State Taxation Administration issued Announcement No. 2 of 2026, effective 1 January 2026, introducing stricter rules for general VAT taxpayer registration with retroactive effect. Taxpayers exceeding the small-scale sales threshold must register (with limited exemptions), certain sectors are mandatorily included, and late registration leads to automatic backdated reclassification and filing corrections. Transitional rules abolish the guidance period and allow offset or refund of excess prepaid VAT, increasing compliance risk for businesses near the threshold
China VAT Alert: New Mandatory Registration Rules and Retroactive Compliance Requirements
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Author: Ljubica Blagojević
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Content accuracy validation date:
19.01.2026
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08:34h
Who must register
- Taxpayers whose annual taxable sales exceed the small-scale taxpayer threshold (RMB 5 million, approx. €614,877) must register as general VAT taxpayers, unless expressly exempt.
- Exemptions: natural persons and non-enterprise units that do not regularly engage in taxable activities may remain small-scale taxpayers.
- Mandatory registration regardless of turnover applies to certain sectors, including:
- State-owned grain purchasing and sales enterprises
- Gas stations
- Air transport enterprises applying consolidated VAT payment
Voluntary registration
- Taxpayers below the threshold may voluntarily register if their accounting is sound and tax data is reliable.
- The effective date is retroactive to the first day of the registration period, requiring correct VAT treatment and filing from that date onward.
Threshold monitoring and timing
- “Annual taxable sales” are calculated over any consecutive 12-month or four-quarter period, including periods with zero sales.
- Occasional transfers of real estate or intangible assets are excluded.
- Adjustments from audits or self-corrections are allocated to the original tax period in which the VAT obligation arose.
Retroactive registration and corrections
- If sales adjustments retrospectively breach the threshold:
- Registration must be completed within 10 working days
- Prior small-scale VAT returns must be corrected period by period
- Input VAT deduction vouchers obtained after the effective date (or obtained later but relating to that period) may still be claimed
- For adjustments relating to 2025 or earlier, the earliest effective date is 1 January 2026.
Non-compliance consequences
- Failure to register on time results in automatic classification as a general VAT taxpayer after 5 working days, with the effective date still backdated, increasing VAT exposure and correction obligations.
Status changes and documentation
- Taxpayers who no longer meet small-scale eligibility due to business changes must report promptly or will be reclassified by the tax authority.
- Supporting documents (accounting records, transaction evidence, eligibility explanations) must be retained for inspection.
Transitional rules
- Taxpayers exceeding the threshold in Q4 / December 2025 and filing in January 2026 become general taxpayers from 1 January 2026.
- From 2026:
- The general VAT taxpayer guidance period is abolished
- Excess prepaid VAT from additional special VAT invoices may be offset or refunded
The Announcement significantly tightens VAT status control, introduces strict retroactivity, and increases the compliance risk of delayed registration. Businesses close to the threshold must implement continuous turnover monitoring and timely VAT status management from 2026 onward.
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