Other BriefingsChina Monthly Tax Brief: June 2026
June 2026 brought a mix of operational compliance updates and forward-looking structural reforms for businesses in China. The month’s standout developments include a pilot overhaul of the VAT filing return across five provinces and municipalities, a push for real-time invoicing at petrol stations, new OECD guidance on permanent establishment risks from cross-border remote work, and a fresh round of government support measures targeting foreign investment, employment retention, and the Greater Bay Area. For foreign-invested enterprises (FIEs), several of these updates carry direct action items with near-term deadlines.
This brief summarizes the key developments, explains what has changed, and flags what your business needs to do.
1. VAT filing overhaul: five-province pilot launched
In June 2026, the State Taxation Administration (STA) launched a pilot of the new VAT and surcharge tax return in Hebei, Shanghai, Jiangsu, Hubei, and Shaanxi.
What changed
The STA has launched a pilot of a redesigned VAT and surcharge tax return in five provinces and municipalities. The new return is the first comprehensive redesign of the VAT filing system since the VAT Law took effect on January 1, 2026, and is intended to serve as the national template once the pilot is complete.
The overall filing structure and workflow remain familiar — the STA has deliberately preserved the existing logic to minimize disruption. The key change is the introduction of a new Business Information Schedule, which collects information about a company’s business type, applicable tax preferences, and special transaction types.
The system then uses this profile to auto-generate a customized filing interface, rather than requiring every taxpayer to manually navigate a one-size-fits-all form. Other enhancements include more granular treatment of uninvoiced revenue, simplified taxation items, price deductions, input tax credits, and additional VAT credit.
Why it matters to your business
The pilot is currently limited to the five named regions, but national rollout is the stated direction. FIEs, particularly those using ERP systems, tax management software, or shared service centers for VAT filing, should be tracking progress for three reasons:
- System readiness: The new return requires more granular data inputs, especially around business classification tags and preference eligibility flags. Companies that rely on automated filing workflows should assess whether their current tax data architecture can support these requirements when the reform goes national.
- Data quality now matters more: The new return moves VAT compliance closer to a real-time data model, where the system pulls structured business-attribute data rather than accepting a manually completed form. Errors or misclassifications in how transactions are tagged internally will surface more visibly in future filings.
- Multinational groups with multiple China entities should plan centrally: Groups managing several China legal entities through a shared financial or tax function should track the pilot timeline and evaluate any system upgrade needs as a single coordinated exercise, rather than entity by entity.
Key takeaway: No immediate action is required unless your entity is in one of the five pilot regions. However, all companies should begin assessing whether their VAT data management systems can support the new granularity requirements ahead of expected national expansion.
2. Business entertainment expenses: Shanghai tax memo reaffirms deduction rules
On June 2, 2026, the Shanghai Municipal Tax Bureau published a memorandum clarifying the corporate income tax treatment of business entertainment expenses, using case studies to illustrate where the lines are drawn.
The core rules restated
Business entertainment expenses that are genuinely incurred for client-facing commercial activities, such as business negotiations, client maintenance, and similar purposes, are deductible at 60 percent of actual cost, subject to an annual cap of 0.5 percent of sales (operating) revenue for the year. The lower of the two limits applies.
Three categories of spending are explicitly distinguished from business entertainment:
| Expense type | CIT treatment | Common misclassification risk |
| Business entertainment (client-facing: negotiations, meals, hospitality) | Deductible at 60% of actual cost, capped at 0.5% of revenue | Over-claiming: including employee events or internal meals |
| Employee welfare expenses (team building, internal staff meals, staff gifts) | Deductible at up to 14% of total employee salary and wages | Under-claiming: incorrectly booking as business entertainment |
| Non-compliant payments (rebates, kickbacks paid to clients) | Not deductible | Attempting to disguise as entertainment or commission |
| Pre-operating entertainment expenses (incurred during establishment phase) | 60% of actual cost treated as start-up costs, deductible under start-up cost rules | Mixing with post-commencement expenses |
Why it matters to your business
While the underlying rules are not new, the memo signals that this remains an area of active audit interest, particularly for consumer goods companies, trading firms, and sales-driven organizations. The Shanghai memo is a useful reminder of three practical risk areas:
- Expense misclassification: Team dinners, staff outings, and internal celebrations are employee welfare expenses, not entertainment. Booking them as business entertainment inflates a limited deduction pool and creates audit exposure.
- Revenue cap monitoring: Companies with high entertainment spending relative to revenue should monitor the 0.5 percent cap on a rolling basis, especially in lower-revenue quarters. The cap is calculated on annual revenue, but it is easy to over-accrue early in the year.
- Pre-operating entities: Newly established FIEs, regional headquarters, or R&D centers incurring entertainment costs before commencing revenue-generating operations should ensure these are classified under start-up cost rules, not ordinary business entertainment.
Key takeaway: Use the Shanghai memo as a checklist for your finance team’s expense classification policy. The 60 / 0.5% dual cap is well-known, but the misclassification of employee welfare costs as entertainment remains the most common audit trigger in this category.
3. Cross-border remote work and permanent establishment: OECD issues new guidance
On May 26, 2026, the OECD published an article, “Home anVatd Away: When Does Working Remotely Across Borders Create a Taxable Presence?”, which interprets the permanent establishment (PE) provisions of the updated 2025 OECD Model Tax Convention as they apply to cross-border remote working.
What changed
While this is OECD guidance rather than Chinese domestic law, it is directly relevant to the PE analysis under China’s tax treaty network, most of which is based on OECD model conventions.
A company is only taxable in another country on its business profits if it has a PE there. The OECD’s updated guidance addresses a question that has grown in practical importance since 2020: does an employee working remotely from their home in Country B create a PE for their employer in Country B?
The OECD’s position can be summarized as follows:
- Remote work alone, from a private home, does not automatically create a fixed place of business for the employer in that country.
- As a general rule, if an employee spends less than half their total working time remote working in a given country, that fact alone will not create a PE.
- Even where an employee works more than half their time in Country B, a PE is still not automatically created. The analysis must also consider whether the employer has a commercial reason for requiring business to be conducted from that location.
- Scenarios that generally do not create a PE: an employee working from abroad for personal reasons, hybrid arrangements where the employee is partly remote for convenience, and short-term remote work during a holiday.
Why it matters to your business
For multinationals with employees in China working remotely for an overseas entity — or with China-based staff spending time working remotely from overseas — this guidance provides welcome clarification but does not eliminate the risk entirely. The following considerations remain:
- Commercial substance still matters: If a foreign company effectively requires its China-based employees to run a substantial part of its operations from China, not just for personal convenience, the PE risk is real, regardless of remote-work framing.
- China domestic law applies alongside treaty analysis: PE risk in China must be assessed against both the applicable tax treaty and China’s domestic CIT rules on what constitutes an institution or place of business. The OECD guidance informs treaty analysis but does not override domestic law.
- The broader compliance picture: PE risk is one dimension of cross-border remote work. Companies also face individual income tax obligations, social insurance exposure, and payroll withholding questions in the employee’s country of remote work. A holistic policy review covering CIT PE, IIT, and social insurance is recommended for any company with standing remote-work arrangements across borders.
Key takeaway: The OECD guidance is helpful in clarifying that incidental or personal-choice remote work generally does not create a PE, but it does not provide a blanket exemption. Multinationals should review their cross-border remote work policies against this guidance and assess whether any arrangements have sufficient commercial substance to create PE exposure in China or in the employees’ home countries.
4. Petrol station invoicing: Real-time digital invoices mandated from November 1, 2026
On June 8, 2026, the STA issued Announcement [2026] No. 11, requiring all qualified petrol stations to implement real-time digital invoicing by November 1, 2026.
What changed
The STA has required all qualified petrol stations, marine refueling vessels, and rural diesel retail outlets to implement ‘transaction-simultaneous invoicing’, issuing a fully digital electronic invoice (数电发票) at the moment of sale, transmitted through the STA’s Leqi enterprise digital tax platform. After November 1, 2026, non-compliant operators face administrative penalties.
| Payment method | Invoicing arrangement |
| Third-party payment platforms/internet platforms | Invoice issued immediately upon transaction completion |
| Fuel card | Choice of: invoice at top-up (non-taxable general invoice) or at each fill-up (ordinary or VAT special invoice) |
| Cash, credit sales, corporate bank transfer | Invoice issued based on actual transaction data; corporate buyers paying via company account may request consolidated invoices |
Internet platforms hosting petrol stations on their apps must connect directly to the Leqi system as primary integrators, provide invoicing services to their merchant stations, and report tax-related transaction data as required.
Why it matters to your business
For companies with vehicle fleets or significant fuel expenditure, including manufacturing firms, logistics operators, construction companies, and transport businesses, this change directly affects how fuel costs are documented and expensed:
- Fuel expense management becomes simpler: Digital invoices issued at the point of sale eliminate the need to chase paper receipts or request manual invoice issuance after the fact. Finance teams should update internal expense reimbursement processes to handle auto-received digital invoices.
- Corporate account payment is preferable: For business purchases, paying via corporate bank transfer or fuel card (rather than personal payment) ensures the invoice is correctly issued to the company entity and can be used for VAT input tax credit and CIT deduction purposes. Under the new rules, non-corporate-account payments will generate per-transaction invoices, which may create volume management challenges.
- VAT input tax management: Companies that regularly claim input VAT credits on fuel purchases should ensure their invoice collection and verification processes are updated to handle the new digital format.
Key takeaway: The November 1, 2026 deadline is firm. If your business purchases fuel at scale, now is the time to update your fuel purchase payment method to corporate accounts and refresh your expense reimbursement and VAT input management processes for the digital invoice format.
5. Export invoicing rules clarified under the new VAT Law
On May 29, 2026, the Zhejiang Provincial Tax Bureau issued guidance on general VAT invoice requirements for export transactions under the new VAT Law, effective July 1, 2026.
What changed
The guidance clarified how general VAT invoices should be completed for export transactions under the framework of the new VAT Law and its implementing regulations. While this is provincial guidance, it sets out practice consistent with the national VAT Law. It is directly relevant to exporters operating in or through Zhejiang and informative for exporters across China navigating the same VAT Law transition.
The core invoicing rules by export category
| Export category | Tax rate field | Key additional requirements |
| Export goods/services eligible for VAT refund or exemption-with-refund (退税/退免税) | Select ‘0%’ | Buyer information in Chinese or English; amount in RMB (with foreign currency amount and currency code noted in remarks); mark ‘export business’ in remarks field |
| Export goods/services eligible for VAT exemption only (免税, no refund) | Select ‘exempt’ (免税) | Same buyer information and currency notation requirements as above |
| Export goods/services subject to standard VAT (征税) | Apply the relevant standard or simplified rate | Standard invoicing rules apply |
| Processing trade: toll processing (来料加工) | Per applicable rules for the specific transaction | Invoice amount confirmed per the processing contract terms |
Why it matters to your business
For FIEs engaged in export manufacturing, cross-border service provision, or trading, the VAT Law transition has introduced a number of invoicing rule changes. This guidance provides clarity on practical questions:
- Getting the tax rate field right: Incorrectly selecting a rate (e.g., leaving the field blank or selecting ‘exempt’ when ‘zero-rated’ applies) can cause your export VAT refund application to fail at the verification stage. The mapping in the table above should be embedded in your invoicing system configuration.
- Foreign currency notation: The requirement to state the foreign currency sale amount and currency code in the remarks field is new under the VAT Law framework. Exporters using automated invoicing systems should add this field to their invoice templates.
- Processing trade: Toll processing (来料加工) and processing with imported materials (进料加工) have different invoice amount confirmation methods. Companies with processing trade operations should verify that their existing invoicing practice aligns with the clarified rules.
Key takeaway: Exporters in Zhejiang must update their invoicing templates and system configurations. Exporters in other provinces should treat this as a signal to review their own export invoice practices under the new VAT Law framework, as national consistency guidance is likely to follow.
6. Commercial property purchases: Faster registration and tax payment process
On May 29, 2026, five government bodies — natural resources, public security, tax, market supervision, and financial regulation — jointly issued measures to streamline the process for companies purchasing commercial real estate
What changed
The following reforms stand out:
- Single-window, one-submission processing: Companies may now submit all registration, tax, and supporting documentation at a single enterprise window. Tax payment information is pushed in real time to the registration authority upon completion, and the property registration is completed in principle within one working day of tax clearance confirmation. Land value increment tax (LVT) and deed tax clearance are verified as part of this integrated flow.
- ‘Mortgage transfer’ reform expanded: The transfer with existing mortgage model, previously piloted in selected cities, is being more broadly promoted. Under this arrangement, the transfer of a mortgaged property and the associated new loan drawdown and old loan repayment are processed simultaneously, eliminating the need for the buyer to arrange bridge financing to repay the existing mortgage before transfer. Cross-bank transactions are now also included.
- Online due diligence tools: Companies can now check a property’s encumbrances and any publicly recorded tax arrears of the seller through an integrated online platform, streamlining pre-transaction due diligence. Electronic signatures and digital business licenses are accepted for remote processing.
Why it matters to your business
For FIEs acquiring office space, factory premises, or other commercial property in China, these reforms reduce transaction friction in two concrete ways. First, the one-working-day registration target backed by integrated tax clearance materially shortens the post-payment waiting period that has historically caused uncertainty in property transactions. Second, the expanded mortgage transfer mechanism is particularly relevant for acquisitions of properties with existing financing, where bridge loan costs have previously added a significant and often underestimated transaction expense.
Companies conducting property due diligence should take advantage of the new online encumbrance and tax arrears search tool before entering into purchase agreements.
In brief: other updates
The following developments may be relevant depending on your sector, location, or structure.
Foreign investment stabilization action plan — profit reinvestment and R&D incentives confirmed (June 22, 2026):
The MOFCOM, NDRC, and MOF jointly released an action plan to stabilize and improve the quality of foreign investment. Two provisions are of particular tax relevance to FIEs. First, the plan explicitly commits to implementing the withholding tax deferral for foreign investors who reinvest distributed profits back into China, a long-standing policy that has sometimes been applied inconsistently in practice. Second, the plan reaffirms support for foreign-invested R&D centers and their eligibility for import duty exemptions on scientific research equipment. For multinationals considering expanding their China footprint or reinvesting China profits, both provisions are worth discussing with your tax adviser in the context of your group’s current structure.
Also read: China’s New Foreign Investment Action Plan: The Measures That Matter Most for FIEs
Unemployment insurance: job retention and expansion subsidies extended through 2026 (June 18, 2026):
Four ministries have jointly confirmed the extension of unemployment insurance subsidy programs through December 31, 2026. Large enterprises may receive a refund of up to 30 percent of their prior-year unemployment insurance contributions; small and medium enterprises may receive up to 60 percent. Companies that have maintained or expanded headcount and made unemployment insurance contributions should apply to their local authorities. These are cash refunds, not tax credits, and application processes vary by location.
Tax credit score repair — Anhui typical cases published (June 17, 2026):
Anhui Tax has published illustrative cases on credit score restoration, covering scenarios including minor infractions, full credit restoration, staged tax debt repayment, affiliated-entity credit linkage, and bankruptcy restructuring. The cases are consistent with the Hebei examples covered in last month’s brief. The consistent message: tax credit score management is increasingly consequential for financing, procurement, and licensing, and most common deduction triggers (e.g., late filings, outdated registration details, and invoice errors) are preventable with basic compliance hygiene. FIEs with affiliated entities or restructuring history should pay particular attention to the affiliated-entity and restructuring scenarios.
Mining rights assignment revenue: penalty mechanism revised (June 11, 2026):
A joint notice from the MOF, Ministry of Natural Resources, and STA has adjusted the rules for collecting mining rights assignment revenue. From August 1, 2026, late payment penalties will shift from statutory surcharges to contractual default interest, capped at 100 percent of the outstanding principal. Companies involved in mineral resource development, energy projects, or resource sector investments should review their mining rights payment schedules and the updated default interest exposure under the new framework.
Accounting standard interpretation No. 20 — financial instruments and non-convertible currencies (June 4, 2026):
The Ministry of Finance has issued Accounting Standard Interpretation No. 20, addressing two technical areas: the ‘principal plus interest’ classification test for financial assets with non-recourse features or contract-linked instruments, and the accounting treatment and disclosure requirements for operations in jurisdictions where the local currency is not freely convertible. The second element is directly relevant to FIEs operating in or through markets with foreign exchange restrictions. Companies holding complex financial instruments or conducting cross-border financing should review the interpretation with their accounting advisers to assess whether any reclassification or additional disclosure is required.
Export VAT refund rate library updated — 2026 Version B (June 5, 2026):
The STA has released the 2026 Version B export VAT refund rate library, updated to reflect revisions to HS customs codes. Local tax bureaus have already deployed an updated verification system. Exporters should obtain the latest rate library from their in-charge tax authority and verify that their ERP or export tax management system is using the correct rates before filing their next export refund application. Applying an incorrect rate will cause the application to fail verification.
Shanghai cross-border trade facilitation: CBAM advisory window opened (June 12, 2026):
Seven Shanghai government bodies have jointly released 2026 cross-border trade facilitation measures. For FIEs, two items stand out. First, a Carbon Border Adjustment Mechanism (CBAM) advisory window has been established on the Shanghai International Trade Single Window, a notable development for exporters of steel, aluminum, cement, fertilizers, and electricity to the EU, where CBAM reporting obligations are already in effect. Second, the measures include further facilitation of RMB cross-border settlement, with simplified documentary review by banks. Exporters in CBAM-affected sectors should make early use of the advisory service to understand their reporting obligations and exposure.
Coffee industry tax compliance cases — Yunnan, Jiangsu, Shanghai (June 18, 2026):
Tax bureaus from three provinces have jointly published illustrative compliance cases for the coffee sector, covering agricultural procurement invoice management, R&D super-deduction documentation, VAT rate classification, and e-commerce tax management. While sector-specific, the underlying compliance themes, “proper agricultural input invoice handling, adequate R&D documentation, correct product classification”, are broadly applicable. FIEs in food processing, agricultural sourcing, or e-commerce should review the cases for transferable lessons.
About this brief
This monthly tax brief is prepared by China Briefing for informational purposes only. It does not constitute legal or tax advice. For guidance on how these developments affect your specific business, please consult a qualified adviser.
With rapid reforms and inconsistent enforcement across the region, companies face challenges at every stage of their lifecycle. Dezan Shira & Associates’ tax advisory teams include experienced tax accountants, lawyers, and former tax officials who help clients navigate these complexities, reduce risk, and optimize tax outcomes—providing clients with comprehensive advisory and compliance support tailored to regional requirements.
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