China Clarifies VAT Starting Thresholds Ahead of 2026 VAT Law Implementation
From 1 January 2026, the new Value Added Tax Law of the People’s Republic of China and its Implementing Regulations will take effect. In advance of implementation, the State Administration of Taxation (SAT) has issued a collection and management announcement clarifying VAT starting point thresholds, preferential policy application, and compliance procedures.
Higher Daily Threshold for Natural Persons
The most notable change concerns natural persons. The daily VAT starting threshold has increased from RMB 500 to RMB 1,000 per transaction. This means individuals whose daily taxable sales fall below RMB 1,000 are generally not liable for VAT.
However, for certain continuous or recurring transactions – including real estate leasing and specific “reverse invoicing” arrangements (such as sales of scrapped goods) – the daily threshold will not apply. Instead, the monthly threshold of RMB 100,000 will apply, with VAT assessed on a periodic basis. This approach is designed to prevent artificial splitting of transactions while preserving fairness and administrative efficiency.
Simplified Compliance and Deemed Filing
To reduce compliance burdens, the SAT has confirmed that where VAT is invoiced by tax authorities on behalf of individuals, or withheld and remitted by a withholding agent, the taxpayer will be deemed to have fulfilled their filing and payment obligations. This significantly limits the need for separate VAT declarations by natural persons.
Flexibility for Small-Scale Taxpayers
The announcement also confirms that small-scale taxpayers may flexibly waive VAT exemptions on a transaction-by-transaction basis in order to issue special VAT invoices for input deduction purposes. Importantly, giving up preferential treatment for one transaction does not trigger the 36-month restriction that applies more broadly under the VAT Law.
Overall, the measures balance tax fairness, administrative efficiency, and compliance simplification as China transitions to its modernised VAT framework in 2026.
