China Implements New VAT Law Regulations

China’s VAT implementation regulations, effective 1 January 2026, replace the provisional VAT rules and introduce tighter VAT scope and input VAT credit rules, including annual reconciliation for long-term assets over RMB 5 million (approx. €605,404). While VAT rates remain unchanged, compliance complexity increases, and businesses should reassess VAT positions and controls ahead of implementation

China issued the VAT Law implementation regulations on 30 December 2025, effective 1 January 2026, replacing the previous provisional VAT rules. While largely consolidating existing policy, the new framework introduces important changes affecting VAT scope, input VAT recovery, and compliance.

Key changes include updated place-of-supply rules, potentially expanding VAT on cross-border services and financial instruments, and tighter input VAT credit rules, especially for non-VATable activities and long-term assets above RMB 5 million, which now require annual input VAT reconciliation. Input VAT on interest remains non-creditable.

The regulations also clarify mixed sale treatment, introduce a general anti-avoidance rule, expand withholding obligations for payments to individuals, and strengthen export VAT filing and information reporting requirements. VAT rates remain unchanged, though uncertainty remains over the 5% simplified rate.