China has introduced new rules governing how businesses can claim VAT input tax deductions on long-term assets, with special provisions for high-value "mixed-use" assets. Individual assets exceeding CHY 5 million used for both taxable and non-taxable purposes are now subject to an instalment adjustment method with deduction periods ranging from 5 to 20 years, depending on asset type.
China’s Ministry of Finance and the State Taxation Administration have issued Announcement No. 15 of 2026 on 30 January 2026, in which it issued provisional rules clarifying the deduction of input VAT on long-term assets, with a particular focus on so-called “mixed-use” assets.
The rules are set out in an attachment to Announcement No. 15 of 2026 and apply from 1 January 2026.
The regulations apply to long-term assets acquired through purchase, self-production, investment, or donation. This includes:
- Fixed assets and their supporting equipment.
- Intangible assets, including intellectual property and legal rights.
- Real estate and all building systems (HVAC, electrical, elevators, etc.)
Notably excluded are leased assets, temporary construction site buildings, and real estate inventory held by developers.
Basic deduction rules
The treatment of input tax deduction depends on how the asset is used. Full deduction is allowed for assets used exclusively for standard VAT-taxable activities, while no deduction is permitted for assets used exclusively for simplified VAT schemes, tax-exempt projects, non-taxable transactions, or employee welfare and personal consumption.
Special rules for high-value assets
For individual assets exceeding CHY 5 million that were acquired or renovated after 1 January 2026, a new instalment adjustment method applies when used for mixed purposes. Under this approach:
- Input VAT is fully deducted upfront.
- Annual adjustments are made over a set period based on actual usage.
- Adjustment periods vary: 20 years for real estate and land rights, 10 years for aircraft/trains/ships, and 5 years for other assets.
Taxpayers must maintain detailed ledgers that track the acquisition, use, and disposal of assets valued at over CHY 5 million, and file accurate and timely tax returns. The regulations include provisions for asset disposal, capitalised renovations, and penalties for non-compliance.
