China Monthly Tax Brief: December 2025

In this China Monthly Tax Brief for December 2025, we highlight key taxation developments relevant to businesses.

This month’s tax brief brings together a series of important policy developments that will shape compliance planning for businesses operating in or trading with China in 2026 and beyond. Key updates span VAT legislation, tariff and customs administration, local surcharges and tax incentives, accounting–tax alignment, and cross-border trade remedies, reflecting the authorities’ continued focus on policy clarity, risk control, and targeted support for priority sectors.

On the domestic tax front, China advanced the implementation of its VAT Law, releasing detailed draft implementation regulations that clarify taxable scope, input VAT deduction rules, invoicing, and compliance procedures. At the local level, Shanghai extended the local education surcharge and disability-employment-related urban land use tax incentives through 2030, reinforcing policy continuity while maintaining strict compliance expectations.

Find Business Support

Navigate Asia’s tax landscape with expert guidance →

In the customs and trade sphere, authorities released the 2026 Import and Export Tariff Schedule, accompanying implementation guidance, and updated commodity classification rulings, requiring enterprises to review tariff rates, HS codes, and declaration practices ahead of the January 1, 2026, effective date. At the same time, China adjusted trade remedies affecting the EU, imposing higher tariffs on certain dairy products while significantly reducing final anti-dumping duties on EU pork—signaling a calibrated approach amid ongoing China-EU trade dialogue.

Finally, from an accounting and tax coordination perspective, the Ministry of Finance issued Interpretation of Accounting Standards for Business Enterprises No. 19 and clarified the corporate income tax treatment for the transition to the new insurance contract standard, providing enterprises with greater certainty on equity accounting and transitional tax adjustments.

Together, these developments underscore the need for businesses to closely monitor policy changes, reassess tax and customs positions, and prepare early for 2026 compliance impacts across VAT, tariffs, corporate income tax, and cross-border trade.

State Council released the VAT Law Implementation Regulations

On December 25, 2025, China’s State Council released the Implementation Regulations of the VAT Law (Order No. 826), which took effect on January 1, 2026, alongside the VAT Law. This marks a major step in translating legislative principles into operational rules, providing clearer guidance for tax compliance. For businesses, including foreign-invested enterprises (FIEs), this means more certainty, but also new compliance challenges.

See also: Unlocking China’s New VAT Law: Key Changes, Business Impacts, and Compliance Tips

What changed and why it matters

The regulations serve as detailed procedural rules for VAT administration, covering the entire chain from taxable scope to calculation, collection, and preferential policies. Key changes include:

See also: China Passed VAT Law Implementation Regulations: A Snapshot for FIEs

Impact on FIEs and recommended actions

FIEs are advised to make corresponding operational adjustments:

• Review cross-border transactions: Ensure service and intangible asset contracts align with the new “domestic consumption” criteria to avoid misclassification and tax exposure.
• Update accounting and ERP systems: Incorporate new input VAT deduction and transfer rules, especially for mixed-use assets and proportional allocation of non-deductible items.
• Strengthen invoice management: Train finance teams on updated invoice issuance and red-letter handling procedures to prevent non-compliance penalties.
• Reassess tax incentives and export refund strategy: Verify eligibility for exemptions and optimize export refund processes under the clarified rules.
• Implement internal compliance checks: Conduct a VAT compliance audit and update internal policies to reflect the new regulations.

STA clarified calculation rules for regional CIT incentives

On December 31, 2025, the State Taxation Administration (STA) issued a policy Q&A, clarifying how to calculate the main business income ratio for regional enterprise income tax (CIT) incentives. This clarification addresses practical issues arising from changes in encouraged industry catalogues, ensuring consistent application of preferential tax rates.

What changed and why it matters

Regional CIT incentives typically require that a company’s main business income from encouraged industries accounts for a certain proportion of total income (often 60 percent). When the industry catalogue encouraged changes during the year, businesses were uncertain whether income under the old catalogue and the new catalogue could be combined. The STA has now confirmed:

• If a company operates in industries listed in the old catalogue during the applicable period, that income counts toward main business income.
• If the company later operates in industries listed in the new catalogue, that income also counts.
• Both amounts should be aggregated to calculate the annual main business income ratio for determining eligibility for the preferential CIT rate.

For example, in Hainan Free Trade Port, the old catalogue applied from January to February 2024, and the new catalogue from March onward. If a company earned income A from encouraged industries under the old catalogue and income B under the new catalog, the ratio should be calculated based on (A + B) as main business income for the full year. If the ratio exceeds 60 percent and other conditions are met, the company can apply the 15 percent CIT rate for the year.

Impact on FIEs and recommended actions

FIEs operating in regions with CIT incentives are advised to:

• Review catalogue changes and income classification: Ensure income from both old and new encouraged industry catalogs is properly identified and aggregated for ratio calculation.
• Update internal tax compliance procedures: Adjust accounting and reporting systems to reflect the STA’s clarified approach, avoiding misinterpretation that could lead to loss of incentives.
• Perform year-end ratio checks: Calculate the annual main business income ratio using combined income from both catalogues to confirm eligibility before filing.
• Document supporting evidence: Maintain clear records of industry classification under each catalogue and corresponding income to substantiate claims during tax audits.
• Monitor future policy updates: Regional incentive policies and catalogues may continue to evolve; staying informed will help maintain compliance and optimize tax benefits.

STA announced 2026 tax filing deadlines

On December 10, 2025, the STA issued notice [2025] No. 64, confirming the official tax filing deadlines for 2026. These deadlines apply to taxes filed on a monthly or quarterly basis, which must generally be submitted within 15 days after the end of the period. Adjustments have been made based on statutory holidays and weekend extension rules.

See also: China Tax Filing and Payment Deadlines for 2026

While the 15-day rule remains unchanged, the STA has clarified the exact dates for 2026 to avoid confusion caused by holiday and weekend overlaps. Key points include:

• Regular months: June, July, September, and December deadlines fall on the 15th of the month.
• Holiday extensions: January, February, April, May, and October deadlines are postponed due to statutory holidays.
• Weekend extensions: March, August, and November deadlines are extended to the next working day when the 15th falls on a weekend.

Impact on FIEs and recommended actions
This clarification ensures businesses can plan tax filings accurately and avoid late penalties. FIEs should:

• Update compliance calendars: Incorporate the official 2026 filing dates into internal tax schedules to prevent missed deadlines.
• Coordinate with finance teams and service providers: Communicate adjusted dates to accounting teams and external advisors to align submission timelines.
• Plan for holiday and weekend overlaps: Avoid last-minute filings by preparing returns ahead of extended deadlines, especially around major holidays.
• Monitor STA announcements: Stay alert for any further adjustments or clarifications during the year.

STA issued new rules on tax arrears disclosure, effective March 1, 2026

State Taxation Administration (STA) has released order No. 61, introducing the new measures for tax arrears disclosure, which will take effect on March 1, 2026. This regulation replaces the previous trial version and aims to create a more transparent, standardized, and efficient system for managing tax arrears while strengthening taxpayer rights and integrating with China’s social credit framework.

What changed and why it matters

The new measures overhaul the previous approach to tax arrears announcements by:

• Standardizing disclosure content, frequency, and channels: Monthly announcements will be published on the administrative law enforcement information platform, with supplementary channels such as the e-tax bureau, tax offices, and media. Provincial tax websites will provide searchable databases.
• Introducing pre-announcement confirmation and objection procedures: Before disclosure, tax authorities must notify taxpayers for confirmation. Taxpayers have three working days to respond or raise objections, and authorities must verify and reply within three days. Post-announcement objections can also be filed within five working days.
• Clarifying scope and definitions: Tax arrears include unpaid taxes (and related surcharges) beyond statutory or approved deadlines, covering scenarios such as unpaid declared taxes, overdue deferred payments, and unpaid assessed taxes.
• Expanding exceptions to disclosure: Certain cases, such as bankruptcy proceedings, post-liquidation unpaid taxes, and situations involving state secrets, may be exempt from public disclosure with provincial approval.
• Strengthening credit linkage and compliance obligations: Tax arrears information will feed into tax credit ratings and the broader social credit system. Authorities must update announcements promptly when arrears are cleared or information changes.

Impact on FIEs and recommended actions

Find Business Support

Leveraging our deep expertise to optimize your tax strategy and stay compliant⟶

The new rules significantly raise the stakes for tax compliance. Public disclosure of arrears will not only expose companies to reputational risk but also affect their tax credit rating, which can influence access to government incentives, financing, and bidding opportunities. Integration with the social credit system means that persistent arrears could lead to broader restrictions, such as limitations on market access or procurement eligibility. Additionally, the pre-announcement confirmation process introduces a short response window, requiring companies to have rapid internal coordination to avoid incorrect disclosures.

FIEs are advised to:

• Prioritize timely tax payment: Avoid arrears to prevent public disclosure and negative credit implications.
• Understand new confirmation and objection rights: If notified of pending disclosure, respond within the three-day window and prepare supporting documentation for any objections.
• Monitor credit impact: Recognize that arrears announcements will affect tax credit ratings and may influence business reputation and financing.
• Review internal compliance processes: Ensure robust tax payment tracking and escalation mechanisms to prevent overdue liabilities.
• Prepare for transparency and reputational risk: Communicate internally about the implications of public disclosure and integrate compliance into risk management strategies.

MOF STA extended the advertising and promotion expense deduction policy to 2027

On December 22, 2025, the Ministry of Finance (MOF) and the STA jointly issued announcement No. 16, extending and clarifying the CIT rules for pre-tax deduction of advertising and business promotion expenses. The policy will apply from January 1, 2026, through December 31, 2027, replacing the previous MOF STA Announcement [2020] No. 43. This update provides continuity for key industries.

Deduction limits for specific industries

For companies engaged in the manufacturing or sale of cosmetics, pharmaceutical manufacturing, and beverage manufacturing (excluding alcoholic beverages), advertising and business promotion expenses are deductible up to 30 percent of annual sales (or operating) revenue.

Any excess beyond the 30 percent cap may be carried forward to subsequent tax years for deduction.

Cost-sharing arrangements among related parties

Where related enterprises enter into a cost‑sharing agreement for advertising and promotion activities:

• The party that incurs the expenses may deduct the portion within its own allowed limit; or
• Allocate part or all of the expenses to the related party in accordance with the cost‑sharing agreement.

When the receiving party calculates its own cap for deductible advertising and promotion expenses, the allocated portion is excluded from the base figure used to determine its deduction limit.

This provision provides more flexibility for multinational or multi‑entity corporate groups to allocate advertising costs in a tax‑efficient manner.

No deductions allowed for tobacco companies

All advertising and business promotion expenses incurred by tobacco enterprises remain non‑deductible for CIT purposes. This absolute prohibition is unchanged and applies regardless of the amount spent.

Impact on FIEs and recommended actions

Find Business Support

Discover how our tax professionals assist your business ⟶

This extension provides planning certainty for foreign-invested enterprises in consumer industries, allowing them to maintain higher advertising budgets without losing tax efficiency. The related-party allocation rule offers flexibility for multinational groups to optimize deductions across entities, which can reduce overall tax burden. However, strict documentation of cost-sharing agreements will be essential to withstand tax audits. For companies outside the special industries, the standard 15% cap remains a constraint, requiring careful budgeting to avoid non-deductible expenses. Tobacco-related businesses face continued restrictions, reinforcing compliance risks in marketing strategies.

Recommended actions for FIEs include:

• Review industry classification: Confirm whether your business qualifies for the 30 percent deduction limit or falls under the general 15 percent cap.
• Plan advertising budgets for 2026–2027: Align marketing spend with deductible limits to maximize tax benefits.
• Leverage related-party allocation: For multinational groups, consider cost-sharing agreements to optimize deductions across entities.
• Maintain robust documentation: Ensure agreements and expense records meet compliance standards to support deductions during audits.

See also: China Issues Updated Rules on Tax Deduction for Advertising and Promotion Expenses

Six departments revised enterprise deregistration guidelines

On December 12, 2025, six government departments, including the State Administration for Market Regulation (SAMR), the STA, and others, jointly issued the revised Enterprise Deregistration Guide (2025 edition). The update aims to streamline exit procedures, enhance transparency, and strengthen compliance obligations. For businesses, including FIEs, this means clearer rules but also stricter requirements for tax and legal compliance before deregistration.

The revised guide introduces several important changes:

• Integrated “one-stop” deregistration mechanism: Enterprises can now process deregistration across tax, social security, customs, and banking through a unified online platform, reducing administrative burden.
• Clearer liquidation obligations: Before deregistration, companies must complete tax clearance, settle social security and payroll, pay outstanding debts, and distribute remaining assets according to legal requirements. Liquidation teams must be formed within 15 days of dissolution and act under fiduciary duties.
• Differentiation between standard and simplified deregistration: Simplified deregistration applies to businesses with no outstanding debts or obligations, requiring only a 20-day public notice period and no creditor objections.
• Enhanced handling of special cases: Practical solutions are provided for issues such as missing shareholders, inability to conduct liquidation, lost licenses, or unclosed branches.
• Stronger legal accountability: Penalties are imposed for submitting false documents, concealing facts, or malicious deregistration. Shareholders and directors may bear joint liability for unpaid debts if liquidation is not properly conducted.

Tax-specific requirements and implications include:

• Mandatory tax clearance before deregistration: Enterprises must settle all outstanding taxes, including CIT, VAT, and any surcharges, as well as late payment interest and penalties. Tax authorities will not issue deregistration approval without a tax clearance certificate.
• Final tax filings and liquidation reporting: Companies must file final CIT returns and complete liquidation tax calculations. For partnerships and sole proprietorships, individual income tax obligations must also be cleared.
• Pre-check and commitment system: STA allows a “pre-check + commitment” approach for tax deregistration. If certain conditions are met, enterprises may obtain clearance immediately or upon commitment, but failure to honor commitments can lead to penalties and blacklisting.
• Impact on compliance and credit rating: Tax non-compliance during deregistration can result in inclusion on serious violation lists, affecting future market access and credit standing. This risk extends to shareholders and directors who may face joint liability for unpaid taxes.

Impact on FIEs and recommended actions

This revision further clarifies and streamlines deregistration procedures (for example, simplified deregistration and one-stop integrated processes), strengthens public disclosure and information sharing, refines the handling of special circumstances, and clearly defines the legal responsibilities of relevant parties. The overall objective is to ensure that business exit is efficient and convenient, orderly and compliant, and with effectively controlled risks. When proceeding with deregistration, enterprises should pay close attention to liquidation compliance and the settlement of outstanding tax matters to avoid potential legal risks.

Recommended actions for FIEs include:

• Plan exit strategy early: Begin tax clearance and debt settlement well before initiating deregistration to avoid delays.
• Establish a compliant liquidation process: Form a liquidation team promptly and ensure proper creditor notification and asset distribution.
• Leverage simplified deregistration where eligible: If no outstanding obligations exist, use the streamlined process to reduce time and cost.
• Prepare for cross-department coordination: Align tax, customs, social security, and banking procedures to meet integrated platform requirements.

Three updates on China’s 2026 tariff and classification rules released

To ensure the effective implementation of the PRC Tariff Law, optimize tariff policy execution, and standardize customs enforcement nationwide, the Customs Tariff Commission of the State Council and the General Administration of Customs (GAC) issued three key regulatory documents at the end of 2025, establishing a comprehensive framework for import and export tax administration in 2026:

• PRC Import and Export Tariff Schedule (2026): Issued by the Customs Tariff Commission and effective from January 1, 2026, this is the foundational legal document for annual tariff administration. It sets out MFN rates, conventional rates, preferential rates, general rates, and corresponding HS codes for all goods, serving as the statutory basis for tariff collection throughout the year.
• GAC Announcement on Implementing the 2026 Tariff Adjustment Plan and Related Matters (GAC Announcement [2025] No. 260): Effective from January 1, 2026, this announcement provides detailed implementation rules and operational guidance. It introduces new ten-digit customs declaration codes for goods eligible for provisional tariff rates or specific import-stage VAT and consumption tax policies, requiring enterprises to declare under the updated codes to enjoy preferential treatment. It also clarifies official channels for checking tariff rates, tariff line adjustments, and the tax-related compliance declaration catalogue.
• GAC Announcement on the Release of Commodity Classification Decisions for 2025 (GAC Announcement [2025] No. 259): Effective from the date of issuance (December 30, 2025), this announcement provides binding classification rulings for certain complex or disputed goods, offering clearer guidance for enterprises. At the same time, it invalidates selected previous classification decisions to ensure consistency and updated application of classification standards.

Enterprises should closely monitor tariff rate changes, update customs declaration codes, and review product classification positions in a timely manner to ensure compliance, avoid declaration errors, and fully benefit from applicable tariff preferences in 2026.

China adjusts trade measures on EU agri-food products amid ongoing negotiations

China has announced new trade measures affecting key EU agricultural products, reflecting both escalating tensions and calibrated restraint in its trade policy toward the bloc.

Tariffs on EU dairy products

China will impose additional tariffs ranging from 21.9 percent to 42.7 percent on certain EU dairy products, effective December 23, 2025. The affected items include fresh cheeses, processed cheeses, and blue cheeses, such as Roquefort.

Final ruling in the EU pork anti-dumping investigation

In contrast, China’s Ministry of Commerce released its final ruling on December 16, 2025, in the EU pork anti-dumping investigation, significantly lowering tariff rates compared to the preliminary findings issued in September, following an 18-month investigation.

Under the final decision:

• The lowest tariff rate, applied to pork imports from Spain’s Litera Meat SL, was reduced from over 15 percent to below 5 percent;
• The highest rate, applied to several participating companies and all non-participating exporters, was cut from over 60 percent to 19.8 percent; and
• All participating Spanish-owned exporters reportedly received tariff rates below 10 percent.

Implications and broader context

The lower final tariffs suggest that while China and the EU failed to fully avert trade remedies through negotiations, dialogue has had a moderating effect on enforcement outcomes. High-end European pork products are expected to remain competitive, while price-sensitive segments may see reduced demand, potentially easing pressure on China’s domestic pig farming sector, which continues to face overcapacity and weak prices.

Taken together, these developments highlight a dual-track approach in China–EU trade relations: a tougher stance in politically sensitive sectors such as dairy, alongside more measured outcomes where sustained engagement has yielded compromise.

MOF releases Interpretation of Accounting Standards for Business Enterprises No. 19

China’s Ministry of Finance has issued the Notice on Issuing the Interpretation of Accounting Standards for Business Enterprises No. 19 (Cai Kuai [2025] No. 32). The new interpretation will take effect on January 1, 2026.

Interpretation No. 19 addresses several key accounting issues. Notably, it clarifies the accounting treatment of compensatory assets arising from business combinations not under common control. The interpretation specifies the principles for recognition, measurement, and derecognition of such assets by the acquirer, at both the consolidated financial statement level and the individual financial statement level.

In addition, the interpretation refines the accounting treatment of capital reserves related to the disposal of subsidiaries that were originally acquired through business combinations under common control. It explicitly stipulates that such capital reserves must not be transferred to profit or loss or retained earnings, reinforcing consistency in equity accounting treatment.

Enterprises involved in mergers and acquisitions, particularly those with complex group structures or historical common-control transactions, should assess the potential impact of Interpretation No. 19 on their accounting policies and financial reporting ahead of its 2026 implementation.

Other updates

Shanghai extends local education surcharge policy to 2030

Shanghai has extended the validity of its local education surcharge policy through December 31, 2030, following an evaluation of the existing framework. Entities and individuals paying VAT or consumption tax in Shanghai must continue to pay a local education surcharge equal to 2 percent of the actual VAT and consumption tax paid. The surcharge is collected by tax authorities and earmarked for education funding. Taxpayers should continue to comply with declaration and payment obligations during the 2021–2030 period.

Shanghai extends urban land use tax exemption for employers hiring persons with disabilities

Shanghai authorities have extended the urban land use tax exemption for qualifying employers that hire persons with disabilities through December 31, 2030. Enterprises that employ people with disabilities at a monthly average ratio of 25 percent or higher, with at least 10 employees, may continue to enjoy the exemption. The policy maintains the “self-assessment, declaration-based benefit, and document retention” approach to support stable expectations and promote inclusive employment.

China clarifies CIT treatment for transition to the new insurance contract standard

The MOF and STA have clarified the CIT treatment for enterprises transitioning to the new Insurance Contracts Accounting Standard, effective January 1, 2026. Enterprises may elect to recognize cumulative retained earnings impacts either in full in one year or spread evenly over five years, with the choice irrevocable. The policy also simplifies subsequent tax adjustments and repeals outdated tax rules related to insurance reserves, improving consistency between accounting and tax treatment.

Our tax advisory teams include experienced tax accountants, lawyers, and former tax officials who deliver deep insight into Asia’s tax environments—providing clients with comprehensive advisory and compliance support tailored to regional requirements. To arrange a consultation, please contact China@dezshira.com. 

• Previous Article China ESG Compliance: Year in Review and 2026 Outlook
• Next Article