China has issued the long expected Value Added Tax (VAT) Law Implementation Rules (Implementation Rules), which came into effect on 1 January 2026 alongside the new PRC VAT Law. The Implementation Rules introduce several important changes to China's VAT framework, clarifying new sourcing rules for services and intangibles, refining mixed sales rules and establishing VAT withholding regime for natural persons.
What the new Implementation Rules mean for your business
The Implementation Rules bring important changes from the following perspectives:
- Clarifications on sourcing rules for services and intangible properties
- Changes to the general taxpayer and small-scale taxpayer rules
- Clarifications on mixed sale rules
- Updates on the composition of sales amount
- Updates on input VAT creditability and introduction of year-end adjustment mechanism
- Introduction of VAT withholding regime for natural persons and other updates on VAT administration regime
- Introduction of general anti-avoidance rules for VAT
- Narrowed scope of “deemed sales” rules
Please see more details of the above changes in the FULL ALERT linked below.
Major changes affecting cross-border transactions
One major change with direct impacts on cross-border transaction is the sourcing rules for services and intangible properties. The Implementation Rules clarify that "services or intangible properties consumed within China" essentially refer to the scenarios where:
- An overseas entity or individual sells services or intangible properties to domestic entity or individual, except for services consumed on-site overseas.
- Services or intangible properties sold by overseas entities or individuals are directly related to domestic goods, real estate or natural resources.
Critical details regarding the concepts such as "overseas on-site consumption" or "directly related to domestic goods, real estate or natural resources" await further clarifications in the future.
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