Publish Date

Jan 15, 2025

The China VAT Law: A New Era

A&M Tax Advisor Update

Since the implementation of the “Interim Regulations of the People’s Republic of China on Value-Added Tax” in 1994, the China VAT system has undergone significant reforms and improvements. These include the shift from a production-based to a consumption-based VAT system in 2009, and the convergence of Business Tax to VAT, initially via a pilot program, followed by the full rollout of this reform in 2016. These reforms reflect China’s continuous progress to codify, or legislate, its tax system. The completion of the legislation for VAT, as the country’s largest source of tax revenue, marks a further significant advancement in this area.

The legislative process for the China VAT Law began in 2019 with the release of the “Draft of the Value-Added Tax Law of the People’s Republic of China (for public consultation).” After extensive discussions and subsequent refinements, the China VAT Law was formally approved on December 25, 2024 by the National People’s Congress and is scheduled to take effect on January 1, 2026.[1] This development represents a major step forward in codifying China’s VAT system.

While the new VAT legislation maintains much of the framework of existing interim regulations, there are certain areas that have been further refined which are summarized below.

Main Changes and Impact of VAT Laws:
The formally issued China VAT law is organized across six chapters, comprising 38 articles. These cover essential aspects such as the scope of tax, tax rates by categories, taxable amounts, tax concessions, collection and administration procedures, and additional explanatory notes. Below is a summary of the key changes and their implications as outlined by this legislation, noting that the Detailed Implementation Regulations (expected to be released in late 2025) will clarify how the law is to be applied in practice:

Note: Please be aware that the above English translation of the China VAT law is based on our translation, which is unofficial and for informational purposes only. It should not be used for any commercial activities by any other party.

In 2025, a one-year transition period will be implemented to allow both the government and businesses to adapt to the new VAT regulations. During this period, further details regarding implementation are expected (via the release of the Detailed Implementation Regulations), making it essential for businesses to remain vigilant and develop appropriate transition strategies. These strategies should involve close collaboration with tax authorities to ensure timely and thorough VAT-readiness before the legislation takes full effect. Special attention should be paid to revising VAT deductible items, crafting tailored compliance strategies, and optimizing supply chains and pricing policies to align with the new requirements.

As a global professional services advisor, Alvarez & Marsal is committed to staying at the forefront of developments in VAT legislation and sharing insights with businesses. We offer tailored, legally compliant services to help companies navigate the evolving VAT landscape in China. Leveraging our extensive global network and rich experience, we assist businesses from diverse industries in establishing efficient supply chains in China, identifying domestic tax risks and maintaining both compliance and competitiveness in the global market.

[1] Qian Zhou, “China Passes Its First Value-Added Tax Law,” China Briefing, December 25, 2024, https://www.china-briefing.com/news/china-passes-its-first-value-added-tax-law/.

https://www.alvarezandmarsal.com/insights/china-vat-law-new-era