifying Simplified Tax Rate – The law fixes the simplified tax rate at 3%, but the future of the 5% tax rate remains uncertain,
- Expanding Tax Authority’s Adjustment Powers – Authorities can adjust taxable sales values if deemed significantly too high or low to prevent tax avoidance,
- Legalizing Input Tax Refunds – Taxpayers can carry forward excess input VAT or apply for refunds, formalizing prior reforms.
The VAT system applies different tax rates based on transaction type:
- 13% for goods sales, tangible property leasing, and imports (default rate),
- 9% for services such as transportation, basic telecommunications, real estate, and select goods like agricultural products and utilities,
- 6% for general services and intangible assets not specifically categorized,
- 0% for exports and designated cross-border services.
For simplified taxation, a 3% collection rate is used. Taxpayers handling multiple transactions with different rates must keep separate records; otherwise, the highest rate will apply.
To support key industries and activities, the VAT law grants exemptions for:
- Sales of self-produced agricultural products by producers,
- Medical services provided by healthcare institutions,
- Sales of used goods by individuals,
- Imports of certain scientific equipment and public welfare items,
- Services related to education, marriage, funerals, and cultural or religious activities.
Small-scale taxpayers below a set revenue threshold are fully exempt from VAT. The State Council has the authority to introduce or modify tax incentives for national priorities like small businesses, innovation, and public welfare contributions. Taxpayers who decline these incentives may be restricted from reapplying for up to 36 months.
There are five main issues to watch for when implementing the new regulation:
- Defining “Primary Business” in mixed sales transactions,
- Scope of Zero-Rated VAT for cross-border services,
- Clarifications on Deductible Input VAT and deduction certificate requirements,
- Standardization of VAT Refund Processes across regions,
- Details of Special VAT Preferential Policies for small businesses and key industries.
With the new VAT Law taking effect in less than a year, businesses should monitor upcoming regulations and prepare accordingly.
Other news from Other countries
Understanding Digital Reporting and e-Invoicing in the USA
Public
Other countries
Author: Ivana Picajkić
Other countries
Author: Ivana Picajkić
E-invoicing allows businesses to exchange invoice data electronically, improving tax compliance and efficiency, though it is not mandatory in the U.S. The government is gradually promoting its adoption, with initiatives like the Business Payments Coalition and the Federal Reserve testing a B2B exchange network. Digital reporting (e-reporting) involves submitting tax-related data electronically to... Read more
Colombia Updates e-Invoicing Rules for Purchasers and Public Utilities
Public
Other countries
Author: Ivana Picajkić
Other countries
Author: Ivana Picajkić
On February 13, 2025, Colombia’s DIAN proposed updates to e-invoicing rules, limiting the purchaser information required for invoices and allowing automated ID-based data entry for billing. The changes also restrict public utility invoices to service-related charges unless the user consents, with a 48-hour window for issuing invoices in case of technical issues. On February 13, 2025, Colombia&rsqu... Read more
Understanding Finland’s VAT System
Public
Other countries
Author: Ivana Picajkić
Other countries
Author: Ivana Picajkić
Finland’s VAT system (Arvonlisävero - ALV) follows EU regulations, with a standard rate of 25.5% and reduced rates of 14% and 10% for specific goods and services. Businesses must register if annual turnover exceeds €20,000, file VAT returns monthly, quarterly, or annually based on revenue, and comply with strict invoicing rules, while special VAT mechanisms such as reverse charge, import VAT defer... Read more
Estonia Approves Optional Mandatory E-Invoicing from July 2025
Public
Other countries
Author: Ema Stamenković
Other countries
Author: Ema Stamenković
On 18 September 2024, Estonia’s Parliament approved changes to the Accounting Act to introduce optional mandatory e-invoicing from 1 July 2025, delayed from January. This bill simplifies requirements for e-invoices, adopting the EU’s EN 16931 standard to encourage digital invoicing across both public and private sectors. It allows B2B customers to insist on e-invoices from their suppliers, streaml... Read more
Latvia: New B2B e-Invoicing and e-Reporting Requirements Effective January 1, 2026
Public
Other countries
Author: Ema Stamenković
Other countries
Author: Ema Stamenković
The "Grāmatvedības likums" (Accounting Law) in Latvia mandates structured electronic invoices for all transactions, except budget institutions. The law also allows businesses to convert paper accounting documents into electronic format for storage, with the Cabinet of Ministers defining the procedure for data submission. Tax declarations can be used as supporting documents for calculated tax, and... Read more
Vietnam Introduces Draft Decree on E-Commerce Customs Procedures
Public
Other countries
Author: Ema Stamenković
Other countries
Author: Ema Stamenković
The Ministry of Finance (MOF) has recommenced work on a decree outlining customs procedures for e-commerce goods, introducing a new draft ("Draft Decree") to address key aspects of cross-border e-commerce. The draft covers areas such as customs declarants, risk management, data handling, import permit exemptions, import duties, customs valuation, and procedural requirements. Regarding what the reg... Read more
The Netherlands Explores Real-Time VAT Calculations and Split Payments to Combat Tax Fraud
Public
Other countries
Author: Ivana Picajkić
Other countries
Author: Ivana Picajkić
The Dutch tax authorities are considering real-time VAT calculations and split payments to combat VAT fraud, especially in the B2C sector. This system would ensure automatic VAT collection at the point of sale, replacing traditional tax returns. While similar models exist in Poland, Italy, and South America, challenges such as payment provider readiness and non-resident seller compliance must be a... Read more