China VAT Compliance Explained: Frequently Asked Questions for Businesses

Value Added Tax remains one of the most technical and closely scrutinised areas of China’s tax system. Day to day compliance issues often arise not from headline rules, but from practical questions around invoice timing, deemed sales, mixed transactions and cross border activities.

Below we address a series of frequently asked questions that commonly arise for foreign invested enterprises and multinational groups operating in China. The answers reflect current regulatory interpretations issued by the State Taxation Administration and prevailing practice.

Issuing VAT Invoices and Transaction Timing

Does issuing an invoice before receiving payment or delivering goods constitute false issuance? No. Where there is a genuine underlying transaction and the invoice is issued in advance in accordance with a commercial agreement, this does not constitute false issuance. Provided the actual transaction subsequently occurs, advance invoicing is permitted under existing interpretations issued by the tax authorities.

Can a special VAT invoice be issued for transactions subject to the simplified tax calculation method? Yes. Transactions applying the simplified tax calculation method are not excluded from the scope of special VAT invoice issuance. Businesses may issue special VAT invoices unless the specific transaction is expressly prohibited.

Can an invoice be issued for activities outside the company’s registered business scope? Yes. VAT invoicing is based on actual business activity rather than the registered business scope. If such activities occur frequently, updating the registered scope is recommended to reduce regulatory and commercial friction.

Input VAT Credit Eligibility

Employees book air tickets through a travel agency and obtain an electronic general VAT invoice for brokerage services. Can the input VAT be credited? No. Input VAT shown on invoices issued for brokerage or agency services is not creditable. If the invoice is for domestic passenger transport services and meets the relevant criteria, input VAT may be credited.

An expert is invited to give a lecture and the company covers their airfare. Can the related input VAT be credited?No. Input VAT on domestic passenger transport services is creditable only where the service is used by employees under a labour contract or labour dispatch arrangement. External experts do not fall within this category.

An employee travels abroad on business and submits an international flight ticket for reimbursement. Can the input VAT be credited? No. International passenger transport does not qualify as domestic passenger transport services. As a result, related input VAT is not creditable.

Deemed Sales and Internal Use of Goods

Shopping cards are given to employees as festival benefits. Is this treated as a deemed sale? No. Shopping cards represent a monetary instrument rather than goods. They do not meet the conditions for deemed sales under VAT regulations.

Inventory goods are used by the R and D department for research purposes. Does this trigger a deemed sale? No. The internal use of inventory goods for R and D does not constitute a deemed sale for VAT purposes.

Financial Transactions and VAT Timing

A loan agreement is amended to change the interest payment date. When does the VAT liability arise? The VAT liability arises on the payment date specified in the supplementary agreement. Where a written contract clearly defines a payment date, VAT is triggered on that agreed date rather than the original schedule.

Mixed Supplies and Concurrent Operations

Machinery is sold with installation and debugging services. Should one invoice or separate invoices be issued? Where the seller manufactures the machinery and provides installation services, the goods and services should be accounted for separately and subject to different tax rates. Goods are generally taxed at 13 percent, while installation services are subject to nine percent or, where applicable, three percent under the simplified method.

If the machinery is purchased externally and the seller separately accounts for the equipment and installation under concurrent operation rules, the installation service may qualify for the simplified tax calculation method under the supplier provided equipment project provision.

Cross Border Services and Withholding Obligations

Employees incur overseas accommodation and car rental expenses on business trips. Is VAT withholding required? No. These services are supplied and consumed entirely outside China. They fall outside the scope of China VAT and do not trigger withholding obligations.

A company pays exhibition fees to attend an overseas trade fair. Is VAT or corporate income tax withholding required? No. Exhibition services provided overseas are not considered services supplied within China. As the related labour and services are performed outside China, no VAT or corporate income tax withholding applies.

VAT compliance in China requires careful attention to invoice issuance rules, input VAT credit eligibility and the treatment of special scenarios such as deemed sales, mixed supplies and cross border transactions. While existing rules remain in force, businesses should also prepare for the new VAT Law effective from 1 January 2026, which is expected to enhance legal certainty and consistency.

Maintaining accurate documentation, aligning internal practices with official interpretations and reviewing transaction structures ahead of the transition will remain central to managing VAT risk and ensuring smooth compliance in China.

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