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China issues regulations under the Value-Added Tax Law
China has issued detailed regulations under the Value-Added Tax Law of the People’s Republic of China through a state decree. The regulations were adopted at the 75th Executive Meeting of the State Council and promulgated on 30-12-2025, setting out comprehensive operational rules governing the levy, calculation, deduction, refund, and administration of value-added tax.
The regulations elaborate statutory definitions, clarify the scope of taxable supplies of goods, services, intangible assets, and real estate, and prescribe detailed mechanisms for cross-border transactions, invoicing, input tax deduction, tax incentives, and compliance. They apply to entities and individuals engaged in taxable transactions within the territory of China and provide the core subordinate framework for administering the VAT Law.
Key aspects of these implementing regulations include:
(a) Clarification of taxable scope and core definitions
The Regulations define goods to include tangible movable property and utilities such as electricity, heat, and gas, while services cover transportation, postal, telecommunications, construction, financial services, and various production and living services. Intangible assets are defined as non-physical assets capable of generating economic benefits, including technology, intellectual property, goodwill, and natural resource use rights, while real estate refers to immovable property such as buildings and structures. The State Council’s finance and tax authorities are empowered to propose and promulgate specific scopes for each category with State Council approval.
(b) Treatment of cross-border services and intangible assets consumption
Consumption of services and intangible assets within the territory includes supplies by overseas entities or individuals to domestic recipients, except for services consumed entirely overseas. It also includes cross-border supplies directly related to goods, real estate, or natural resources located within the territory, as well as other circumstances stipulated by the finance and tax authorities. These provisions establish the domestic VAT nexus for imported services and intangibles.
(c) Taxpayer classification and invoicing requirements
General taxpayers are those applying the general tax calculation method and are subject to a registration system administered by tax authorities. Natural persons are classified as small-scale taxpayers, while certain non-enterprise units may elect small-scale treatment if taxable activities are infrequent. Taxpayers issuing special VAT invoices must separately state the sales amount and VAT amount, and special VAT invoices are restricted in cases involving natural person purchasers, VAT-exempt transactions, or other prescribed circumstances.
(d) Zero-rated exports and cross-border supplies
Exported goods are defined as goods declared to customs, physically leaving the country, and sold to overseas entities or individuals, including goods deemed as exported. Specified cross-border services and intangible assets supplied by domestic entities to overseas recipients and entirely consumed overseas are subject to a zero tax rate, including R&D, design, software, offshore outsourcing services, technology transfers used overseas, and international transportation services.
(e) Determination of composite taxable transactions
Taxable transactions involving multiple supplies subject to different tax rates or levy rates are treated as composite transactions where there is a clear primary and secondary relationship. The primary business must reflect the substance and purpose of the transaction, while the secondary business must be a necessary supplement dependent on the primary supply.
(f) Input tax deduction vouchers and deductible input tax
VAT deduction vouchers include special VAT invoices, customs import VAT payment certificates, tax payment certificates for imported services and intangibles, agricultural product invoices, and other approved vouchers. Deductible input tax includes VAT stated on these vouchers, subject to compliance with the relevant administrative regulations.
(g) Adjustments for discounts, cancellations, and returns
Under the general tax calculation method, VAT refunded due to sales discounts, cancellations, or returns is deducted from current output tax, while recovered VAT is deducted from current input tax. Under the simplified tax calculation method, refunded sales amounts reduce current sales, with any excess refundable or deductible in future periods in accordance with regulations.
(h) Rules on non-deductible input tax and abnormal losses
Input tax related to personal consumption, abnormal losses, non-taxable transactions, and other specified circumstances is not deductible. Abnormal losses include theft, loss, spoilage, mismanagement, or legally mandated confiscation or demolition, with detailed rules covering goods, work-in-process, finished products, and real estate under construction. Fixed assets are defined as assets with a service life exceeding 12 months.
(i) Mixed-use long-term assets and input tax adjustment
General taxpayers acquiring fixed assets, intangible assets, or real estate for mixed use across taxable, exempt, simplified, non-taxable, collective welfare, or personal consumption activities must apply specific input tax rules. Assets with an original value not exceeding RMB 5 million allow full input tax deduction, while assets exceeding this threshold require annual adjustment of non-deductible input tax during the mixed-use period, in accordance with procedures issued by finance and tax authorities.
(j) VAT incentives and scope of exemptions
The Regulations define qualifying agricultural producers and primary agricultural products, eligible medical institutions, old and used books acquired from the public, and specified education, childcare, elderly care, and disability service institutions. They also clarify exempt ticket revenue and require public disclosure, periodic evaluation, and adjustment of VAT preferential policies by the finance and tax authorities.
(k) Collection, withholding, and compliance mechanisms
Taxpayer determination rules apply to contracting, leasing, affiliation, and asset management product operations, with asset managers treated as taxpayers for asset management products. Withholding obligations apply in specified transactions involving natural persons and cross-border real estate leasing.
(l) Anti-avoidance and information powers
Tax authorities are empowered to obtain logistics, customs, and fund settlement information relevant to export VAT administration, subject to confidentiality obligations. Where taxpayers implement arrangements without a reasonable commercial purpose resulting in improper VAT reduction, exemption, deferral, or excessive refunds, tax authorities may make adjustments in accordance with tax collection and administration laws.
Source – Official State Decree
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