On December 30, 2025, the State Council promulgated the Regulations for the Implementation of the VAT Law (the "Implementation Regulations"). As a key supporting regulation for the VAT Law, the Implementation Regulations will come into effect simultaneously with the VAT Law on January 1, 2026. Compared to the original "Provisional Regulations on VAT" and the "Detailed Rules for the Implementation of the Provisional Regulations on VAT" (collectively referred to as the "Former Regulations"), the key points and main changes include:

• Specify the criteria for determining "services and intangible assets are consumed within China"

Services or intangible assets supplied by an overseas entity or individual are deemed to be consumed within the territory of China and therefore subject to VAT if the purchaser is a domestic entity or individual (except where the service is consumed on-site outside China), or the supply is directly connected to goods, real estate or natural resources located in China, or any other circumstance prescribed by the Ministry of Finance and the State Taxation Administration applies.

•  The administration of small-scale taxpayers is increasingly stringent.

For details, please refer to the "No. 2, 2026 of the Announcement of the State Administration of Taxation".

•  Abolish the 5% collection rate

The tax treatment for taxable transactions previously subject to the 5% collection rate awaits clarification in forthcoming regulations.

•  Restructure the tax treatment rules for "mixed sales"

1. 1）Mixed sales are no longer limited to the combination of "goods + services". Any single transaction involving two or more different VAT rates or collection rates may constitute a mixed sale.
2. 2）The applicable VAT rate for mixed sales is now determined by the “principal transaction” rather than the taxpayer’s main line of business. The principal activity must reflect the substance and purpose of the transaction, while the ancillary activity is a necessary supplement to the principal activity and is premised on the occurrence of the principal activity. The determination of the principal-ancillary relationship involves professional judgment and may become a focal point for future disputes between taxpayers and tax authorities.

•  Significant simplification of situations deemed as taxable transactions

1. 1）The situation of gratuitous transfers of financial products is added.
2. 2）Notably, gratuitous provision of services (such as interest-free loans, rent-free leases, etc.) is no longer treated as a deemed taxable transaction.

•  Clarify that input VAT on interest expenses for loan services is "temporarily" non-deductible.

Input VAT corresponding to interest expenses for purchasing loan services and fees paid directly to lenders related to loans (such as investment and financing advisory fees, handling charges, consulting fees, etc.) are temporarily non-deductible. However, relevant authorities should study and evaluate the implementation effects of this policy in due course, leaving room for potential future policy adjustments.

•  Revise input tax credit rules for long-term assets with mixed uses
•  For single long-term assets used both for general VAT calculation projects and for projects where input VAT is non-deductible, management is differentiated based on the original value amount:

1. 1）If the original value does not exceed RMB 5 million, the input VAT can be fully credited.
2. 2）If the original value exceeds RMB 5 million, the input VAT is fully credited upon acquisition. Subsequently, the non-deductible input VAT is calculated and adjusted annually based on the adjustment period.

•   Add new administration rules for taxable transactions by natural persons
•   When a natural person engages in a taxable transaction, the domestic entity making the payment is the withholding agent and shall withhold and remit VAT.
•   Add time limits for export business declarations
•   If an export business fails to declare within the prescribed time limit, it will be treated as a domestic sale and subject to VAT.

  For the first time, a general anti-avoidance clause has been added at the VAT regulatory level.