China VAT Reform 2026: Draft Implementing Rules Explained

August 19, 2025

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China's Ministry of Finance launched a public consultation on the upcoming reform and changes in VAT rules and regulations. The new VAT Law, scheduled to take effect on January 1, 2026, is accompanied by a recently published draft of Regulations for the Implementation of the Value Added Tax Law (Implementing Regulation), which aims to ensure consistent application and enforcement nationwide.

Key Provision from the Implementing Regulation

The draft of the Implementing Regulation further clarifies rules from the VAT Law, including the definition of taxable scope, specifying what constitutes taxable goods, services, intangibles, and immovable property, and explaining how domestic consumption of services and intangible assets is determined.

The Implementing Regulation also defines rules for export and cross-border transactions. It states that certain services and intangibles, such as R&D, IT services, and technical transfers, will qualify for a zero VAT rate if they are consumed entirely outside of China. Additionally, the regulation outlines the procedure for determining the correct VAT rate in cases involving mixed transactions.

Regarding input VAT and deductions, the Implementing Regulation lists all valid deduction documents, including VAT invoices, customs certificates, and overseas payment receipts, while also establishing rules for handling mixed-use fixed assets and calculating non-creditable input VAT for exempt or non-taxable activities. In addition to this, the draft also included provisions on invoicing and compliance requirements, tax incentives and exemptions, as well as rules to disqualify taxable persons from incentives.

Conclusion

Interested parties may submit their comments and remarks on the proposed draft of Implementing Regulations by September 10, 2025, either online through the official websites of the Ministry of Finance and the State Administration of Taxation, or by mail to the respective departments in Beijing. Considering that China's government is determined to undertake the tax reform, affected parties should participate actively in shaping the VAT framework, while taking necessary steps to prepare for these changes.

Source: Ministry of Finance of the People's Republic of China, VATabout

What is the timeline for China’s new VAT Law and regulations?

The new VAT Law in China will take effect on January 1, 2026. A draft of the Implementing Regulation has been released, and public comments are open until September 10, 2025.

What does the draft Implementing Regulation clarify about taxable scope?

The draft clarifies what counts as taxable goods, services, intangibles, and immovable property, and explains how domestic consumption of services and intangible assets is determined.

How does the draft regulation affect export and cross-border services?

Certain services and intangibles, such as R&D, IT services, and technical transfers, will qualify for a zero VAT rate if consumed entirely outside China.

What are the new rules for VAT input deductions under the draft regulation?

Valid deduction documents include VAT invoices, customs certificates, and overseas payment receipts. The draft also sets rules for mixed-use assets and calculating non-creditable input VAT.

What compliance requirements are highlighted in the draft Implementing Regulation?

The draft includes provisions on invoicing rules, compliance obligations, tax incentives and exemptions, and disqualification criteria for accessing those incentives.

How can stakeholders participate in China’s VAT reform consultation?

Interested parties can submit feedback online through the Ministry of Finance and State Administration of Taxation websites or send remarks by mail to their Beijing offices before September 10, 2025.

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