On August 22, 2025, China’s State Tax Administration (STA) and Ministry of Finance (MOF) revised the VAT credit rebate (refund)  policy to boost fiscal revenue, narrowing full refund eligibility to four industries: manufacturing, scientific research and technical services, software and IT services, and ecological protection and environmental management. Other sectors, including real estate, face partial refunds, requiring businesses to reassess tax strategies.

Policy Changes

• Four Key Industries (Rule 1)

Taxpayers in the four industries can apply monthly (or quarterly) for a full refund of end-of-period VAT credits. Previously, 13 industries were eligible.

• Real Estate Developers and Operators (Rule 2)

Real estate taxpayers with six consecutive months (or two quarters) of increasing VAT credits (minimum RMB 500,000 increase in the sixth month/second quarter) can apply for a 60% refund of the increase. Others follow Rule 3.

• Other Industries (Rule 3)

Non-four-industry and non-qualifying real estate taxpayers with six months of increasing VAT credits (minimum RMB 500,000 increase compared to the prior year’s December 31) can apply for:

• 60% refund for increases up to RMB 100M.
• 30% refund for increases above RMB 100M.

Previously, these taxpayers could claim higher refunds without limits.

Eligibility Criteria

Eligible companies in the four industries must:

• Have an A or B tax credit rating.
• Not have fraudulently obtained tax refunds or issued false VAT invoices in the prior 36 months.
• Not have been penalized for tax evasion twice or more in the prior 36 months.
• Not have used “refund upon payment” or “refund after payment” policies since April 1, 2019.

VAT sales thresholds:

• Four Industries: VAT sales from these industries ≥ 50% of total VAT sales over the prior 12 months (or 3-12 months if applicable).
• Real Estate: VAT sales + advance payments from real estate ≥ 50% of total VAT sales + advance payments over the prior 12 months, without double-counting advance payments.
• Other Industries: Taxpayers not in the above categories.
• Mixed Businesses: If real estate sales meet the ≥50% threshold, classified as real estate taxpayers.

VAT sales include reported, audited, and adjusted sales, using pre-differential amounts where applicable.

Refund Calculation

• Four Industries: Refund = End-of-period VAT credit × Input credit composition ratio × 100%.
• Real Estate: Refund = (VAT credit increase since March 31, 2019) × Input credit composition ratio × 60%.
• Other Industries: Refund = [(Increase up to RMB 100M since prior year’s December 31) × Input credit composition ratio × 60%] + [(Increase above RMB 100M) × Input credit composition ratio × 30%].

Input Credit Composition Ratio: Calculated from deductible VAT documents (e.g., special VAT invoices, customs import VAT certificates) from April 2019 (Rules 1, 2) or January of the current year (Rule 3) up to the period before the refund application, divided by total deductible input VAT.

Export VAT and Credit Rebate

Eligible companies can apply for both export VAT exemptions/rebates and VAT credit rebates, but must first complete export VAT processes. Corresponding input tax cannot be used for retained VAT refunds.

Carrying Forward VAT Credits

Unapplied VAT credits can be carried forward to offset future VAT liabilities. Approved refunds reduce the credit balance. Incorrectly claimed refunds must be repaid in the next filing period, with fraudulent refunds recovered per tax law.

Reasons for Update

The policy addresses declining tax revenue (down 1.2% to RMB 9.29T in H1 2025, with VAT at 38% of 2024 tax revenue) amid a real estate slowdown and weak consumption. Limiting rebates aims to bolster fiscal revenue for public services and infrastructure.

Next Steps for Companies

Companies should:

• Review eligibility and calculate recoverable VAT under the new policy.
• Assess cash flow and liquidity impacts from reduced refunds.
• Explore alternative VAT relief options (e.g., deductions for small-scale taxpayers, disabled employee hiring, export rebates) extended until 2027.
• Adjust investment schedules, supply chains, or financing to mitigate impacts.