Sinobravo Observation | Key Points of the Implementation Regulations of China's New Value-Added Tax Law (Draft for Comment)

On August 11, 2025, the Ministry of Finance and the State Administration of Taxation of China issued a notice soliciting public comments on the Draft Implementation Regulations for the Value-Added Tax Law of the People's Republic of China. The Sinobravo Borui Tax Consulting Team compared the new Value-Added Tax Law with relevant laws and regulations and found that the Draft Implementation Regulations (hereinafter referred to as the “Regulations”) contain the following key points worthy of attention:

Article 9 of the Regulations: The following services and intangible assets sold across borders by domestic entities and individuals shall be subject to a zero tax rate:

(1) Research and development services, contract energy management services, design services, broadcasting and film production and distribution services, software services, circuit design and testing services, information system services, business process management services, and offshore service outsourcing services sold to overseas entities for consumption entirely overseas;

(2) Technology transferred to overseas entities for consumption entirely overseas;

(3) International transportation services, aerospace transportation services, and processing, repair, and maintenance services for foreign entities.

Sinobravo Observation:

Under the original VAT law framework, services such as “construction services,” “logistics support services,” and “telecommunications services” provided by domestic entities to overseas entities were eligible for tax exemption. However, neither the new VAT law nor this draft implementation regulations explicitly mention such services. Whether such services will no longer be eligible for tax exemption remains to be determined by the final promulgation of the regulations and further interpretation.

Article 20 of the Regulations: Input tax amounts corresponding to loan services purchased by taxpayers and fees directly related to such loans, such as investment and financing advisory fees, handling fees, and consulting fees paid to lenders, shall not be deducted from output tax amounts.

Sinobravo Observation: The issue of whether input tax on loan services can be offset, which had previously been widely discussed within the industry, has been addressed in this draft of the Regulations, where the tax authorities have clearly stated their position and provided explicit regulations on the scope of input tax that cannot be offset.

Article 23 of the Regulations: General taxpayers who purchase goods (excluding fixed assets) or services for projects subject to the simplified tax calculation method or VAT-exempt projects, and cannot allocate the input tax amounts that cannot be offset, shall calculate the input tax amounts that cannot be offset for the current period using the following formula:

Input tax amounts that cannot be deducted for the current period = Total input tax amounts that cannot be allocated for the current period × (Sales revenue from projects subject to the simplified tax calculation method for the current period + Sales revenue from VAT-exempt projects for the current period) ÷ Total sales revenue for the current period

Taxpayers shall calculate the input tax amounts that cannot be deducted for each period using the above formula and adjust the amounts based on the annual aggregated data during the tax filing period in January of the following year.

Sinobravo Observation: The Draft for Comments introduces the concept of “settlement.” After the implementation regulations are officially issued, it remains unclear whether all VAT taxpayers will need to add a “VAT annual settlement” compliance process, which awaits further clarification from relevant documents and local tax authorities.

Article 26 of the Regulations: For fixed assets, intangible assets, or real estate (hereinafter collectively referred to as “long-term assets”) acquired by general taxpayers, the input tax amounts shall be handled in accordance with the following provisions:

(1) For assets exclusively used for projects subject to the general tax calculation method, the corresponding input tax amounts may be fully offset against the output tax amounts; for assets exclusively used for projects subject to the simplified tax calculation method, VAT-exempt projects, non-taxable transactions, collective welfare, or personal consumption (hereinafter collectively referred to as the five categories of projects not eligible for input tax offset), the corresponding input tax amounts shall not be offset against the output tax amounts.

(2) For assets used for both general VAT calculation method taxable projects and the five categories of non-deductible projects (hereinafter referred to as “mixed-use”), if the original value of a single long-term asset does not exceed 5 million yuan, the corresponding input VAT may be fully deducted from the output VAT; For single long-term assets with an original value exceeding 5 million yuan, the input tax amount shall be fully offset at the time of purchase. During the period of mixed use, the input tax amount corresponding to the five categories of non-deductible items that cannot be offset against the output tax amount shall be calculated based on the depreciation or amortization period, and adjusted annually.

(3) When the use of a long-term asset changes between projects eligible for input tax credit and projects ineligible for input tax credit, the input tax credit eligible for deduction and the input tax credit ineligible for deduction shall be determined based on the net value at the beginning of the period of the change.

The specific methods for deducting input tax on long-term assets shall be separately formulated by the Ministry of Finance and the State Administration of Taxation of the State Council.

Sinobravo Observation: This provision represents a major change from the existing VAT system in the current draft for public comment. For long-term assets with mixed uses, the threshold is set at “original value of 5 million yuan per asset”—for long-term assets with an original value below 5 million yuan, input tax can be fully deducted in one go without requiring separate treatment, significantly simplifying tax administration; For long-term assets exceeding 5 million yuan: the proposal is to “first fully offset, then adjust annually,” meaning that input tax is fully offset at the time of purchase, and then, over the entire useful life of the asset, the proportion used for tax-exempt projects is dynamically calculated annually, and the corresponding proportion of input tax is transferred out. This will require enterprises to implement fine-grained management for long-term assets exceeding 5 million yuan, establish ledgers, and track their usage annually. Enterprises should closely monitor changes to the relevant reporting forms and procedures following the formal issuance of the implementation guidelines.

Article 28 of the Regulations The term "medical institutions”referred to in the second item of the first paragraph of Article 24 of the Value-Added Tax Law refers to institutions that have obtained medical institution practice qualifications in accordance with relevant regulations, including medical institutions at all levels and of all types within the military and armed police forces, but excluding beauty medical institutions (including beauty medical clinics).

Sinobravo Observation: Aesthetic medical institutions are explicitly excluded.

The full text of the Regulations can be accessed via the following link: 《中华人民共和国增值税法实施条例（征求意见稿）》公开征求意见

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