8 September 2025 • 2 minute read
Draft Implementation Regulations of the Value Added Tax Law of the People's Republic of China
The Draft Regulations clarify several core provisions. The scope of VAT remains broad, covering the sale of goods, provision of services, transfer of intangible assets, and real estate transactions. For services, VAT applies if the service is consumed within China or if the provider is located in China, reinforcing the place-of-supply principle.
The Draft Regulations explicitly require foreign taxpayers leasing property in China to individuals to appoint a domestic agent for VAT obligations, but leave it unclear if this rule applies to other services or intangible assets provided to individuals.
The Draft Regulations require general taxpayers to continue their periodic adjustment of input VAT on goods (excluding long-term assets) and services used for both VATable transactions (subject to the general taxing method) and other transactions (including those subject to the simplified taxing method or that are VAT exempt) while also performing an annual reconciliation.
The Draft Regulations introduce a significant compliance change by requiring an annual reconciliation to reverse input VAT credits for high-value single long-term assets over RMB 5 million, based on their usage. This new requirement is expected to raise tax compliance costs for businesses.
The Draft Regulations introduce a general anti-avoidance rule, granting tax authorities the power to challenge arrangements lacking a genuine commercial purpose, which will require taxpayers to demonstrate their transactions are motivated by bona fide business reasons.
Key takeaway
Final regulations are expected to be issued ahead of the law’s effective date on 1 January 2026.
Businesses should assess the impact of place-of-supply rules on cross-border services, review invoicing systems to ensure compliance with digital invoice requirements, monitor for further guidance on withholding obligations and transitional arrangements, to prepare for the VAT law and its Implementation Regulations.