China Clarifies VAT Threshold Under New VAT Law

China’s updated VAT threshold affects how natural persons and small‑scale taxpayers are taxed under the 2026 VAT Law. This article explains the monthly, quarterly, and per‑transaction thresholds, aggregation rules, administrative requirements, and the implications for foreign‑invested enterprises managing suppliers, contracts, and VAT creditability. 

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China’s Ministry of Finance (MOF) and the State Taxation Administration (STA) have accelerated policy releases to support the implementation of the new Value-Added Tax (VAT) Law and its Implementation Regulations, which officially took effect on January 1, 2026. As the VAT Law represents the most significant reform to China’s indirect tax rules in years, the authorities’ priority is to ensure continuity, clarify operational matters, and resolve remaining gaps between old regulations and the new statutory framework.

On January 30, 2026, among others, two important announcements were issued:

• MOF/STA Announcement [2026] No. 10, the first provision of which sets the rules for VAT thresholds; and
• STA Announcement [2026] No. 4, which provides detailed administrative guidance for natural persons and small‑scale taxpayers, including when and how to apply thresholds, how to determine aggregated sales, and how declarations are processed.

For FIEs, these clarifications are highly relevant. Many foreign businesses engage natural-person service providers, landlords, gig workers on digital platforms, and small-scale contractors. Understanding how VAT thresholds apply, especially when suppliers may be exempt from VAT or may opt to waive exemption, directly impacts invoice issuance, cost management, and tax credit recovery.

New VAT threshold standards: 2026-2027

From January 1, 2026 to December 31, 2027, the VAT threshold standards for small‑scale taxpayers conducting taxable transactions are as follows:

• For taxpayers using a monthly tax period, the threshold is RMB 100,000 in monthly sales.
• For taxpayers using a quarterly tax period, the threshold is RMB 300,000 in quarterly sales.
• For taxpayers taxed on a per‑transaction (per‑day) basis, the threshold is RMB 1,000 in sales per transaction (per day).
• If multiple taxable transactions occur within the same day, the threshold is applied on a daily basis.

What changed

The monthly and quarterly VAT thresholds remain unchanged from the previous policy: RMB 100,000 (approximately US$14,400) for monthly filers and RMB 300,000 (approximately US$43,200) for quarterly filers.

The key change lies in the per‑transaction threshold for natural persons and other taxpayers subject to per‑occurrence taxation. Starting in 2026, the per‑transaction (per‑day) VAT threshold is increased from RMB 500 (approximately US$72) to RMB 1,000 (approximately US$144), effectively doubling the exemption level.

This adjustment reduces the VAT burden for individuals engaged in occasional or small‑value transactions and further simplifies administration for both taxpayers and tax authorities.

How “eligible sales” are calculated

When determining whether a small‑scale taxpayer meets the VAT threshold, the calculation must be based on the net sales amount after deducting any relevant charges, as required under the VAT rules. In other words, if the law allows certain amounts to be subtracted from the tax‑inclusive sales figure, the resulting VAT‑exclusive net amount is what counts toward the threshold.

For natural persons falling under the mandated circumstances where they must apply the monthly threshold, all taxable transactions occurring within the same month must be combined and evaluated against the monthly threshold of RMB 100,000 (approximately US$14,400). These individuals cannot split their income in order to apply the per‑transaction threshold, nor may they choose the quarterly threshold of RMB 300,000 (approximately US$43,200). This consolidated approach ensures consistent treatment for activities that function more like ongoing business operations and helps prevent taxpayers from artificially dividing income to stay below multiple thresholds.

When natural persons must apply the monthly threshold

Although natural persons typically fall under the per‑transaction threshold system, the tax authorities recognize that certain kinds of activities resemble ongoing businesses rather than incidental, ad hoc sales. For these scenarios, treating each transaction independently could lead to inconsistent tax burdens and opportunities for artificial splitting of revenue. To address this, the STA mandates monthly aggregation for six categories of natural‑person taxable activities.

In the following situations, a natural person must calculate their VAT exposure based on total monthly taxable sales and apply the RMB 100,000 (approximately US$14,400) monthly threshold, not the RMB 1,000 (approximately US$144) per‑transaction threshold:

1. Interest on newly issued government, local, or financial bonds (issued on or after August 8, 2025): Lump‑sum interest must be amortized to monthly income.
2. Rental income from leasing immovable property: Where rent is paid annually or upfront, it must be evenly allocated across months.
3. Income earned through Internet platform enterprises where the platform handles proxy declaration or withholding.
4. Sales of scrap products using the “reverse invoicing” mechanism, where a recycling enterprise handles proxy filing.
5. Insurance agent services, and similar activities for securities brokers, credit card agents, and travel industry agents.
6. Any additional categories designated by the STA.

The rationale is two‑fold:

• Administrative efficiency: Activities with stable or recurring characteristics should follow period-based assessment.
• Tax fairness: Without aggregation, individuals could intentionally split or sequence income to remain under the per‑transaction threshold.

When natural persons may use the per‑transaction threshold

Outside of the six “continuous business” categories, China retains the per‑transaction system to avoid imposing disproportionate compliance burdens on individuals with occasional or low‑value sales. This system is designed to reduce paperwork, improve tax collection efficiency, and ensure that natural persons are not discouraged from occasional commercial activity.

If a natural person’s activity does NOT fall into the six special circumstances, the RMB 1,000 (approximately US$144) per‑transaction/day rule applies.

VAT can be declared through any of the following administrative procedures, which have been streamlined significantly:

• Applying for a tax‑bureau-issued invoice (on behalf of the taxpayer): VAT collected at issuance is deemed declared by the individual.
• Withholding by a withholding agent: When the payer is obligated to withhold VAT, the withholding event is deemed a declaration by the individual.
• Self-declaration: Only for taxable transactions not yet taxed or withheld; the deadline is June 30 of the following year, offering a long grace period.

Can small‑scale taxpayers waive VAT exemptions?

Yes. The ability to waive VAT exemptions is a key operational issue for FIEs because input VAT creditability depends on whether the supplier issues a special VAT invoice. Small-scale taxpayers below the threshold or eligible for reduced rates often prefer an exemption to reduce their tax burden, but businesses purchasing from them may prefer that they opt out to maintain input VAT chains.

According to STA Announcement No. 4:

• A small-scale taxpayer whose sales fall below the VAT threshold may choose to waive the exemption, in whole or in part, and issue special VAT invoices.
• A small-scale taxpayer eligible for the 1 percent reduced levy rate may choose to waive the reduction, in whole or in part, and issue special VAT invoices.

Case studies

The case studies below illustrate how different categories of natural‑person income interact with threshold rules. These examples are useful for finance teams evaluating whether VAT should be charged and whether transactions with individuals create withholding or invoicing obligations.

Case 1: Property rental + consulting income

Scenario: Mr. A receives:

• One‑time annual rental payment of RMB 120,000 (Hereinafter, VAT excluded, allocated monthly: RMB 10,000)
• Consulting income of RMB 10,000 in January

Because property rental falls under the monthly aggregation category, January taxable sales = Allocated monthly rental + consulting income =RMB 20,000.

Result: Below the RMB 100,000 threshold → VAT exempt for January.

This shows that even a relatively large lump‑sum income may remain exempt after the monthly allocation.

Case 2: Platform income + consulting + rental allocation

In March 2026, Mr. A receives:

• RMB 90,000 design service income via an Internet platform (platform handles VAT proxy filing)
• RMB 500 consulting income
• Allocated rental income for March: RMB 10,000

Because both platform income and rental income require monthly aggregation, Mr. A must aggregate all taxable income for the month. Total March taxable sales = Design service income + consulting income + allocated rental income = RMB 100,500 → exceeds the RMB 100,000 threshold.

He cannot split the income to apply a mix of per‑transaction and monthly thresholds.

This demonstrates how crossing the threshold in one category pulls all other taxable income into the VAT base for that month.

Key Takeaways for FIEs

Given the range of threshold rules, aggregation requirements, and administrative arrangements under the new VAT framework, FIEs should review how these changes influence their day‑to‑day dealings with natural-person suppliers and small-scale taxpayers. The updated system may affect whether VAT is charged, whether special VAT invoices are available, and whether the enterprise itself has withholding obligations. As these factors directly impact cost management, compliance processes, and the ability to claim input VAT credits, FIEs will benefit from proactively assessing their supplier base and adjusting internal procedures accordingly.

To be more specific:

• Supplier management: Many individual suppliers may be exempt from VAT, affecting invoice availability and cost recovery.
• Contractual clarity: FIEs should pre‑agree with suppliers whether suppliers will waive the exemption to issue special VAT invoices.
• Withholding obligations: Where withholding applies (e.g., platform transactions, agent activities), FIEs must verify whether they are the responsible agent.
• Budgeting and planning: Small or occasional payments may trigger VAT depending on aggregation rules; finance teams should understand each category.

It is also important to note that the 2026-2027 threshold arrangement is explicitly transitional, and policymakers may refine or adjust the system once the VAT Law is fully embedded in practice. Subscribe to our newsletter to stay up to date.

Tax planning and compliance in Asia can be complex and fast-changing—especially in emerging markets. 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, don’t hesitate to get in touch with China@dezshira.com.

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