On 1 January 2026, China officially brought its Value-Added Tax (VAT) Law into force, marking a major milestone in the country’s tax system. As China’s largest source of tax revenue, VAT has long been governed by interim regulations; the new law now elevates it to a formal statutory framework, strengthening legal certainty and consistency.
This transition reflects China’s broader push toward “statutory taxation,” moving away from provisional rules toward a more transparent and mature legal system. For businesses operating in China, the implementation of the VAT Law and its accompanying regulations provides a clearer and more predictable tax environment, aligning the system with international best practices.
Smooth transition, stable expectations
A key feature of China’s new VAT Law is its emphasis on continuity. The reform largely preserves the existing three-tier VAT rates, 6%, 9%, and 13%, as well as the 3% levy rate, ensuring that the overall tax burden for businesses remains broadly unchanged. By avoiding abrupt changes to tax rates, the new framework minimizes disruption and reduces adjustment costs for the market. This stability provides businesses with greater confidence and predictability, supporting smoother operations during the transition to the new legal regime.
The new law also introduces several clarifications at the statutory level for the first time. It confirms that VAT is treated as a tax-exclusive system, meaning that the tax amount must be clearly stated separately on invoices and transaction documents. In addition, the law formally recognizes electronic invoices as having the same legal validity as traditional paper invoices. This further supports China’s ongoing shift toward a fully digital tax administration system, enhancing efficiency and transparency in tax reporting.
Optimized deductions, supporting business growth
At the heart of the VAT system lies a simple principle: tax is collected at each stage of the supply chain, while businesses can deduct input VAT along the way. Under the new VAT Law, several important adjustments have been introduced to further refine and optimize these deduction rules, aiming to improve efficiency and better support business operations.
- Legal recognition of excess input VAT refunds: The new law formally establishes taxpayers’ right to reclaim excess input VAT. Companies can either carry forward unused credits to offset future liabilities or apply for a refund, providing greater flexibility and helping to ease cash flow pressures.
- Expanded scope for input VAT deductions: Input VAT on services such as catering and daily consumption is now deductible, except when directly related to personal consumption. This allows certain operating expenses, such as meals arranged by travel agencies for clients, to qualify for deduction, benefiting sectors like tourism and cultural services.
- Simplified deduction for mixed-use long-term assets: For assets with a unit cost of up to RMB 5 million, businesses can now fully deduct input VAT, making it easier to invest in equipment upgrades and technological improvements.
Fairness and targeted support
The new VAT Law adopts a more targeted approach to tax incentives by clearly distinguishing between different sectors. Essential public services, such as agriculture, elderly care, childcare, healthcare and education, continue to benefit from VAT exemptions. At the same time, commercial activities such as beauty and personal care services are excluded from these preferential treatments, reflecting the government’s intention to promote fairness while maintaining effective economic regulation.
Tax rules for individual taxpayers have also been refined. The threshold for per-transaction taxation has been increased from RMB 500 to RMB 1,000. In addition, for certain scenarios, such as real estate leasing, a monthly threshold of RMB 100,000 applies, helping to reduce the tax burden on individuals.
Small-scale taxpayers: Clearer rules, greater flexibility
For small-scale taxpayers, the new law provides clearer definitions and stricter transition rules. Taxpayers with annual sales below RMB 5 million continue to qualify as small-scale taxpayers. However, once this threshold is exceeded, they are required to switch to general taxpayer status from the start of that tax period. This closes previous grey areas and ensures more consistent application of the rules.
Moreover, small-scale taxpayers benefit from greater flexibility in applying tax reductions and exemptions. They can choose to waive an exemption for a specific transaction and issue a special VAT invoice to meet downstream deduction needs, without affecting their eligibility for exemptions on other transactions.
Adjustments to export tax rebates and refund mechanisms
Recent policy updates have introduced structural adjustments to China’s export VAT rebate system. From 1 April 2026, export tax rebates for certain products have been removed, while rebates for others are being phased out in stages. These changes reflect a broader policy direction aimed at supporting industrial upgrading, reducing reliance on energy-intensive production and promoting a more sustainable economic structure.
At the same time, ongoing refinements to the VAT refund system continue to support key sectors of the real economy. Priority industries, such as manufacturing and scientific research, benefit from more favorable refund arrangements, while other sectors may be subject to reduced refund levels. Overall, these developments contribute to a more targeted and balanced tax framework, aligning fiscal incentives with China’s long-term economic and industrial policy goals.
Outlook: A more transparent and stable tax system
The implementation of the VAT Law represents more than just a legal upgrade. It reflects a broader shift in China’s approach to tax governance, from a focus solely on revenue collection toward a more balanced system that also takes taxpayer rights into account. In parallel, the reform moves away from broad, one-size-fits-all incentives toward more targeted and precise policy measures, improving the overall effectiveness of the tax system.
For enterprises, proactively adapting to the new regulations and ensuring compliance will be key to achieving stable and sustainable growth. For the broader market, a more unified and standardized VAT system is expected to reduce opportunities for tax evasion, promote fair competition, and support higher-quality economic development.
As a key platform promoting economic cooperation between Belgium and China, the Belgian-Chinese Chamber of Commerce (BCECC) continues to closely follow such regulatory developments that impact bilateral business activities.