Issued by: Ministry of Finance, State Administration of Taxation

Issue No.: No.15, 2026 of the Announcement of Ministry of Finance and State Administration of Taxation

Release Date: February 2, 2026

Effective Date: January 1, 2026

Links: https://szs.mof.gov.cn/zhengcefabu/202602/t20260202_3983105.htm

The Regulations for the Implementation of the VAT Law of the People's Republic of China (“VAT Implementation Regulations”) introduced the new concept of “Long-Term Assets” for the first time. As a supporting policy to the VAT Implementation Regulations, this Announcement provides systematic provisions on the treatment of input tax credits for long-term assets. Its main contents are as follows:

• Clarify the scope of Long-Term Assets: The scope encompasses fixed assets, intangible assets, and real estate. Excluded from the scope are: leased long-term assets, temporary structures and facilities constructed at construction sites, and real estate projects self-developed by real estate development enterprises and accounted for as inventory.
• Establish input tax credit rules based on the purpose and value of Long-Term Assets:

1. 1）Exclusive use for taxable projects under the general tax computation method: Input VAT is fully deductible;
2. 2）Exclusive use for the five categories of non-deductible purposes (namely: projects subject to the simplified tax computation method, VAT-exempt projects, non-taxable transactions for which input VAT is non-deductible, collective welfare, or personal consumption): Input VAT shall not be deductible;
3. 3）For assets used concurrently for taxable projects under the general tax computation method and for the five categories of non-deductible purposes (“mixed-use”), a threshold of RMB 5 million in original value per individual asset applies, with two treatment models: For assets with original value ≤ RMB 5 million: Input VAT is fully deductible upon acquisition, with no subsequent adjustment required; For assets with original value > RMB 5 million: Input VAT is fully deducted upon acquisition; thereafter, during the period of mixed use, the non-deductible amount is computed annually based on the prescribed adjustment period (the "phased adjustment method").

• Regarding the “phased adjustment method” for mixed-use individual Long-Term Assets with an original value exceeding RMB 5 million, the relevant provisions are as follows:

1. 1）Scope of Application:

1. Effective January 1, 2026, individual Long-Term Assets with an original value exceeding RMB 5 million that are accounted for as assets under the accounting system (“newly added Long-Term Assets”);
2. Long-Term Assets that were accounted for under the accounting system as related assets on or before December 31, 2025, and completed capitalized reconstruction on or after January 1, 2026, with a post-reconstruction original value exceeding RMB 5 million (“Long-Term Assets under capitalized reconstruction”).  

2. 2）Calculation of the phased adjustment method:

1. Calculate the base amount for phased adjustment of input tax (A) for the mixed-use period in the current year.

A = Input tax attributable to the Long-Term Asset subject to adjustment × [Number of mixed-use in the current year ÷ (Adjustment period × 12)]

The above-mentioned “input tax attributable to the Long-Term Asset subject to adjustment” means: For newly added Long-Term Assets, it is the full input tax attributable to such assets; For Long-Term Assets under capitalized reconstruction, it refers to the input tax corresponding to the capitalized reconstruction expenditure only. The input tax corresponding to the portion other than the reconstruction expenditure may be fully deducted without phased adjustment.

The “adjustment period” mentioned above refers to: 20 years for real estate and land use rights; 10 years for aircraft, trains, and ships; 5 years for other assets.

2. Calculate the input tax amount (B) corresponding to items used for collective welfare or personal consumption during the current year's mixed-use period (collectively “two categories of non-deductible items”).

B = A × [Depreciation or amortization of assets allocated to the two categories of non-deductible items during the current year's mixed-use period according to accounting systems ÷ Total depreciation or amortization of Long-Term Assets accrued during the current year's mixed-use period according to accounting systems].

3. Calculate the input tax credit (C) corresponding to simplified taxation, tax-exempt transactions, and non-taxable transactions that are not eligible for input tax credit (collectively referred to as the “three categories of non-deductible items”) during the current year's mixed-use period.

C = (A - B) × [Sales and income from the three categories of non-deductible items during the current year's mixed-use period ÷ Total sales and non-taxable transaction income during the current year's mixed-use period]

4. Calculate the input tax amount (D) corresponding to the five categories of non-deductible items during the mixed-use period of the current year.

D = B + C

3. 3）Enterprises shall deduct the non-deductible amount (D) from the input tax credit during the tax filing period in January of the following year. The first annual adjustment shall occur during the tax filing period in January 2027.
4. 4）For Long-Term Assets with an actual useful life shorter than the adjustment period, the remaining unadjusted input tax credits shall be consolidated into the current year's mixed-use period for a one-time adjustment during the tax filing period of the month when the asset ceases to be used.

• Rules for input tax deduction when assets change purpose:

1. 1）Input tax credits for Long-Term Assets that have been deducted at the time of acquisition must be transferred out in the month of change when abnormal losses occur subsequently or when the assets are transferred for use in any of the five categories of non-deductible projects. The transferred input tax credits shall be calculated as follows: “Net Book Value Ratio (the ratio of the net book value of the Long-Term Asset at the beginning of the current month to its original value) × the input tax credit for that Long-Term Asset.”
2. 2）Input tax credits not deducted at the time of acquiring Long-Term Assets may be calculated using the same formula as above to determine the deductible input tax amount in the month of change, when such assets are subsequently repurposed for deductible projects or mixed-use purposes.

• When disposing of Long-Term Assets in whole or in part, the input tax amount shall be calculated based on the carrying amount in the accounting books to calculate the disposal ratio of such Long-Term Assets. The input tax amount shall be adjusted accordingly using the formula: “Disposal Ratio × Net Book Value Ratio × Input Tax Amount.”

This imposes higher requirements on corporate financial accounting: Taxpayers shall establish a ledger for input tax credits on Long-Term Assets, recording the acquisition, use, disposal, and input tax credit status of individual Long-Term Assets with an original value exceeding RMB 5 million.