China’s Ministry of Finance and State Taxation Administration has issued Announcement No. 13/2026, effective 1 January 2026, clarifying VAT deduction rules for goods, services, asset restructuring, mixed-rate transactions, and financial operations, aiming to improve compliance and standardise tax practices nationwide.
China’s Ministry of Finance and State Taxation Administration has issued Announcement No. 13 of 2026 on 30 January 2026, clarifying rules on the deduction of input value-added tax (VAT).
Effective 1 January 2026, the guidance overrides previous regulations and provides detailed instructions for taxpayers on VAT calculation, asset restructuring, mixed-rate transactions, and timing of tax liability.
Input VAT deductions
The announcement specifies how VAT can be deducted for different purchases.
For instance:
- For motor vehicles, the deductible VAT is based on the amount shown on the invoice.
- For passenger transportation services, VAT is taken from electronic invoices for rail and air tickets.
- For highway and waterway tickets that include passenger information, the deductible VAT is calculated as (ticket price ÷ (1 + 3%) × 3%.
- Road, bridge, and gate tolls are deductible based on electronic invoices, while bridge and sluice gate tolls use a formula of invoice amount ÷ (1 + 5%) × 5%.
- For overseas transactions, input VAT deduction requires a written contract, proof of payment, and an invoice; without these documents, the deduction cannot be claimed.
Asset restructuring
VAT on asset transfers through mergers, divisions, sales, or exchanges can be deducted if the transferred business operates independently, all related assets, liabilities, claims, and employees are transferred together, and the restructuring has a legitimate business purpose rather than primarily aiming to reduce taxes or obtain early refunds.
Both the transferor and recipient must be general taxpayers. Undeducted VAT from merged entities can continue to be claimed by the receiving taxpayer.
Mixed-rate transactions and timing
For transactions involving multiple VAT rates, the applicable rate is determined by the main business, such as software sales with installation, prefabricated house installations, electricity services, or IT service fees bundled with rentals.
The guidance also clarifies the timing of tax liability: for long-term production goods, VAT is due upon payment or on the contract date; for advance service payments, VAT is due at the start of the first service or on the contract date.
In real estate transactions, VAT arises at the earlier of ownership registration or delivery. For financial institutions, interest accrued within 90 days of settlement is taxable, while interest after 90 days is taxed when actually received.
