China’s VAT Law Goes into Effect in 2026

China has passed a comprehensive value-added tax law that takes effect in January 2026, unifying laws and providing targeted exemptions for sectors such as agriculture, research, and welfare institutions. The measure aims to aid economic recovery as the country grapples with low demand.

It will replace the People's Republic of China's Interim Value-Added Tax Regulations (the "Interim Regulations"), which have been in effect for 31 years. VAT is China's largest tax category, and the VAT Law represents a new chapter in the country's tax structure.

The significant changes in the VAT Law as Compared to the Previous System are six.:

1)????? Standardizing the Scope of Taxable Transactions and Eliminating Taxable Labor Services

2)????? Simplifying Deemed Sales Provisions and Eliminating the Catch-All Clause

3)????? Adjusting the Scope of Non-Deductible VAT Input Tax and Clarifying the Need for Deduction Certificates

4)????? Combining the Simplified Calculation Method Tax Rate and Clarifying the 3% Tax Rate Tier

5)????? Including the "Sales Amount Significantly Too High" Clause and extending the Tax Authority's Adjustment Rights

6)????? Legalizing the Input Tax Credit Refund System and Establishing a Clear Legal Basis.

Taxpayers have around a year to understand and prepare for the new tax law provisions.

In general, it is expected to impact pricing and cost structures for businesses and consumers.

During the year upcoming documents on the VAT Law are expected to clarify the related specific issues.

We will closely watch the related regulations and implementation to share our interpretations with you.

JESA Investment & Management Co., Ltd.