Issued by: Standing Committee of the National People's Congress
Issue No.: The Value-Added Tax Law of the People's Republic of China
Release Date: December 25, 2024
Effective Date: January 1, 2026
Links: https://www.gov.cn/yaowen/liebiao/202412/content_6994557.htm

The following outlines the main changes in the Value-Added Tax Law (“VAT Law”) compared to the Implementation Rules of the Interim Regulations on Value Added Tax and Circular CaiShui [2016] No. 36: 
1. Narrowing the scope of "Deemed Sales"
a. The transfer of goods across counties (cities) will no longer be treated as "deemed sales"；
b. Some items previously classified as "deemed sales" are not explicitly listed under the "deemed taxable transactions" in the VAT Law, including: 1) consignment sales; 2) using self-produced or commissioned processed goods for non-VAT taxable projects; 3) distributing self-produced, commissioned processed, or purchased goods to shareholders or investors; and 4) providing services free of charge to other entities or individuals. Whether these transactions will no longer be treated as "deemed sales" remains to be clarified by new implementation regulations and related laws.

2. The VAT Law only mentions that small-scale taxpayers can apply the simplified tax calculation method (with a collection rate of 3%)
a.Circular CaiShui [2016] No. 36 specified scenarios under which general taxpayers could choose the simplified tax calculation method, but the VAT Law only mentions that small-scale taxpayers can use the simplified tax calculation method；
b. The VAT Law unifies the collection rate for the simplified tax calculation method at 3%, without mentioning the 5% collection rate scenarios under Circular CaiShui [2016] No. 36 (such as the sale of self-built real-estate projects which were built before 1st May 2016, leasing of real-estate projects which were built before 1st May 2016, and labor dispatch services subject to differential taxation), nor does it include a catch-all provision. The subsequent tax treatment for transactions that were previously subject to a 5% collection rate will need to be further clarified by new implementing regulations and related laws.

3. Possibility of input VAT deduction for catering, entertainment, and daily residential services; Input VAT for loan services may also be deductible
a. The VAT Law stipulates that input tax on catering services, daily residential services, and entertainment services can not be deductible when "directly used for consumption". This differs from Circular CaiShui [2016] No. 36, which explicitly listed the purchase of these three services as ineligible for input tax deduction；
b. The VAT Law no longer includes loan services among the circumstances where input tax cannot be credited against output tax.

4. No direct Mention of Differential Taxation Scenarios
a. Circular CaiShui [2016] No. 36 listed projects that could calculate sales based on a differential basis, including: 1) transfer of financial products; 2) brokerage agency services; 3) financial leasing and financing after-sales repurchase; 4) air transport passenger station services; 5) tourism services; 6) construction services subject to the simplified tax calculation method; and 7) sales of developed real estate projects. However, the VAT Law does not mention these situations.

5. Reduced Options in Tax Payment Period
a. The VAT Law has eliminated tax payment periods of 1 day, 3 days, and 5 days, and now only includes 10 days, 15 days, one month, or one quarter.