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VAT China: New law for a clearer tax system

On 1 January 2026, China will implement its new value-added tax (VAT) law, replacing the interim VAT regulations. The new regulations include the definition of taxable and non-taxable sales, expanded input tax deduction, and the refund of VAT credits. The Ecovis tax advisors explain the details.

With the new VAT law, the Chinese government is aiming to ensure more consistency, legal authority, and predictability in the country’s tax system.

Key changes in the new Chinese VAT law

1. Clearer criteria for domestic taxable transactions
   The previous definition of domestic taxable transactions was unclear and confusing. The new law clarifies that taxable transactions include the sale of goods, services, intangible assets, and real estate. Processing, repair, and assembly services are now categorised as general services, reducing compliance risks, particularly for international businesses.
2. VAT rates: basic tax rates remain unchanged, but benefits for SMEs
   The basic VAT rates (13%, 9%, and 6%) and the zero tax rate remain unchanged. However, the simplified tax declaration system for small and medium-sized enterprises (SMEs) has been improved. Under the new VAT law, the collection rate for small-scale taxpayers has been uniformly adjusted to 3%, replacing the previous 5% rate. This adjustment reduces the tax burden on SMEs, simplifies the tax declaration process, and enhances their market competitiveness and growth potential.
3. Simplified definitions of taxable and non-taxable transactions
   The new law replaces “deemed sales” with “deemed taxable transactions.” It clearly defines three categories:
   1. Self-produced or processed goods for welfare or personal consumption.
   2. Transfers of goods without compensation.
   3. Transfers of intangible assets, real estate or financial products without compensation.

   The law removes consignment, inter-branch transfers, and deemed sales of services from the scope of tax, improving clarity.

4. Adjustments to sales prices
   The new VAT law empowers tax authorities to adjust sales prices deemed excessively high or low. However, the term “without legitimate reasons” is not fully defined, which could create compliance complexities due to varying local interpretations.
5. Expanded input VAT deductions
   The law broadens the scope of input VAT deductions. The VAT policy explicitly stated that the input VAT on loan services was not deductible. However, the VAT law has removed this explicit provision, replacing it with “other input VAT as stipulated by the State Council.” This means that whether the input VAT on loan services can be deducted is still subject to further clarification from the State Council. If no further clarification is provided, allowing the input VAT on loan services to be deductible would benefit capital-intensive industries.
6. VAT credit refunds
   The new law formalises the VAT credit refund process, allowing businesses to claim refunds if VAT paid on purchases exceeds VAT due on sales. Businesses can carry forward excess VAT or apply for a direct refund, improving cash flow.
7. Simplified tax filing with electronic invoices
   The new law encourages the use of electronic invoices, streamlining tax filings and reducing paperwork. This shift supports global trends in data-driven tax management and simplifies tax reporting for multinational businesses.

We will discuss with you the advantages the new Chinese VAT system.

Pingwen Hu, Senior Partner and Certified Public Accountant, ECOVIS Ruide Certified Public Accountants Co., Ltd, Shanghai, China

China’s new VAT law represents a significant move towards a more transparent, predictable, and efficient tax system. When the law comes into effect in 2026, it will benefit both domestic businesses and foreign companies operating in China by providing a more stable tax environment.

For further information please contact:

Pingwen Hu, Senior Partner and Certified Public Accountant, ECOVIS Ruide Certified Public Accountants Co., Ltd, Shanghai, China
Email: pingwen.hu@ecovis.cn

Personal income tax Vietnam: Automatic refund from 2025

The General Department of Taxation’s decree of 24 January 2025 on the automatic personal income tax (PIT) refund procedure makes it easier for taxpayers to fulfil their tax obligations. The new procedure came into effect upon signature. The Ecovis experts explain how the process works.

The introduction of the automatic PIT tax refund (Decision No. 108/QD-TCT) is one of the new applications and methods the tax authority is using to accelerate processes on the IT platform and improve conditions for taxpayers to proactively fulfil their tax obligations. The procedure applies to tax authorities at all levels nationwide.

The automatic PIT refund process sets out the sequence and procedures for tax authorities to deal with PIT refund applications for individuals who directly finalise their taxes and request refunds on their PIT declarations.

There are three main steps:

Step 1: Create the suggested PIT finalisation form

The tax IT application system automatically collates data and creates a suggested PIT finalisation return for taxpayers who are individuals directly declaring PIT. The data is collected from multiple sources including income-paying organisations and individuals, tax registration and dependent registration data, as well as data on tax obligations or taxpayer debts nationwide. Individual taxpayers must check the information on the eTax mobile application, where they can confirm or edit it before submitting the PIT finalisation file.

We would be happy to explain the individual steps of the new income tax procedure to you in detail.

Nghia Tran, Partner, ECOVIS AFA VIETNAM, Da Nang City, Vietnam

Step 2: Automatically resolve the PIT refund

1. The PIT refund subsystem automatically checks and determines whether the files are eligible for automatic processing.
2. If the taxpayer’s PIT refund file meets all the required conditions, the PIT refund subsystem will automatically create a tax refund proposal, prepare a tax refund decision (or a decision to refund and offset PIT) and an order to refund (or an order to refund and offset PIT) to send to the head of the tax authority for electronic signature.
3. If the taxpayer’s PIT refund file does not meet all of the conditions, the tax IT application system will automatically assign and send an email to the department leader and tax officer assigned to handle the PIT refund file instructing them to continue to process the file.

Step 3: Post-refund control

On a quarterly basis, the tax IT application system will automatically analyse data to warn and provide a list to the tax authority about organisations and individuals paying income and deducting PIT, along with additional declarations that may change the tax liability information of individuals who have received PIT refunds. This provides the file processing department with a basis to deal with post-refund control and recover tax refunds (if any).

The automated PIT refund process replaces the previous regulations on processing the PIT refund applications of individuals who directly finalise their tax declarations.

For further information please contact:

Nghia Tran, Partner, ECOVIS AFA VIETNAM, Da Nang City, Vietnam
Email: Nghia.Tran@ecovis.com.vn

China’s 2025 investment framework: What global businesses need to know

On 19 February 2025, China unveiled a comprehensive action plan to stabilise and promote foreign investment. The plan includes various strategic measures which the government aims to use to attract and retain foreign capital.

China’s 2025 action plan aims to attract foreign investment, enhance economic stability, and modernise key industries. It focuses on refining the Invest in China brand, strengthening cooperation between central and local governments, and ensuring equal treatment for foreign-invested enterprises (FIEs).

The plan encourages reinvestment by directing capital into advanced manufacturing, modern services, and underdeveloped regions. To simplify foreign mergers and acquisitions, China will streamline regulations and lower barriers for cross-border transactions, explain the Ecovis consultants. Additionally, easing loan restrictions and supporting regional headquarters for multinational corporations will foster long-term investment. Transparency initiatives, such as regular policy briefings, further reinforce China’s commitment to an open and competitive business environment.

Key measures of China’s 2025 investment framework

China’s 2025 foreign investment action plan outlines 20 key measures to further open its economy and maintain a stable investment climate. These measures impact businesses across various industries, including manufacturing, services, telecom, healthcare, and education, regardless of their listing status.

We can advise you on market entry in China, on M&A transactions and support you in obtaining regulatory approvals.

Richard Hoffmann, Lawyer, ECOVIS Rechtsanwaltskanzlei Richard Hoffmann, Ladenburg, Germany

• Encouraging foreign investment: Develop operational guidelines for strategic investment and enhance promotional efforts to attract long-term foreign capital in listed firms.
• Supporting reinvestment: Improve the business environment, ensure equal treatment for foreign enterprises, and introduce policies to encourage reinvestment of profits, including pilot programmes for investment reporting.
• Facilitating mergers & acquisitions: Amend regulations under the foreign investment law to simplify M&A procedures, expand management scope, and ease restrictions on cross-border share swaps.

What China wants to achieve with the action plan

China’s new action plan reaffirms its commitment to attracting foreign investment by expanding market access, simplifying processes, and promoting fair competition. Despite challenges, its focus on high-tech growth, green industries, and global integration signals new opportunities. While the effectiveness of these measures remains uncertain, China’s proactive approach aims to sustain investment and economic stability in 2025 and beyond.

For further information please contact:

Richard Hoffmann, Lawyer, ECOVIS Rechtsanwaltskanzlei Richard Hoffmann, Ladenburg, Germany
Email: richard.hoffmann@ecovis.com