China VAT Compliance 2026: Insights from the New Regulations

January 5, 2026

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On December 19, 2025, the Chinese State Council enacted the Implementing Regulations of the VAT Law. The Implementing Regulations clarify who qualifies as a taxable person, which transactions are subject to VAT, and set out applicable tax rates and detailed rules for calculating the VAT. Additionally, the Regulations refine and standardize VAT exemptions, strengthen VAT administration, formalize rules on invoicing, export VAT refunds, and enhance information-sharing mechanisms.

Overview of the Implementing Regulations

The Implementing Regulations are divided into six chapters, each with a specific set of rules. Chapter One of the Implementing Regulations lays the foundational definitions and administrative principles underpinning China’s VAT system. Notably, under the general provisions, taxable goods include tangible movable property as well as electricity, heat, and gas. At the same time, services cover a wide range of activities, including transportation, telecommunications, construction, financial services, and various production and consumer services.

Chapter Two states that persons subject to VAT include legal entities, such as enterprises, government bodies, public institutions, and social organizations, as well as individuals, including self-employed persons and natural persons. Regarding applicable VAT rates, the Regulations provide that cross-border services and intangible assets are eligible for the zero VAT rate when supplied by domestic entities or individuals, provided they are sold to overseas recipients and are entirely consumed or used outside China.

Chapter Three of the Regulations provides detailed rules for calculating, deducting, adjusting, and administering VAT payable in practice, with a strong focus on input tax deductions and valuation principles. Furthermore, Chapter Four of the Regulations elaborates on the scope and application of VAT incentives by clarifying the beneficiaries and conditions for various exemptions and preferential treatments under the VAT Law.

Chapter Five, as the most detailed chapter of the Regulations, sets out comprehensive rules on VAT collection and administration, focusing on taxpayer identification, invoicing, timing of tax liability, filing arrangements, and the management of export-related VAT. The final, Sixth Chapter sets January 1, 2026, as the date on which the Regulations came into effect.

Conclusion

The implementing Regulations are formulated in accordance with the rules set out in the VAT Law and must therefore be read together with the Law. Nonetheless, as most existing VAT rules are retained to avoid imposing additional compliance burdens on businesses, the Regulations maintain the stability of the VAT system and bring greater clarity to the VAT rules and requirements.

Source: China State Taxation Administration - Implementing Regulations of the Value-Added Tax Law of the People's Republic of China, China State Taxation Administration - VAT Law, VATabout

What are the China VAT Implementing Regulations enacted in December 2025?

The Implementing Regulations are detailed rules issued by the Chinese State Council to clarify how the VAT Law is applied in practice, including taxable persons, taxable transactions, VAT rates, exemptions, and administrative procedures.

Who qualifies as a taxable person under the China VAT Implementing Regulations?

Taxable persons include legal entities such as enterprises, government bodies, public institutions, and social organizations, as well as individuals, including self-employed persons and other natural persons.

What types of goods and services are subject to VAT in China?

VAT applies to tangible movable property and specific items like electricity, heat, and gas, as well as services such as transportation, telecommunications, construction, financial services, and other production and consumer services.

When do cross-border services qualify for a zero VAT rate in China?

Cross-border services and intangible assets may qualify for a zero VAT rate when supplied by domestic entities or individuals to overseas recipients and when they are entirely consumed or used outside China.

What do the Implementing Regulations say about VAT calculation and deductions?

The Regulations provide detailed guidance on calculating VAT payable, input tax deductions, valuation principles, and adjustments, ensuring clearer and more standardized VAT computation rules.

When do the China VAT Implementing Regulations take effect?

The Implementing Regulations entered into force on January 1, 2026, and must be applied together with the VAT Law to ensure proper compliance.

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