The principal VAT development during the first half of 2026 was the entry into force of the Value-Added Tax Law of the People’s Republic of China and its Implementation Regulations on 1 January 2026. The new legislation replaces the Provisional VAT Regulations that had governed the system since 1994 and establishes, for the first time, a statutory framework for China’s VAT regime.

Other notable developments during the reporting period included revised VAT treatment for certain residential property transactions, changes to the VAT treatment of contraceptives, reform of export VAT rebates for photovoltaic and battery products, measures affecting small-scale taxpayers, and new administrative guidance and enforcement relating to VAT invoicing.

China’s VAT Law

The VAT Law, promulgated on 25 December 2024, together with the Implementation Regulations approved by the State Council on 30 December 2025, entered into force on 1 January 2026.

The legislation largely preserves the existing VAT framework, including the three-rate structure of 13%, 9% and 6%, while incorporating long-standing administrative rules into primary legislation.

The principal features of the new legislative framework include:

• formal adoption of the consumption-place principle for specified cross-border services and intangible assets;

• statutory recognition of the VAT credit refund system;

• revised rules governing input VAT deduction for certain long-term assets;

• introduction of a general anti-avoidance rule; and

• revised provisions governing mixed supplies and VAT rate determination.

Following the entry into force of the legislation, the Ministry of Finance and the State Taxation Administration issued a series of implementing announcements covering taxpayer registration, VAT declarations, preferential policies, export VAT refunds and transitional administrative matters.

Small-Scale Taxpayer Measures

From 1 January 2026 until 31 December 2027, the monthly VAT exemption threshold for small-scale taxpayers remains RMB 100,000, while the quarterly threshold remains RMB 300,000.

The threshold for occasional transactions by natural persons increased from RMB 500 to RMB 1,000 per transaction.

The authorities also introduced measures intended to prevent artificial splitting of business activities designed to remain below VAT registration thresholds.

Residential Property

From 1 January 2026, VAT on sales by individuals of residential property held for less than two years was reduced from 5% to 3%.

Residential property held for two years or more continues to qualify for the existing VAT exemption.

Removal of VAT Exemption for Contraceptives

From 1 January 2026, contraceptives became subject to the standard 13% VAT rate following the entry into force of the new VAT Law.

The previous VAT exemption, which existed under the former regulatory framework, was not carried forward into the new legislation.

Export VAT Rebate Reform

The Ministry of Finance and the State Taxation Administration introduced significant changes to export VAT rebates for clean energy products.

From 1 April 2026, the export VAT rebate for photovoltaic products was eliminated.

The export VAT rebate for battery products was reduced from 9% to 6% from the same date and is scheduled to be withdrawn entirely from 1 January 2027.

Invoice Administration

During April 2026, the State Taxation Administration issued guidance targeting fraudulent invoicing arrangements, including circular invoicing and fictitious transactions used to generate VAT invoices, and launched an enforcement campaign focused on the metals sector.

Other Developments

Other VAT developments during the reporting period included:

• reduced import VAT on certain agricultural products;

• VAT relief for specified imported scientific and educational equipment;

• expansion of tourist VAT refund measures;

• continued rollout of electronic invoices (e-fapiao); and

• further implementation of VAT measures within the Hainan Free Trade Port.

VAT Rates

China’s principal VAT rates remain:

• 13% – standard rate;

• 9% – specified goods and services;

• 6% – financial services, modern services and other specified supplies; and

• 3% – simplified taxation method where applicable.

The threshold for mandatory general taxpayer registration remains RMB 5 million in annual taxable sales.