China: Implementation regulations under updated VAT law
Effective January 1, 2026
The implementation regulations under the updated value added tax (VAT) law, which was enacted on December 25, 2024 (read TaxNewsFlash), were published on December 30, 2025, and became effective at the same time as the updated VAT law on January 1, 2026.
The implementation regulations, which comprise six chapters and 54 articles, provide clearer definitions of taxable transactions under the updated VAT law, specifying the scope and applicable scenarios for goods, services, intangible assets and immovable property. They also refine rules on preferential policies, including eligibility for zero-rated VAT on certain export goods, as well as the conditions under which cross-border sales of services and intangible assets may qualify for zero-rated VAT. In addition, the regulations further standardise VAT deduction practices by clarifying the types of eligible deduction vouchers and the methods for deducting input VAT. They also set out detailed criteria for VAT exemption items stipulated in the law.
Key changes
Although the updated VAT law aims to retain the same basic tax regime framework and not create any additional tax burden for taxpayers, the implementation regulations under the updated VAT law still introduce a number of adjustments and amendments that could have significant implications for taxpayers. Key changes include:
- Detailed provisions on the consumption of services and intangible assets within China
- Application of zero VAT rate to exported services and intangible assets
- Clarification of applicable tax rates and collection rates for mixed sales transactions
- Clearer definition of “total consideration”—removal of the term “additional charges outside price”
- Retention of existing methods for assessing sales value
- Irrecoverable input VAT incurred on interest related costs
- Irrecoverable input VAT due to out-of-scope use
- Annual reconciliation for unallocated non-deductible input VAT
- Input VAT treatment for long-term assets
- Tax incentives—statutory exemption criteria
- Withholding obligations for taxable transactions conducted by individuals
Read a January 2026 report prepared by the KPMG member firm in China
For more information, contact a KPMG tax professional in China:
Fiona Yu | fiona.yu@kpmg.com