China’s new VAT law: what you need to know

Published On - 16 January, 2026

Valentin Moriceau China

As of January 1, 2026, China’s new Value-Added Tax (VAT) Law is officially in force. This law replaces the previous interim regulations and introduces several important changes designed to simplify tax compliance, reduce administrative burdens, and improve cash flow for businesses operating in Mainland China.

Whether you run a small enterprise, a manufacturing plant, or a multinational corporation, understanding and adapting to these changes is crucial for maintaining compliance and optimizing your tax position.

  1. VAT rates and simplified taxation

The new law maintains the existing VAT rates of 13%, 9%, and 6%, ensuring stability for businesses.

However, it simplifies the tax rate for small businesses and certain transactions to a flat 3%, eliminating the previous 5% rate. This change is particularly beneficial for small and medium-sized enterprises (SMEs), as it reduces the tax burden and simplifies calculations.

  1. Domestic and cross-border “taxable transactions” clarified

The new law provides explicit definitions of what constitutes a taxable transaction within China. This includes the sale of goods, services, intangible assets, and real estate.

For cross-border transactions, the law clarifies when VAT applies, which helps foreign businesses avoid compliance risks and reduces the likelihood of disputes with tax authorities.

  1. “Deemed taxable” transactions reduced

Under the previous regulations, certain internal business activities – such as transferring goods between branches or using goods for personal consumption – were considered “deemed sales” and subject to VAT. The new law narrows the scope of these transactions, meaning fewer internal activities will trigger VAT liabilities.

  1. Loan interests’ deduction

One of the most significant changes is the removal of the restriction on deducting input VAT for loan services. This means businesses can now deduct VAT on loan interest payments, which can lead to substantial savings, especially for capital-intensive industries like manufacturing.

  1. Mandatory use of digital invoices

The new law promotes the use of electronic invoices, making them mandatory in many cases. This shift is intended to simplify tax filing, reduce paperwork, and improve the accuracy and efficiency of tax administration.

Businesses must ensure their systems can generate, send and store electronic invoices.

Need guidance on transitioning or understanding how these changes impact your business? Please feel free to contact us at contact@orbis-alliance.com for personalized support.