Sep.2026 - New VAT withholding rules on payments to individuals

Scope of withholding - seven categories of services

The withholding agent is required to withhold and pay VAT where a domestic individual provides the following seven categories of services:

• R&D services
• Software services
• Design services
• Consulting services
• Radio/Film/TV programme production services
• Cultural services
• Education services

Calculation of tax

• VAT to be withheld = sales amount × applicable levy rate
• Local surcharges shall be withheld at the same time as the VAT
• The VAT levy rate for individuals is 3%, which may be reduced to 1% until 31 December 2027; local surcharges may likewise be levied at a 50% reduction until 31 December 2027

Filing deadlines

The withholding agent shall file the withholding return and pay the tax within the first 15 days of the month following the taxable transaction
 

Transition period

• Transactions from 1 January to 31 October 2026: self-declared and paid by the individual
• From 1 November 2026: withholding by the paying entity applies

Point of attention

• Where the sales amount of a single transaction does not reach the per-transaction threshold (CN¥1,000), or the transaction is exempt from VAT or otherwise does not require withholding, the withholding agent is still required to file a return
• Withhold individual income tax (IIT) on payments to individuals for services as well - a separate obligation that VAT withholding does not replace

Action recommendations

• Review contracts with domestic individuals to confirm whether VAT withholding applies and whether the agreed prices are tax-inclusive
• Assess the eligibility of potential VAT incentives depending on the nature of services, and build in the relevant terms in the contract to clarify each party’s obligations to secure the benefits
• Ensure VAT invoices are obtained for transactions above the threshold and compliant receipts for those below it

We remain available should you have any questions. Please do not hesitate to reach out to your Forvis Mazars point of contact.

References

• Ministry of Finance and State Administration of Taxation Announcement [2026] No 28: Notice on the Measures for the Withholding of Value-Added Tax on Individuals by Domestic Entities (link here in Chinese)