Jan. 2026 - The Value-Added Tax Law and its implementing regulations officially took effect on 1 January 2026

To facilitate a smooth transition and ensure compliant operations for relevant market entities, the supporting Implementation Regulations of the VAT Law (hereafter referred to as the Implementation Regulations) have been formulated, promulgated and shall take effect concurrently with the VAT Law.

We have summarized the key provisions of the Implementation Regulations below for your reference.

Determination of consumed in China for services and intangible assets

Services and intangible assets are deemed consumed within China if they fall under any of the following circumstances:

• Provided by overseas entities or individuals to domestic entities or individuals, excluding services entirely consumed overseas
• Provided by overseas entities or individuals and directly related to domestic goods, real estate, or natural resources in China
• Other circumstances stipulated by the competent financial and taxation authorities of the State Council

Non-deductibility of input VAT on Loan-related Expenses (including loan interest)

Input VAT attributable to loan-related expenses (including loan interest) is not deductible against output VAT, with specific rules as follows:

• Input VAT attributable to interest expenses from loan services, as well as lender-charged fees (e.g., investment and financing advisory fees, handling fees), is temporarily not eligible for deduction against output VAT
• Input VAT corresponding to expenses paid to lenders shall not be deductible, while that relating to non-lender expenses is not subject to such deductibility restrictions

Applicable rate rules for single taxable transaction involving multiple VAT rates/levy rates

For a single taxable transaction involving multiple VAT rates or levy rates (i.e., mixed sale transaction), the applicable rate shall follow the principal component of the transaction.

A single taxable transaction shall be deemed a mixed sale if it meets all the following criteria:

• Involves two or more components subject to different VAT rates/levies
• Has a clear principal-ancillary relationship between components
• The principal component dominates and reflects the transaction’s essence and purpose
• The ancillary component is a necessary supplement, contingent on the principal activity

Annual settlement of non-deductible input VAT for mixed-use purposes

For mixed-use scenarios where a general VAT taxpayer is unable to directly allocate non-deductible input VAT, the following rules apply:

• The non-deductible amount shall be calculated period by period based on the proportion of taxable sales revenue vs exempt/non-taxable income
• A final annual settlement shall be completed within the January tax filing period of the following year based on the full-year data

Input VAT deduction rules for long-term assets used for mixed purposes

For long-term assets used for both taxable and exempt/non-taxable purposes, input VAT deduction shall be governed by the asset’s original value:

• Original value ≤ CNY 5,000,000: input VAT is fully deductible if the assets are not used exclusively for VAT-exempt projects, employee welfare, or other non-deductible purposes
• Original value > CNY 5,000,000: deduct the full amount of input VAT first, then transfer out the non-deductible portion proportionally each year based on their actual usage