China Monthly Tax Brief: May 2025

In this China Monthly Tax Brief for May 2025, we highlight key taxation developments for businesses. Among others, we introduce the State Taxation Administration’s rollout of a unified tax credit evaluation system with new repair mechanisms, expanded financing support policies for small businesses, and the nationwide adoption of electronic voucher accounting standards. We also unpack the recent incentives targeting foreign investors in Beijing. Finally, we present the latest updates on US–China tariff rollbacks, the conclusion of CAFTA 3.0 negotiations with ASEAN, preferential tax policies for the 2025 World Games in Chengdu, as well as key regulatory developments to streamline business relocation across provinces.

STA releases new taxpayer credit management measures with a formal credit repair mechanism

In May 2025, the State Taxation Administration (STA) issued the Administrative Measures for Taxpayer Credit Management (STA Announcement [2025] No. 12), marking a significant update to China’s tax compliance and enforcement framework. The new measures consolidate prior policies, introduce unified standards for taxpayer credit evaluations, and formally establish a credit repair mechanism. The measures will come into effect on July 1, 2025.

Broadened scope and unified evaluation standards

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The measures apply to all enterprise taxpayers that have completed tax registration and identity verification, including limited liability companies, joint stock companies, sole proprietorships, and partnerships. Individual industrial and commercial households and other taxpayer types may voluntarily opt into the system.

Taxpayer credit will be assessed annually across five levels—A, B, M, C, and D—based on a points-based system or direct determination in cases of serious non-compliance. Key features include:

• A-level status (≥90 points): Rewarded with access to administrative facilitation and inter-departmental incentives;
• D-level status (<40 points or serious infractions): Subject to penalties such as restricted invoice issuance and enhanced scrutiny.

Serious violations triggering immediate D-level classification include tax evasion exceeding 10 percent of the payable amount, issuance of fraudulent invoices, and absconding or going out of contact with tax authorities.

The evaluation draws on internal data, such as tax declarations, payments, and invoice usage, as well as external credit information from relevant authorities. Credit ratings are dynamically adjusted based on new findings, including retrospective downgrades for previously undetected violations.

Introduction of a formal credit repair mechanism

For the first time, the STA has introduced a standardized process for taxpayer credit restoration, aimed at encouraging timely correction of non-compliant behavior:

• Minor violations corrected within three days may be fully restored;
• Outstanding taxes may be offset based on the proportion of repayment;
• Continuous compliance for six months may result in a monthly recovery of one point, up to a cap of 11 points;
• D-level taxpayers may be eligible for upgrades after waiting periods of three, six, or 12 months, depending on the severity of the infraction; and
• Enterprises under court-approved restructuring may apply for special credit repair treatment.

Taxpayers may also raise objections to point deductions or rating outcomes by applying for review or reassessment.

Implications for businesses

The updated framework reflects China’s ongoing efforts to promote a more transparent and incentivized tax environment while strengthening enforcement. Businesses are advised to:

• Avoid serious violations that trigger direct downgrades, such as fraudulent invoicing or tax evasion;
• Monitor compliance proactively, including timely filing and payment of taxes, and accurate recordkeeping;
• Take advantage of credit incentives, particularly if holding A-level status, to benefit from streamlined administrative processes; and
• Pursue credit restoration where applicable, especially following isolated or rectified incidents of non-compliance.

These developments are expected to enhance trust in the tax system and align taxpayer behavior more closely with China’s evolving social credit and compliance regime.

Read more: China’s Taxpayer Credit Rating System: An Explainer

China expands financing support for small and micro enterprises

On May 19, 2025, the National Financial Regulatory Administration, together with seven other authorities, jointly released the Measures to Support Financing for Small and Micro Enterprises (Jin Fa [2025] No. 21). The initiative introduces a coordinated policy package aimed at addressing long-standing challenges in small business financing—such as access to credit, cost burdens, and inefficiency—while supporting broader goals of employment stability and livelihood protection.

Key recommendations for small business taxpayers

• Short-term: Review existing financing arrangements, compare loan products, and identify hidden fees to reduce cost. Consider applying for government guarantees or interest subsidies. Evaluate eligibility for ongoing tax incentives and maintain supporting documentation.
• Mid-term: Strengthen creditworthiness to position for equity financing. Eligible tech-driven firms should begin preparing for capital market access.
• Long-term: Aim to obtain designations such as “little giant” or “innovative SME” to enter the official support ecosystem. Develop deep banking relationships to access better credit terms and larger credit lines.

Promoting standardized electronic voucher accounting data: Advancing automation and digital compliance

On May 9, 2025, the Ministry of Finance and eight other departments jointly issued the Notice on Promoting the Application of Electronic Voucher Accounting Data Standards (Cai Kuai [2025] No. 9), marking the full-scale rollout of China’s electronic voucher standardization reform. The policy mandates the adoption of structured XML/XBRL data standards for seven categories of frequently used accounting vouchers, including digital invoices and fiscal electronic receipts. This move enables automation of the entire accounting process, from voucher receipt and verification to posting and archiving, enhancing accounting data authenticity while reducing paper-based management costs and supporting broader environmental, social, and governance (ESG) goals.

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Implementation varies by entity type. Large and medium-sized enterprises may directly acquire vouchers through system interfaces or on a fragmented basis and are encouraged to automate processing via Ministry-provided tools or in-house system upgrades. Government and public institutions may similarly adopt automated workflows, linking their systems with unified budget management platforms. For small and micro enterprises, processing can be delegated to standardized service platforms, lowering entry barriers.

To support adoption, the Ministry of Finance has released the Electronic Voucher Accounting Data Standard (Promotion Version) and an accompanying application guide, offering unified technical specifications for voucher generation, transmission, and integration. Enterprises are also provided with a base toolkit and 12 customizable free toolkits to reduce system upgrade costs. All relevant resources, including policy updates and technical FAQs, are available through the Accounting Informatization Construction section of the Ministry’s official website.

Although voluntary, adoption is strongly encouraged. Enterprises should assess their digital maturity and advance system upgrades accordingly, especially reimbursement and archiving systems, to align with the evolving regulatory framework, such as digital invoicing and Golden Tax Phase V.

All accounting software must complete compatibility upgrades by 2027. Early adoption will help businesses enhance compliance, cut administrative costs, and unlock new value from accounting digitization.

Read more: Accounting Digitalization in China 2025: Electronic Voucher Accounting Data Standards Promoted Nationwide

New Beijing foreign investment guide highlights preferential tax and customs policies

In May 2025, the Beijing Municipal Commerce Bureau and the Beijing Investment Promotion Service Center jointly released the Beijing Foreign Investment Guide (2024–2025) in both Chinese and English. The guide provides a comprehensive overview of the city’s investment environment, major projects, and policy incentives, offering practical direction for foreign investors.

The guide showcases Beijing’s significant progress in the construction of bonded zones. Notably, the Zhongguancun Comprehensive Bonded Zone has officially commenced operations with a focus on R&D and innovation and has pioneered smart supervision mechanisms. The Yizhuang Comprehensive Bonded Zone has also been approved and is set to become China’s first bonded zone centered on cultivating new quality productive forces. The Tianzhu Comprehensive Bonded Zone ranked second nationwide in the 2023 comprehensive performance evaluation, while the Daxing International Airport Comprehensive Bonded Zone saw a dramatic rise of 55 places in import-export value rankings—the largest leap in the country.

On the tax administration front, foreign-invested enterprises must ensure the authenticity and legality of their submitted materials. After completing the “One License, One Code” registration process, businesses must declare and pay taxes within prescribed timelines and content requirements. Tax payments can be automated via a tripartite agreement with the bank and tax authority to improve efficiency. For customs, simplified declarations (summary declarations) can be made to expedite cargo release, with full declarations submitted later.

Enterprises with strong credit records may benefit from consolidated tax collection, allowing “release before tax payment” for multiple import transactions and reducing customs clearance burdens.

Eligible foreign-invested enterprises may also access key tax incentives, including:

• Import duty exemptions for foreign-invested projects: Projects listed in the Catalogue of Industries Encouraged for Foreign Investment can enjoy import duty exemption on self-use equipment and related technologies, parts, and spare parts, excluding items on the negative list; and
• Preferential policies for R&D centers: Certified foreign-invested R&D centers may import qualified scientific research supplies that cannot be sourced domestically, exempt from import VAT and consumption tax.

These incentives, combined with Beijing’s expanding bonded zone network and improving tax and customs procedures, are designed to create a more predictable and supportive environment for foreign investment.

Other tax and trade developments in May 2025

Tariff easing between China and the US offers short-term relief

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Navigate Tariff Risks by Diversifying Your Supply Chain and Markets across Asia

Following high-level trade talks, both China and the United States (US) agreed to significantly reduce tariffs effective from 12:01 p.m. on May 14, 2025. The US canceled 91 percent of its additional tariffs on Chinese goods (original composite rate of 145 percent), suspended the 24 percent retaliatory measure, and retained only a 10 percent base tariff and a 20 percent fentanyl-related tariff. As a result, the overall composite rate was reduced to 30 percent. In a reciprocal move, China eliminated 91 percent of its countermeasures, also suspended its 24 percent tariffs, and lowered its composite rate from 125 percent to 10 percent.

This 90-day negotiation window has reduced the intensity of the tariff standoff and already led to a notable short-term surge in US-bound Chinese export orders. Businesses are advised to closely monitor the evolving negotiations and promptly adjust import-export strategies. Finance departments should update customs and tariff calculation modules, while procurement and logistics teams should assess supply chain resilience and explore substitution plans for tariff-sensitive goods to create additional cost-saving opportunities.

Read more: Breaking Down the US-China Trade Tariffs: What’s in Effect Now?

China–ASEAN Free Trade Area 3.0 agreement completed

China and the Association of Southeast Asian Nations (ASEAN) finalized negotiations for the China–ASEAN Free Trade Area (CAFTA) 3.0 on May 20, 2025, with formal signing expected by the end of the year. The upgraded agreement introduces nine new focus areas, including digital economy, green economy, and supply chain connectivity, reinforcing the region’s commitment to free trade and mutual economic integration.

As China and ASEAN remain each other’s largest trading partners, CAFTA 3.0 is seen as a strategic move to counterbalance uncertainties in China–US trade relations and foster a large, integrated Asia-Pacific market. Exporters are encouraged to prepare for the forthcoming tariff reduction lists and leverage the agreement’s supply chain coordination provisions to optimize ASEAN-based production layouts.

Tax incentives rolled out for Chengdu 2025 World Games

To support the organization of the 12th World Games in Chengdu, China’s Ministry of Finance, General Administration of Customs, and STA issued favorable tax policies (Cai Shui [2025] No. 15), effective January 1, 2025.

Key incentives include:

• VAT exemptions for the organizing committee’s broadcasting, sponsorship, ticket sales, promotional income, athlete accommodation services, and post-event asset disposals;

• Land appreciation tax exemptions for revenue obtained by the Executive Committee from the post-event transfer of assets；

• Stamp tax exemptions for business account books used by the Executive Committee, taxable contracts it signs, and ownership transfer documents related to donated property;

• Import duty relief for designated competition materials not produced domestically, including exemption from VAT and consumption tax at the import stage; and

• Temporary import treatment for special-use goods like sports and medical equipment, which are tax-exempt if re-exported post-event; taxes apply if retained in China.

These incentives aim to reduce event organization costs and encourage broader societal support for the Games.

Cross-region business migration reform reduces compliance burden

In May 2025, four central government departments, including the State Administration for Market Regulation (SAMR) and the STA jointly issued new guidance to streamline inter-regional business migration procedures. The reform merges business registration for entry, exit, and changes into a single application, eliminates the need for physical transfer letters, and mandates inter-agency data sharing across provinces by July 2025.

Key improvements include: a unified portal for migration services, real-time tax deregistration for enterprises with no outstanding matters, automated social security and housing fund updates, and nationwide digital certificate recognition. Once fully implemented, the system is expected to reduce migration-related administrative time by over 70 percent.

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