On 30 January 2026, the Ministry of Finance and the State Taxation Administration issued seven key supporting announcements for China’s Value-Added Tax Law and its Implementation Regulations, which took effect on 1 January 2026. These announcements clarify critical matters including the scope of taxation, preferential policies and collection and administration procedures, marking the full entry of China’s VAT system into the ‘law-based era’.

For foreign-invested enterprises and multinational companies operating in China, understanding these changes is essential to maintaining compliance and optimising tax strategies.

Consolidation of tax scope and rate annotations

The Announcement on Specific Matters Concerning the Scope of Value-Added Tax Levy (MOF, STA Announcement No. 9 of 2026) consolidates and publishes the Notes on the Scope of Goods Subject to the 9% VAT Rate and the Notes on the Sale of Services, Intangible Assets and Immovable Property. This announcement replaces previous notes from the ‘Business Tax to VAT Reform’ Document 36 and provides a direct basis for applying tax rates.

Immediate compliance steps

Comprehensively review all business items against the new notes to re-examine and determine their applicable VAT categories and rates. Promptly update tax-related master data (e.g. commodity and service tax classification codes) in financial, ERP and invoicing systems according to the new service classifications and definitions. For transactions already completed in January 2026 that involve changes in tax rates or characterisation, verify whether their accounting treatment, tax filing and invoicing align with the new rules and develop adjustment plans where necessary.

Preferential policies and tax thresholds

The Announcement on the Articulation of VAT Preferential Policies Following the Implementation of the VAT Law (MOF, STA Announcement No. 10 of 2026) and related collection and administration announcements provide clarity on preferential treatment and threshold provisions.

Tax threshold solidified

From 1 January 2026 to 31 December 2027, the tax-exempt threshold for small-scale taxpayers of monthly sales of RMB 100,000 (quarterly RMB 300,000) is elevated from a transitional preferential policy to a statutory threshold provision. Importantly, the announcement states ‘the threshold is monthly sales of RMB 100,000’ without explicitly stating ‘inclusive’, requiring attention to practical implementation.

Clear tax period for natural persons

Natural persons engaged in specific activities (e.g. receiving interest from bonds issued after 8 August 2025) must apply the monthly threshold. One-time interest receipts need to be allocated monthly for sales calculation.

Integration of tax-exempt items

The announcement systematically lists continued VAT-exempt items, such as self-produced agricultural products, medical services and academic education, with more detailed definitions for the scope of some items (e.g. medical institutions, schools). It also clarifies the sales calculation method for financial product transfers, passenger transport station services and similar items.

Key actions for small-scale taxpayers

Small-scale taxpayers should re-evaluate sales levels for correct application of the threshold policy. Note that selling or leasing immovable property and transferring land use rights are not eligible for the 1% collection rate preference.

Enterprises engaged in tax-exempt activities should strictly compare their operations against the new announcement’s definitions of eligible entities and income scope (e.g. school sponsorship fees and excess childcare fees are not exempt) to ensure compliance.

New rules for input VAT credit on long-term assets and mixed use

The Announcement on Matters Concerning VAT Input Credit and Other Issues (MOF, STA Announcement No. 13 of 2026) and the Announcement on Issuing the ‘Interim Measures for VAT Input Credit on Long-Term Assets’ (MOF, STA Announcement No. 15 of 2026) introduce significant changes to how businesses handle input VAT credit, particularly for long-term assets.

Definition of long-term assets and new exclusion scenarios

For VAT credit purposes, long term assets include fixed assets, intangible assets and immovable property. The applicable input VAT treatment depends on the nature of use and the original value of the asset.

Announcement No. 13 of 2026 also introduces an additional non-deductible scenario. Input VAT on purchases used for specific non-taxable transactions is not creditable. This includes, for example, purchases used in connection with obtaining fiscal subsidies. This clarification expands the scope of non-deductible input VAT beyond the previous framework.

Deduction rules based on exclusive or mixed use

The deductibility of input VAT varies according to how the asset is used:

• Where a long-term asset is used exclusively for activities subject to the general tax calculation method, input VAT may be fully credited.
• Where it is used exclusively for non-deductible purposes, such as tax-exempt activities or employee welfare, input VAT is not creditable.
• Where it is used for both deductible and non-deductible purposes, the treatment depends on the asset’s original value.

For mixed-use long-term assets with an original value not exceeding RMB 5 million, input VAT may be credited in full.

Where the original value exceeds RMB 5 million, input VAT is initially credited in full at the time of acquisition. However, during the period of mixed use, the non-deductible portion must be calculated and adjusted periodically in accordance with the prescribed adjustment period.

Under Announcement No. 15 of 2026, the adjustment period varies by asset type:

• 20 years for immovable property
• 10 years for aircraft
• Five years for other long-term assets

The downward adjustment of the non-deductible portion is generally made during the annual VAT declaration period in January of the following year.

Treatment of change in use

If the use of a long-term asset changes during the adjustment period, for example from taxable business use to exclusive employee welfare use, input VAT should be recalculated based on the net value ratio of the asset at the time of change. Corresponding adjustments are then made in accordance with the prescribed rules.

Practical considerations for enterprises

Given the RMB 5 million threshold and the extended adjustment periods of up to 20 years, the revised rules may have significant implications for capital intensive businesses.

Enterprises should consider

• Identifying all long-term assets newly acquired on or after 1 January 2026
• Reviewing assets acquired before 2026 that undergo capitalised improvements after 2026 where the original value exceeds RMB 5 million
• Establishing detailed tracking mechanisms for mixed use assets exceeding the RMB 5 million threshold, including original value, input VAT amount, usage allocation and depreciation or amortisation data
• Reviewing asset usage classifications, including general taxation, simplified taxation, tax exemption and employee welfare
• Assessing the VAT treatment of asset restructurings where transactions may qualify as non-taxable under specific statutory conditions

Changed criteria for mixed sales

The VAT Law and Implementation Regulations introduce a significant change in how mixed sales are determined, shifting from the taxpayer’s overall business focus to the specific transaction itself.

Understanding the core change

Current policy determines the tax rate for mixed sales based on the taxpayer’s ‘main business operation’. The new law changes to applying the tax rate based on the ‘principal business’ of the taxable transaction itself. The ‘principal business’ refers to the main part reflecting the substance and purpose of the transaction, with the accessory business being its necessary supplement.

Practical steps for mixed transactions

Review contracts involving both sales of goods and provision of services like installation or training, determining the ‘principal business’ within the transaction based on business substance rather than the company’s main operation.

Business departments must collaborate with finance and tax departments to clarify the transaction substance during contract drafting. Where necessary, consider reasonably allocating prices for different business components in the contract to create conditions for applying different tax rates or enjoying specific preferences (e.g. tax exemption for international freight forwarding).

For complex or new transaction models, proactively communicate with the competent tax authority regarding the determination of the ‘principal-accessory relationship’ to reduce subsequent dispute risks.

Export tax refund and improvement of the collection and administration system

The Announcement on VAT and Consumption Tax Policies for Export Businesses (MOF, STA Announcement No. 11 of 2026) and the Administrative Measures for VAT and Consumption Tax Refund (Exemption) on Export Businesses (STA Announcement No. 5 of 2026) systematically clarify the scope of application and calculation methods for three categories of policies: export tax refund (exemption), tax exemption and taxation.

These announcements also publish new export tax refund management measures, comprehensively regulating procedures for filing, declaration, review and foreign exchange receipt.

Monitoring and adjustment requirements

• Pay attention to policy scope: The criteria for determining the zero-rate or tax-exempt treatment for services sold to overseas entities that are ‘consumed entirely outside China’ await further clarification. Enterprises must closely monitor subsequent interpretations.
• Study the new management measures: Organise export tax refund personnel to thoroughly study the new management measures (STA Announcement No. 5 of 2026) and promptly adjust internal document management, declaration processes and information systems to ensure compliance with the 64 detailed provisions.
• Monitor product tax refund rate adjustments: Note the schedule for cancellation or reduction of export tax refund rates for specific products (e.g. photovoltaics and batteries).

Actionable recommendations for businesses

The 2026 VAT supporting documents represent a structured consolidation of measures previously introduced under the Business Tax to VAT reform framework, including those under Document 36. Although many underlying principles remain consistent, the formalisation of rules within a statutory regime increases the importance of accurate classification, documentation and system alignment.

In light of Announcements No. 9 to No. 15 of 2026 and the Implementation Regulations, enterprises should consider a review of existing contracts, transaction models, asset positions and input output structures to identify areas affected by the revised rules. Particular attention should be given to long term assets exceeding the RMB 5 million threshold and the associated annual adjustment requirements commencing in January 2027.

Coordination between finance, tax, business and IT functions will be important for consistent implementation, including updates to internal systems, accounting policies and compliance procedures.

If you are interested in getting more details about the VAT updates or would like to consult on taxation for individual or company tax, please feel free to contact LehmanBrown via email: enquiries@lehmanbrown.com.