China’s new VAT Law takes effect in 2026

On 1 January 2026, China’s new VAT Law will come into effect, replacing the Provisional VAT Regulations that had governed the system since 1993. This reform brings major structural changes to China’s most important indirect tax.

The law clarifies the scope of taxable transactions by consolidating goods, services, intangibles, and real estate into a unified category. The previous distinction for “labor services” has been removed and is now treated as part of “services.”

Provisions on deemed sales have been updated. Self-produced or commissioned goods provided for non-business use, such as employee benefits, will now be taxable. Free intra-group services between businesses will no longer be subject to VAT.

Rules on input VAT deductions have also changed. Loan service VAT may become deductible; however, this depends on implementing rules to be issued by the State Council.

For small-scale taxpayers, a simplified structure introduces a unified 3% rate, replacing the previous 3% and 5% tiers. Some exceptions may apply, for example in real estate leasing.

The law also introduces anti-avoidance rules allowing tax authorities to adjust valuations in non-monetary or related-party transactions. In addition, taxpayers may either carry forward excess input VAT or apply for a refund, improving liquidity.