China finalizes unified VAT system — new 2026 law modernizes tax framework

China has completed a decades-long shift to a unified VAT system, replacing the former Business Tax (BT). Following OECD recommendations, reforms from 2012–2016 integrated services into VAT, culminating in the VAT Law, passed in 2024 and effective January 1, 2026. The law introduces three VAT rates (13%, 9%, 6%), backed by new implementation rules, the Golden Tax Phase IV system, and nationwide e-fapiao rollout. State Council Decree 810 (2025) also requires digital platforms to file quarterly tax reports. The reform modernizes China’s tax system, improving transparency and digital integration, while increasing compliance demands on both domestic and foreign businesses.

From Dual Regime to Unified VAT
China’s VAT, introduced in 1994, originally applied only to goods, while services were taxed under BT, leading to inefficiencies and cascading costs.

• 2008: Input VAT on fixed assets became deductible, aligning China’s system with global norms.
• 2012–2016: The Business Tax to VAT (B2V) reform phased in nationwide, replacing BT with VAT for all sectors, including financial services.
• 2017–2019: Tax rates were simplified, and the First Draft VAT Law was released for consultation.
• 2024: The National People’s Congress (NPC) formally passed the VAT Law, effective January 1, 2026.

Building the Modern VAT System
The new VAT Law codifies China’s indirect tax regime and establishes a three-tier rate structure (13%, 9%, 6%). Its implementation will be supported by Detailed Implementation Regulations (drafted in 2025), addressing scope, rates, deductions, refunds, and the integration of data systems such as Golden Tax Phase IV.

Parallel reforms include the nationwide rollout of e-fapiao (electronic VAT invoices), legally equivalent to paper invoices and tailored to multiple transaction types. Additionally, State Council Decree 810 (June 2025) mandates digital platforms—domestic and foreign—to submit quarterly tax reports on operators and individual service providers.

Impact and Analysis
China’s new VAT framework completes its transition to a unified, data-driven indirect tax system. For domestic taxpayers, it simplifies compliance and enhances transparency, though IT adaptation remains demanding, particularly for SMEs. For foreign and platform-based businesses, the law introduces clearer cross-border obligations and reporting duties.

Overall, the reform strengthens tax enforcement, digital integration, and international alignment, positioning VAT as the backbone of China’s modern fiscal system.