Other BriefingsKey Tax Enforcement Trends in 2026: What Foreign Companies in China Need to Know
As tax enforcement in China becomes more data-driven, companies in China face closer scrutiny of invoicing practices, export rebate claims, and preferential tax treatment. This article breaks down the key changes in China tax enforcement in 2026 and the practical steps foreign businesses can take to stay compliant.
China’s tax authorities have outlined a series of priority enforcement areas for 2026, including cracking down on invoicing fraud and fraudulent export tax rebates, tightening scrutiny of preferential treatment and rebate abuse, continuing to refine implementation of the VAT Law, and expanding oversight of digital platforms.
Below we outline some of the most important tax enforcement trends foreign companies must be aware of in 2026 and how companies can prepare.
Implementation of AI and big data in tax enforcement
Tax enforcement is moving away from periodic, sector-specific sweeps toward continuous monitoring, with this shift being powered by the implementation of digital technologies such as AI.
The Golden Tax System (GTS) – a digital network of tax authorities that controls VAT special invoices, monitors corporate VAT tax status, and ensures taxpayer compliance – is central to the digitisation of tax compliance in China. The use of AI now allows the GTS to instantaneously block high-risk invoices, such as those issued by shell companies with no real business activity, those showing mismatches between purchase and sales data, or those linked to entities already flagged in prior enforcement actions.
In addition to tax enforcement, big data will be harnessed to better allocate tax and fee support policies.
What it means for companies The use of AI and other digital technologies means that historical gaps between what a company reports and what its transaction, banking, customs, or platform data shows are far more likely to surface automatically and quickly than in past years. This will bring both efficiencies and challenges for business: while faster, automated processing may streamline routine filings and refunds, it also means discrepancies are more likely to be flagged. For this reason, periodic self-review may no longer be sufficient, and internal financial information and documentation must hold up to continuous and automated scrutiny.
Crackdown on fraudulent tax practices
A top priority in 2026 and beyond for China’s tax authorities is cracking down on several common fraudulent tax practices, including the issuance of fake or misleading invoices, fraudulently collecting export tax rebates, and fraudulently accessing tax benefits.
Abuse of invoices and issuance of false invoices
Misuse of invoices, such as setting up shell companies exclusively to issue invoices for fees without any underlying real business activity, artificially inflating sales to attract financing, or issuing false invoices to help other parties evade taxes, has been a persistent challenge for China’s tax authorities.
In 2026, the tax authorities have vowed to clamp down on this “invoice-based economy”, as it has come to be known.
The campaign has initially focused on six industries that are rife with this type of abuse – waste resource utilisation, renewable materials recycling, mineral products wholesale, building materials and chemical products, organisational management services, IT consulting services, and road freight services – with great effect, but it is likely to expand to the whole economy.
The efforts will focus on improving risk detection, concentrating checks on the highest-risk regions, industries, and companies flagged by risk scanning, and cross-agency collaboration to coordinate joint penalties and close the loopholes that allow the practices to persist.
What it means for companies Even companies that do not engage in these fraudulent practices may be impacted by the campaign to root out invoice fraud. Higher levels of scrutiny mean that invoices from suppliers, contractors, or business partners may be more closely checked for authenticity. Companies operating in the six targeted industries in particular should ensure their transaction records, contracts, and invoices reflect real, verifiable business activity to avoid being targeted for investigations.
Fraudulently obtaining export tax rebates
In a national tax meeting held in January 2026, authorities called for “severely punishing activities such as [….] fraudulently obtaining export tax refund”.
China’s export tax rebate policy allows companies that have incurred VAT by producing goods in China to get a rebate of the VAT when the goods are exported out of China. However, some companies have taken advantage of this policy by issuing fraudulent VAT invoices to claim export tax rebates, leading to over RMB 10 billion (US$1.4 billion) in fraudulently issued rebates in 2025, according to the State Tax Administration (STA).
These illegal activities are being pursued through a joint mechanism spanning tax, police, customs, and banking authorities, targeting so-called “triple-fake” schemes (fake companies, fake exports, fake customs declarations) as well as falsified logistics, payment, or valuation records. Enforcement will involve checking the consistency of customs declarations, logistics documentation, payment flows, and invoices, with any mismatches in documentation potentially getting flagged.
What it means for companies Exporters should ensure that customs declarations, logistics records, payment flows, and invoices are fully consistent and well-documented before filing a rebate claim, as any discrepancy across these data points is now more likely to trigger scrutiny or delay the refund process. Because the crackdown specifically targets fake companies and shell entities within export chains, this also means conducting upstream due diligence, verifying that suppliers and trading partners are genuinely operating businesses, confirming that goods and payments match documented flows, and being cautious with counterparties whose pricing or transaction patterns look inconsistent with real trade activity.
Fraudulent claiming of tax benefits
The tax authorities have also indicated that they will tighten scrutiny of eligibility for preferential tax treatment and other tax benefits, which could increase the compliance burden for companies claiming these benefits.
China’s tax benefits include VAT rebates, a super deduction of R&D expenses, a reduced 15 percent corporate income tax (CIT) rate for companies in encouraged industries based in certain development zones, and preferential CIT treatment for small and low-profit enterprises, among others.
Some companies have fraudulently taken advantage of these benefits by making fraudulent claims, such as misleadingly characterising their business activity as falling within an encouraged industry (“fake high-tech”) or reporting non-qualifying costs as R&D expenses (“pseudo-R&D”), among other tactics.
The tax authorities have signalled they will step up scrutiny of these practices going forward, focusing enforcement on benefits with large deduction or exemption amounts, fast-growing claim volumes, and high fraud risk, and building out a standing risk-scanning and early-warning mechanism to flag suspect claims before they’re approved rather than only after the fact.
What it means for companies Companies that are legitimately eligible for preferential tax treatment should not be unduly concerned by this heightened scrutiny, as the tightened enforcement is aimed at fraudulent claims, not compliant ones. That said, legitimate claimants should be prepared to substantiate their eligibility on request, particularly where benefits depend on classification (such as SME or high-tech enterprise status). This means keeping documentation such as scope of business, R&D project records, and headcount and payroll data current and readily available, rather than assembling it retroactively once a query arrives.
VAT Law implementation
Since China’s VAT Law took effect on 1 January 2026, along with its implementing regulations, the tax authorities have stated that they will continue to work on service-oriented improvements to its implementation.
The implementation of the law has already seen improvements by simplifying the tax system and reducing taxpayers’ institutional transaction costs. Further enhancements will focus on refining filing systems, improving the export rebate self-check function to streamline refund processing, and continuing to track implementation issues raised by taxpayers.
The implementation of the VAT Law also has consequences for the claiming of the preferential tax treatment mentioned above.
Before the law took effect, VAT was levied under administrative regulations rather than a nationwide formal law, and many preferential policies had accumulated piecemeal over the years through separate notices and circulars. With the VAT Law now in effect, tax authorities have had to consolidate these into a single statutory framework, and this transition is being used as an opportunity to re-check eligibility for preferential treatment more broadly than routine audits would normally cover.
What it means for companies Foreign-invested enterprises claiming VAT-related benefits (export rebates, credit refunds) should find the filing and refund experience itself becoming smoother over time, even as eligibility for the underlying preferential treatment faces the broader scrutiny outlined above.
Tightening tax enforcement of digital platforms
Small merchants and companies selling through e-commerce platforms will face more scrutiny over their tax liabilities as the Regulations on Tax Information Reporting by Internet Platform Enterprises, which took effect in June 2025, begin to bear fruit.
The regulations require internet platforms to report tax-related information of their merchant users every quarter, starting from October 2025. According to the STA, in the first quarter of 2026, roughly 8,200 domestic and foreign platforms, including major cross-border platforms, have submitted merchant identity and revenue data. The STA has also reported that this has already had the intended effect, with many merchants bringing their tax filings in line with the reported data, narrowing the historical tax-burden gap between online and offline sellers.
Going forward, the tax authority has committed to refining tax policies related to the platform economy, tightening verification of the accuracy of data submitted by the platforms, sending compliance reminders to under-reporting merchants (with formal enforcement for those who don’t take action to comply), and publicising additional enforcement cases.
What it means for companies Any foreign company or individual selling through Chinese or China-facing e-commerce platforms, or through cross-border platforms serving Chinese sellers (such as Amazon, TikTok Shop, AliExpress, and Temu), should assume that their identity and transaction data is already visible to tax authorities, whether the platform is onshore or offshore. Sellers should proactively reconcile their own tax filings against what platforms are reporting on their behalf, rather than waiting for a mismatch to surface. The STA has indicated enforcement currently proceeds through compliance reminders in the first instance, with formal action reserved for those who don’t correct after being flagged. Sellers relying on wholesale or supply-chain purchases made without formal invoicing (for example, sourcing through platforms like 1688) should also be aware that non-compliant upstream suppliers getting flagged could expose their own unbilled purchase history in the process.
Stay compliant – get expert help
As China’s tax authorities move toward more data-driven, continuous enforcement, staying compliant calls for a proactive, well-documented approach across invoicing, export rebates, preferential tax claims, and platform-based sales.
Dezan Shira & Associates‘ China tax advisory team can help businesses assess their exposure under these evolving enforcement priorities, review and strengthen supporting documentation for tax incentive claims, and build internal processes that hold up to real-time scrutiny. Get in touch with our team to discuss your company’s specific compliance needs.
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.
About Us
China Briefing is one of five regional Asia Briefing publications. It is supported by Dezan Shira & Associates, a pan-Asia, multi-disciplinary professional services firm that assists foreign investors throughout Asia, including through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Haikou, Zhongshan, Shenzhen, and Hong Kong in China. Dezan Shira & Associates also maintains offices or has alliance partners assisting foreign investors in Vietnam, Indonesia, Singapore, India, Malaysia, Mongolia, Dubai (UAE), Japan, South Korea, Nepal, The Philippines, Sri Lanka, Thailand, Italy, Germany, Bangladesh, Australia, United States, and United Kingdom and Ireland.
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