April 2025
The Value-Added Tax Law of the People's Republic of China was Officially Issued
In order to improve the value-added tax ("VAT") system that is conducive to high-quality development, regulate the collection and payment of VAT, and protect the legitimate rights and interests of taxpayers, on December 25, 2024, the 13th meeting of the Standing Committee of the 14th National People's Congress voted to pass the Value-Added Tax Law of the People's Republic of China ("VAT Law"), which will come into effect on January 1, 2026, and the "Provisional Regulations on Value-Added Tax of the People's Republic of China" will be abolished on the same day. The VAT Law is divided into six chapters, totaling 38 articles. The following is a brief introduction to the main contents:
I. Stipulation of the Scope of VAT Taxation
The VAT Law stipulates in the general provisions that the scope of taxation includes the sale of goods, services, intangible assets, real estate and imported goods. At the same time, it clarifies that taxable transactions refer to the sale of goods, real estate, natural resource use rights, financial products, services or intangible assets that occur within the territory of China; deemed taxable transactions refer to the use of goods for collective welfare or personal consumption, and the gratuitous transfer of goods, intangible assets, real estate or financial products. In addition, certain items such as employee wages, administrative expenses, deposit interest, etc., are exempt from VAT.
II. Clarification of Tax Rates and Taxable Amounts
The VAT Law maintains the current three tax rate levels of 13%, 9% and 6% unchanged: the tax rate for sales of goods, processing and repair services, tangible asset leasing services, and imported goods is 13%; the tax rate for sales of transportation, postal services, basic telecommunications, construction, real estate, etc., is 9%; the tax rate for other services and intangible assets is 6%. In addition, Chapter 3, Taxable Amounts, stipulates relevant provisions on the VAT calculation method, defines output tax, input tax and taxable sales amounts, the collection rate for the simplified tax calculation method, and the calculation method of the taxable amount of imported goods.
III. Regulation of Tax Incentives
The VAT Law provides detailed provisions on tax incentives, specifying the threshold for small-scale taxpayers, below which they may be exempt from VAT. Several exemptions are listed, including for agricultural production, medical services, education, and cultural industries. Furthermore, the law grants the State Council the authority to establish specific exemption standards and VAT-related preferential policies.
IV. Regulation of Tax Collection and Administration
Chapter 5 of the VAT Law regulates the administration of VAT collection, including the timing of the tax obligation, the tax payment location, tax periods, and withholding obligations. VAT is collected by the tax authorities, and VAT on imported goods is collected by customs, which must then provide relevant information to the tax authorities.
Conclusion
The introduction of the VAT Law marks a further deepening of tax reform in China. It not only provides detailed regulations on the scope of VAT collection, tax rates, and tax incentives but also improves the collection administration and tax protection mechanisms, ensuring the protection of taxpayers' legitimate rights and interests.
I. Stipulation of the Scope of VAT Taxation
The VAT Law stipulates in the general provisions that the scope of taxation includes the sale of goods, services, intangible assets, real estate and imported goods. At the same time, it clarifies that taxable transactions refer to the sale of goods, real estate, natural resource use rights, financial products, services or intangible assets that occur within the territory of China; deemed taxable transactions refer to the use of goods for collective welfare or personal consumption, and the gratuitous transfer of goods, intangible assets, real estate or financial products. In addition, certain items such as employee wages, administrative expenses, deposit interest, etc., are exempt from VAT.
II. Clarification of Tax Rates and Taxable Amounts
The VAT Law maintains the current three tax rate levels of 13%, 9% and 6% unchanged: the tax rate for sales of goods, processing and repair services, tangible asset leasing services, and imported goods is 13%; the tax rate for sales of transportation, postal services, basic telecommunications, construction, real estate, etc., is 9%; the tax rate for other services and intangible assets is 6%. In addition, Chapter 3, Taxable Amounts, stipulates relevant provisions on the VAT calculation method, defines output tax, input tax and taxable sales amounts, the collection rate for the simplified tax calculation method, and the calculation method of the taxable amount of imported goods.
III. Regulation of Tax Incentives
The VAT Law provides detailed provisions on tax incentives, specifying the threshold for small-scale taxpayers, below which they may be exempt from VAT. Several exemptions are listed, including for agricultural production, medical services, education, and cultural industries. Furthermore, the law grants the State Council the authority to establish specific exemption standards and VAT-related preferential policies.
IV. Regulation of Tax Collection and Administration
Chapter 5 of the VAT Law regulates the administration of VAT collection, including the timing of the tax obligation, the tax payment location, tax periods, and withholding obligations. VAT is collected by the tax authorities, and VAT on imported goods is collected by customs, which must then provide relevant information to the tax authorities.
Conclusion
The introduction of the VAT Law marks a further deepening of tax reform in China. It not only provides detailed regulations on the scope of VAT collection, tax rates, and tax incentives but also improves the collection administration and tax protection mechanisms, ensuring the protection of taxpayers' legitimate rights and interests.
The contents of all newsletters of Shanghai Lee, Tsai & Partners (Content) available on the webpage belong to and remain with Shanghai Lee, Tsai & Partners. All rights are reserved by Shanghai Lee, Tsai & Partners, and the Content may not be reproduced, downloaded, disseminated, published, or transferred in any form or by any means, except with the prior permission of Shanghai Lee, Tsai & Partners.
The Content is for informational purposes only and is not offered as legal or professional advice on any particular issue or case. The Content may not reflect the most current legal and regulatory developments. Shanghai Lee, Tsai & Partners and the editors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The contributing authors' opinions do not represent the position of Shanghai Lee, Tsai & Partners. If the reader has any suggestions or questions, please do not hesitate to contact Shanghai Lee, Tsai & Partners.
