1 What is the most significant change to your region/jurisdiction’s tax legislation or regulations in the past 12 months?
From an indirect tax perspective, China formally ratified and introduced its highly anticipated VAT law in December 2024, marking a historic milestone in the evolution of the nation’s tax system. As the largest contributor to China’s tax revenue, VAT plays a pivotal role in the country’s fiscal framework. The new law [took] effect on January 1 2026, replacing provisional regulations that [had] been in place for over three decades.
2 What has been the most significant impact of that change?
While the law retains most [of the] existing VAT rules to maintain a stable policy environment, it introduces several changes that may impact businesses. Key changes include the determination of the place of supply for cross-border services, scenarios in which a VAT-able transaction is deemed to exist (i.e., "deemed sales" rules), the definition and treatment of “mixed sales”, taxpayers’ rights regarding unutilised input VAT, and the promotion of electronic VAT invoices.
3 How do you anticipate that change impacting your work and the market moving forwards?
The new changes mentioned above will require taxpayers to evaluate the potential implications for their operations, financing, and strategic planning, and to develop the appropriate strategic responses and action plans. As professional tax advisers, we need to study and deeply understand the new rules ourselves so as to provide suitable and tailored services to our clients. We can also facilitate the exchange of ideas and queries between our clients and the authorities during the VAT legislation process.
4 How has this changed the way you offer tax advice?
We need to pragmatically analyse the potential systemic impacts of regulations on clients' tax compliance management, business models, and tax cost controls by taking into account industry characteristics and operational realities, and formulate opinions or recommendations accordingly. As the rules are newly issued, gaining insights and official interpretations is also very valuable.
5 What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?
Special VAT preferential policies to support small or micro-sized businesses, key industries, innovations, entrepreneurship, employment promotion, and charitable donations may have a significant impact. In addition, there are lots of discussions in terms of the scope and conditions for VAT zero-rating and exemption treatment. It is expected that the authorities may issue separate circulars on this subject.
6 What are the potential outcomes that might occur if those changes are implemented?
Preferential VAT policies are very important for businesses operating in China to reduce the VAT cost of trading and, accordingly, encourage the business to develop. In particular, the VAT zero-rating/exemption treatment can help promote the export of services from China to other countries by reducing the Chinese VAT cost. The VAT zero-rating/exemption treatment is not new, but there are lots of issues in the actual implementation, so businesses are looking for new measures to help facilitate the application of such preferential VAT treatment.
7 Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
Yes. We will have more opportunities to help our clients with applying for and benefiting from these policies. The VAT zero-rating/exemption treatment policy on certain cross-border services from China to overseas, in particular, will also have a positive effect not only on our practice in China but also on the wider regional/global market.
8 Are there any regulatory/legislative changes you believe should be implemented in your region/jurisdiction?
China may consider introducing measures to facilitate foreign entities without a presence registering purely for indirect tax purposes in China to pay taxes themselves.
9 How do you believe those changes would help improve the tax landscape in your market?
The Chinese tax authorities have been relying on tax withholding mechanisms for years to collect the indirect tax due from foreign entities receiving income in China. However, in practice, only Chinese business taxpayers can apply the tax withholding and private individuals cannot, which creates a challenge in business-to-consumer scenarios (i.e., no indirect tax being withheld, nor paid by individual customers on behalf of foreign entities). This issue has been widely recognised within the tax industry for years, but detailed measures are yet to be issued to enhance controls due to various considerations. As a result, many foreign entities are concerned about their potential tax risks in China relating to such business.
With the increased volume of cross-border transactions, I believe it is time to introduce some measures to allow foreign entities to register in China purely for indirect tax purposes so that these entities can pay taxes themselves to clear potential tax exposures, while claiming input VAT credit where applicable. Such measures have already been adopted by many countries around the world.
10 What sort of issues surrounding the implementation of AI have you seen, and how will AI implementation likely affect your work?
AI has already been embedded in our daily lives and work. It has improved efficiency and introduced many new perspectives. For example, we are using AI to conduct research, digest and summarise the key points of articles, and draft advice/reports efficiently. We have also developed some tax automation tools by embedding AI functionalities.
Nevertheless, the key issues of implementing AI in our daily work include data security and privacy, and how to achieve the accuracy and completeness of the results AI provides. It is worth mentioning that we only use Deloitte’s own AI tools and our engagement teams will always closely monitor the outputs of AI and review the deliverables. Hence, we do not compromise the quality of our work and only use AI tools to seek to improve efficiency.
11 How would you describe the tax authorities’ approach in your region/jurisdiction?
In recent years, I have observed that many tax authorities in the Asia-Pacific region have been enhancing tax controls. For example, more countries have introduced, or plan to introduce, e-invoicing and launch more tax audits or inspections.
In China, the tax authorities have upgraded the tax controlling system, the Golden Tax System, to Phase IV to enhance tax controls digitally. The Golden Tax System Phase IV has been consolidating data from multiple channels, doing data mining, and comparing data to identify potential issues. This should help the tax authorities better manage the compliance status of taxpayers in their jurisdictions.
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