Effective from 1 January 2026, the Value-Added Tax Law of the People's Republic of China and its Implementation Regulations have officially come into force, and the Measures for the Administration of VAT General Taxpayer Registration have been repealed. This change marks a shift in China's VAT system from one primarily governed by administrative regulations to a framework centered on statutory law, bringing clearer and more structured compliance requirements for enterprises.

First, with respect to general VAT taxpayer management, under the former administrative measures, general taxpayer status functioned largely as an administrative classification. In practice, enterprises often determined VAT treatment by first considering whether they qualified as general taxpayers. Under the VAT Law, however, the relevant rules are incorporated directly into the legal framework, placing greater emphasis on whether a transaction itself constitutes a taxable activity. Enterprises are now required to focus on whether a taxable transaction has occurred, which taxation method applies, and whether VAT declaration and invoicing obligations are properly fulfilled, rather than relying solely on taxpayer status.

Second, regarding cross-border service fee payments, the VAT Law provides a clearer framework for determining whether services are "consumed within China."

On one hand, where PRC enterprises pay service fees—such as consultancy fees, technical service fees, management fees, or SaaS subscription fees—to overseas suppliers, such services may constitute taxable services within China if they are used or consumed domestically. If the overseas service provider is not registered for VAT in China, the PRC payer is required to withhold and remit VAT in accordance with the law.

On the other hand, where overseas enterprises provide digital services, platform services, or online technical support to PRC customers and charge fees accordingly, such services may also be regarded as taxable if their actual place of consumption is in China. VAT obligations cannot be excluded solely because the service provider is located overseas or payments are made through cross-border settlement channels.

In addition, following the implementation of the VAT Law, VAT assessment for intangible assets and digital services has become increasingly important. Transactions involving software licensing, data services, and platform usage rights must be evaluated based on their place of use or consumption to determine whether they are subject to VAT in China. At the same time, expense-type payments such as management fees, service fees, and technical fees are more likely to attract scrutiny from a VAT perspective, and enterprises should ensure that the relevant tax treatments are properly applied.

Overall, the core logic of VAT administration is shifting from an "identity-based" approach to a "transaction-based" approach. VAT risks for enterprises are increasingly derived from the substance of business transactions, contractual arrangements, and actual performance, rather than from registration status alone. Enterprises are therefore advised to proactively review their existing business models—particularly those involving cross-border and digital activities—to better align with the new VAT legal framework.

PHC Advisory is a company of  DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients' financial transparency and compliance. 

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The content of this article is provided for informational purposes only, financial advice must be tailored to the specific circumstances on a case-by-case basis, and the contents of this article do not legally bind PHC Advisory with the reader in any way. 

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