China’s New VAT Law in 2026: What Every Foreign Enterprise Must Know

Kristina Coluccia
Sep 16
3 min read

From 1 January 2026, China will implement its first comprehensive Value-Added Tax (VAT) Law, replacing the interim regulations that have guided the VAT system for decades. For foreign enterprises doing business in China, this represents one of the most significant tax reforms in recent years.

This article explains what’s changing, how it impacts cross-border and domestic businesses, and what steps foreign investors should take to prepare.

Why the New VAT Law Matters

VAT is China’s single largest source of tax revenue. The new law, passed in 2023, is designed to:

Codify years of pilot programs and regulatory updates.
Provide a stronger legal framework for compliance and enforcement.
Clarify rules for cross-border trade, services, and digital transactions.

For foreign companies operating in or with China, VAT reform means new obligations — and new risks if compliance is not carefully managed.

Key Changes Under the 2026 VAT Law

1. Legal Status

The new law elevates VAT from an interim regulation to a full national law, giving tax authorities more power to enforce compliance.
Enterprises should expect stricter audits and reduced flexibility in interpretation.

2. Tax Scope and Rates

VAT will continue to apply to the sale of goods, provision of services, intangible assets, and immovable property.
The law preserves the multi-tier rate structure (13%, 9%, 6%), but future adjustments are expected as part of China’s broader tax simplification agenda.
Certain small-scale taxpayers will benefit from preferential lower rates.

3. Place of Supply Rules

For cross-border transactions, new clarity is provided on whether a service is deemed “provided within China” and thus taxable.
This especially affects digital services, licensing, consulting, and financial transactions.

4. Input VAT Credits

Businesses can continue to deduct input VAT, but stricter conditions apply to ensure invoices are genuine.
Digital invoice systems (fapiao) will be further integrated to prevent fraud.

5. Non-Cash and Mixed Transactions

Clearer rules for barter, non-monetary consideration, and bundled services are included.
These provisions close gaps previously exploited to minimise VAT liability.

6. Export and Import Adjustments

Zero-rating policies for exports remain, but documentation standards will tighten.
Imports into China remain subject to VAT at customs, with exemptions in Free Trade Zones and the Hainan Free Trade Port.

Compliance Challenges for Foreign Enterprises

More Audits: With the law’s higher authority, tax inspections will increase, particularly for cross-border service providers.
Invoice Scrutiny: Incorrect or missing fapiaos will lead to denied VAT credits.
Digital Services: Foreign enterprises providing digital products or SaaS to Chinese clients must carefully review whether they now trigger VAT liability in China.
Regional Enforcement: While the law is national, implementation may vary slightly across provinces, requiring close monitoring.

Practical Steps to Prepare for 2026

Review Contracts: Ensure service agreements, licensing terms, and cross-border billing align with the new “place of supply” rules.
Upgrade Systems: Invest in ERP or accounting software that integrates with China’s digital fapiao system.
Train Staff: Ensure finance and tax teams understand the new compliance requirements.
Assess Structures: Evaluate whether using a local entity, EOR, or cross-border model is most VAT-efficient.
Seek Professional Guidance: Engage with advisors who understand both domestic rules and international tax planning.

How Woodburn Can Support

Navigating China’s new VAT law requires foresight and precision. For foreign enterprises, this is not just a tax update — it is a shift in how business with China will be structured and monitored.

At Woodburn, we support clients by:

Reviewing cross-border transactions for VAT exposure.
Updating contracts and invoicing systems for compliance.
Advising on the VAT treatment of digital services and exports.
Ensuring accurate reporting, audits, and documentation.

Woodburn Accountants & Advisors is one of China and Hong Kong’s most trusted business setup advisory firms.

Woodburn Accountants & Advisors is specialized in inbound investment to China and Hong Kong. We focus on eliminating the complexities of corporate services and compliance administration. We help clients with services ranging from trademark registration and company incorporation to the full outsourcing solution for accounting, tax, and human resource services. Our advisory services can be tailor-made based on the companies’ objectives, goals and needs which vary depending on the stage they are at on their journey.