VAT Rules for FIEs in China

On August 11, 2025, China's Ministry of Finance and State Taxation Administration released draft regulations to accompany the new VAT Law, scheduled to take effect on January 1, 2026. These regulations aim to standardise VAT treatment for foreign-invested enterprises (FIEs), reducing ambiguity in cross-border transactions and boosting tax certainty.

The draft introduces clear criteria for determining where services and intangible assets are considered “consumed” in China. Transactions such as remote legal advice used within China, overseas R&D tied to domestic operations, or other cases designated by authorities will now fall under taxable scope.

It also introduces a two-stage input VAT deduction mechanism for major capital assets. Companies investing heavily in sectors like advanced manufacturing or infrastructure can now deduct full input VAT upfront, easing cash flow on significant acquisitions.

(Source: China Ministry of Finance)