China Passes VAT Law, Effective January 1, 2026

The Value-Added Tax Law of the People’s Republic of China (hereinafter referred to as the “new law”) was officially passed on December 25, 2024, and will take effect on January 1, 2026.

The key adjustments in the new law can be summarized as follows:

1. Clearer Criteria for Domestic Consumption Determination
   The new law clarifies the criteria for determining “domestic consumption.” The assessment is mainly based on whether services and intangible assets are consumed within China. Additionally, the taxable scope of financial products has been further refined to align with international VAT guidelines.
2. Reduction in the Scope of Deemed Taxable Transactions
   The new law adopts a positive list approach to define “deemed taxable transactions,” narrowing the scope. This means that certain transactions, such as services provided free of charge and interest-free loans, may no longer be considered taxable under VAT in the future.
3. Redefinition of Non-Taxable Items
   The new law does not include the transfer of goods, real estate, and land use rights involved in asset restructuring in the non-taxable category. This marks a significant departure from existing regulations and could result in higher VAT costs for Taiwanese businesses engaged in asset restructuring.
4. Impact on the Definition of Sales Revenue
   The new law redefines “sales revenue,” which may affect how net tax calculations are conducted, particularly in sectors such as financial products, real estate development, and other specific industries. Whether the current tax calculation rules remain unchanged will depend on further details in the upcoming implementation regulations.

Businesses should closely monitor the new law and its supporting policies, assess the impact on their existing business models, and prepare accordingly.

Source: Economic Daily News