VAT is the largest source of tax revenue in China, contributing approximately 38% of total tax revenue in 2024. Its collection and administration have historically been governed by a fragmented framework consisting of regulations (e.g., the Interim VAT Regulations), rules, as well as various circulars (e.g., Cai Shui [2016] No. 36 ("Circular 36") and bulletins issued by Ministry of Finance (MOF) and State Taxation Administration (STA). The enactment of the VAT Law upgrades the general VAT principles developed over time under the fragmented framework into one substantive piece of legislation. This marks a significant step toward reinforcing the principle of "taxation according to the law" in China. However, it remains to be seen how these fragmented rules will be integrated with the VAT Law and its implementing regulations.
This paper is divided in four main sections. In Section 1, we outline the key aspects of the prevailing VAT regime that remain largely unchanged and which have been formalized in the VAT Law. In Section 2, we highlight the key changes introduced in the VAT Law. Beyond these updates, in Section 3, we explore the uncertainties underlying the VAT Law, setting out our observations and perspectives on open issues and areas requiring further clarification. Finally, in Section 4, we comment on the key takeaways and outlook of the new VAT Law regime.
Click here to access the full alert.
* * * * *
© 2025 Baker & McKenzie FenXun (FTZ) Joint Operation Office. All rights reserved. Baker & McKenzie FenXun (FTZ) Joint Operation Office is a joint operation between Baker & McKenzie LLP, and FenXun Partners, approved by the Shanghai Justice Bureau. In accordance with the common terminology used in professional service organisations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. This may qualify as "Attorney Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.
