China's Value-Added Tax is the first tax a foreign business meets when it sells into the country, and it is the largest single source of PRC government revenue. Since 1 January 2026 it has been governed by the VAT Law of the People's Republic of China, which replaced the 1993 provisional regulations after three decades. The headline rates did not move on that date, but the legal basis, the list of non-creditable input tax and several administrative formulas did — which is why older English guides that still cite the "VAT Provisional Regulations" are no longer safe to rely on.
Which rate applies: the four-tier schedule
VAT applies to the sale of goods, the provision of services, the transfer of intangible assets and the sale of immovable property. Nearly every taxable supply sits in one of four bands:
| Rate | Applies to |
|---|---|
| 13% | Goods, and processing, repair and replacement services — the default for anything tangible. |
| 9% | A closed list: agricultural products (including grain), tap water, heating, gas, edible vegetable oil, books and newspapers; transport, postal and basic telecommunications services, construction, leasing and sale of immovable property, and transfer of land-use rights. |
| 6% | Modern services, financial services, lifestyle services and the transfer of intangible assets — consulting, IT, research and development, design, advertising, logistics support, education, medical and cultural services. |
| 0% | Exports of goods and prescribed cross-border services, where the refund or zero-rating conditions are met. |
The default direction matters: if a supply is not clearly on the 9% or 6% list, it falls at 13%. Businesses routinely assume a service is 6% because it feels intangible in substance, then find the tax authority treats it as a 13% supply of goods. The list in the 9% band is closed, not illustrative.
Two worked examples
General taxpayer selling goods. A trading company invoices a customer CNY 1,130,000 including VAT at 13%:
- Net sales: 1,130,000 ÷ 1.13 = CNY 1,000,000
- Output VAT: CNY 130,000
It bought raw materials for CNY 565,000 including 13% VAT and holds a valid special VAT invoice: net cost CNY 500,000, input VAT CNY 65,000. VAT payable for the period is 130,000 − 65,000 = CNY 65,000. The input tax is a credit, not a cost — it only becomes a real cost if the invoice fails the deduction requirements.
Small-scale taxpayer. A business below the general-taxpayer threshold invoices CNY 1,010,000 in a quarter at the reduced 1% levy rate:
- Tax-exclusive sales: 1,010,000 ÷ 1.01 = CNY 1,000,000
- VAT payable: CNY 10,000
The statutory levy rate is 3%, with a reduction to 1% running to 31 December 2027. That relief sits in the transition announcement issued alongside the VAT Law, not in the Law itself. Small-scale taxpayers do not credit input VAT at all — purchase VAT is simply part of the cost.
Input VAT that cannot be credited
Article 22 of the VAT Law sets the non-creditable categories. The ones that most often hit foreign-invested companies:
- Purchases used for levy-rate (simple-tax) items or VAT-exempt items;
- Purchases used for collective welfare or personal consumption — and business entertainment is expressly treated as personal consumption under Article 20 of the Implementing Regulations;
- Catering, resident daily and entertainment services bought and directly consumed by the business;
- Interest on loans — loan-service interest remains non-creditable for the time being.
Where a business has both creditable and non-creditable output, input tax must be apportioned. The formula in the 2026 input-VAT announcement: non-creditable input tax = unapportionable input tax × (simple-tax sales + exempt sales + non-taxable revenue) ÷ (total sales + total non-taxable revenue), computed each period and reconciled in the January filing of the following year. Long-lived assets used for mixed purposes have a separate rule with a CNY 5 million threshold.
The "principal business" rule for bundled supplies
Where one transaction covers items at different rates and the others are ancillary to a principal item, Article 10 of the Implementing Regulations requires the whole transaction to follow the principal item's rate. Equipment sold with a maintenance contract, software bundled with hardware, and a lease packaged with management services are the classic fact patterns. Splitting the invoice to reach a lower rate only holds where the split reflects genuinely separate, independently priced supplies.
Exports are zero-rated — but four conditions apply at once
Zero-rating is not automatic on the strength of a customs declaration. The export policy announcement in force from 1 January 2026 requires all four of: the goods are sold to an overseas unit or individual; they physically leave China after customs declaration; revenue is recognised as a sale under accounting rules; and foreign exchange is collected as required. Fail any one and the supply can be recharacterised as domestic, taxed at 13%, with late-payment surcharges on top.
What this note does not cover
Preferential regimes (software and integrated circuits, agricultural producers, cross-border taxable acts), refund mechanics for exporters, and local collection practice all vary, and they change more often than the rate schedule does. Each needs its own note, with its own cited announcement, before it is relied on for a filing position.
Sources and effective dates
- VAT Law of the People's Republic of China — effective 1 January 2026. Rate schedule and the Article 22 non-creditable list.
- Implementing Regulations of the VAT Law, State Council Order No. 826 — effective 1 January 2026. Articles 10, 15, 20, 23 and 25.
- MOF / STA Announcement No. 10 of 2026 — transition of VAT preferential policies, including the 3% levy rate with the 1% reduction to 31 December 2027.
- MOF / STA Announcement No. 11 of 2026 — export VAT and consumption tax policy, including the four conditions above.
- MOF / STA Announcement No. 13 of 2026 — input VAT deduction and the apportionment formula.
Checked against the texts above in November 2026. Confirm the current version before filing.