China Monthly Tax Brief: August 2025

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

• This month’s tax updates feature major refinements to the VAT rebate system, including clearer eligibility conditions, practical filing guidance, and integration with export tax rebates.
• New rules also define VAT treatment for courier services and online freight platforms, extend Hainan Free Trade Port’s preferential CIT policies with detailed “substantive operation” standards, and confirm the entry into force of updated tax treaties with Brazil and Cameroon.
• We also cover the childcare subsidy IIT exemption, VAT resumption on newly issued bonds, and customs guidance on Hainan’s zero-tariff goods.

MOF and STA released the refined VAT rebate policy on uncredited input tax

On August 22, 2025, the Ministry of Finance (MOF) and the State Taxation Administration (STA) jointly issued Announcement No. 7, which systematically refines and consolidates the Value-added tax (VAT) end-of-period uncredited input tax rebate policy. Building on earlier industry-specific refund measures, the new rules reduce eligibility for some industries but streamline implementation.

Also read: China VAT Rebate Policy Updates Effective September 2025: Key Changes and Impacts

Differentiated VAT rebate policy by sector

General eligibility criteria

Regardless of industry classification, taxpayers applying for VAT input credit refunds must satisfy the following conditions:

1. Hold a tax credit rating of Grade A or B;
2. Have no record of fraudulent claims for input VAT refunds, export tax refunds, or issuance of false VAT invoices in the 36 months prior to the application;
3. Have not been penalized by tax authorities two or more times for tax evasion within the 36 months prior to the application; and
4. Since April 1, 2019, have not benefited from VAT “levy and refund,” or “levy first, refund later” policies, unless otherwise stipulated.

Practical considerations

1. Eligibility depends on whether sales revenue from the relevant business activities in the 12 months (or actual operating period) prior to the application accounts for more than 50 percent of total revenue;
2. Taxpayers who have already claimed input VAT refunds may not also apply for “levy and refund” policies, and vice versa. Switching requires full repayment of refunded amounts, after which a new application cannot be made within 36 months;
3. For coordination with export tax refunds: taxpayers subject to the exemption–credit–refund system must first complete the export refund procedure, and only then may apply for input VAT refunds if they still meet the requirements; and
4. Once a refund application is approved, taxpayers who later meet the criteria again may reapply, but previously calculated periods cannot be counted twice.

Key tax administration measures and operational guidelines

To ensure smooth implementation of the new VAT input credit refund rules, the STA issued Announcement No. 20, setting out detailed administrative requirements and procedures.

Summary and recommendations

The latest announcement represents a systematic consolidation of the VAT input credit refund policy, unifying calculation rules and providing clearer guidance for industries with mixed business activities, such as real estate.

Recommended actions for enterprises:

1. Conduct self-checks: Review industry classification, tax credit rating, and changes in input VAT balances to determine which refund rules apply;
2. Evaluate policy choices: Carefully weigh the benefits of input VAT refunds versus “levy-and-refund” arrangements, noting that once selected, the choice is locked in for 36 months; and
3. Prepare ahead: Ensure accurate and compliant data in advance of the September 2025 filing period to avoid delays in refund applications.

Clarification on VAT rules for express delivery and online freight services

In August 2025, the MOF and the STA jointly issued Announcement No. 5, which clarifies the VAT treatment of express delivery and online freight services. The policy provides unified guidance on tax categories and input VAT deductions, addressing the ambiguities often encountered in practice.

VAT category for express delivery services

Revenue from express delivery services must be taxed under the category “Sale of services – Logistics auxiliary services – Pickup and delivery services,” at a VAT rate of six percent for general taxpayers.

“Express enterprises” are those legally licensed to operate courier services in China, including registered branches and terminal outlets; “Express services” cover the full chain of receipt, sorting, transportation, and delivery within the committed timeframe.

The announcement resolves prior inconsistencies where some enterprises split services into different VAT categories (for example, “pickup and delivery” vs. “transportation”) and clarifies the distinction between full-process express services (subject to a six percent VAT rate) and single transport services (taxed under transportation).

Input VAT deductions for online freight platforms

Qualified online freight operators may deduct input VAT on vehicle fuels (oil, natural gas, electricity) and toll fees purchased and provided to actual carriers, if:

• The expenses are directly linked to transportation services performed by entrusted carriers; and
• Valid VAT deduction certificates are obtained in compliance with laws and regulations.

Online freight operation refers to taxpayers contracting shippers as carriers and assuming carrier liability, while delegating the actual transport to third-party carriers. Platforms that merely act as information intermediaries or matchmakers without assuming carrier liability cannot apply this deduction.

Takeaway

These clarifications provide greater certainty for logistics and platform-based transport operators. Express firms must ensure accurate VAT categorization of services, while online freight platforms should review qualification status and invoicing practices to fully benefit from input VAT deductions.

Extension of CIT preferential policies in Hainan FTP

To further support the construction of the Hainan Free Trade Port (FTP), the STA has announced the extension of several corporate income tax (CIT) preferential policies until the end of 2027. The extension, formalized under Announcement No. 2, maintains the preferential strength of earlier policies (Caishui [2025] No. 3), while providing detailed operational standards for determining “substantive operations”, a prerequisite for enjoying the benefits. This framework ensures both accurate targeting of tax incentives and strengthened risk prevention.

Key preferential policies

Defining substantive operations

A major highlight of the 2025 policy renewal is the quantified and clear criteria for substantive operations, which require that business, personnel, accounting, and assets are all located in the FTP:

• Business in FTP: Fixed premises and facilities in Hainan, main business activities or management center based in FTP, and contracts signed in the company’s name.
• Personnel in FTP: Employees must actually work and be paid via FTP bank accounts. Minimum residency thresholds (≥183 days per year) apply:
  • Fewer than 10 employees: At least 3 based in FTP;
  • 10–99 employees: At least 30 percent based in FTP; and
  • 100 or more employees: At least 30 employees based in FTP.
• Accounting in FTP: Accounting records stored in Hainan; primary bank and settlement accounts opened in Hainan.
• Assets in FTP: Assets used must be in Hainan and aligned with business needs.

Enterprises must self-assess and submit the Substantive Operations Self-Assessment Commitment Form with their annual CIT filing, subject to post-filing verification by tax authorities.

Practical implications and risk control

Companies should benchmark against the “four-in-one” criteria, especially employee presence days, and identify gaps. In addition, we suggest businesses eyeing on Hainan opportunities pay attention to:

• Internal systems: Strengthen contracts, payroll, attendance, accounting, and asset documentation to ensure full traceability.
• Risk monitoring: Tax authorities, together with finance and market regulators, will conduct full audits of new applicants and spot checks on existing enterprises.
• Compliance readiness: Enterprises should retain complete supporting materials and prepare for potential inspections before claiming incentives.

The extension provides continued tax certainty for encouraged industries in the FTP, but the tightened and quantifiable substantive operations standards raise the compliance bar. Companies must treat this as both an opportunity and a compliance challenge.

Also read: Hainan Free Trade Port: Tax, Customs, and Industry Incentives for Foreign Investors

Implementation reminders on the China-Brazil Protocol and China-Cameroon DTA

On August 11, 2025, the STA released Announcement [2025] No. 19, clarifying the effective dates of two key tax treaties:

• The China-Cameroon Agreement on the Elimination of Double Taxation and Prevention of Tax Evasion (China-Cameroon Treaty) entered into force on July 26, 2025, and applies to income derived on or after January 1, 2026.
• The Protocol to the 1991 China-Brazil Double Taxation Agreement (China-Brazil Protocol) entered into force on June 14, 2025, and applies to withholding taxes from January 1, 2026, and other taxes levied in tax years beginning on or after that date.

Key provisions at a glance

Implications for taxpayers

Find Business Support

The China-Cameroon Treaty lowers withholding tax rates, clarifies taxing rights, and introduces strong anti-abuse measures such as the PPT and anti-contract-splitting provisions, giving businesses greater tax certainty.

The China-Brazil Protocol modernizes the 1991 treaty by both reducing withholding tax rates (on dividends, interest, royalties) and strengthening anti-avoidance measures (extended PE rules, PPT, treaty shopping restrictions). It also expands exemptions for governments and certain financial institutions.

Takeaway

Enterprises with cross-border transactions involving Cameroon and Brazil should reassess their existing structures, confirm eligibility for treaty benefits under the new anti-abuse provisions, and update their compliance documentation well before the January 2026 application date.

Also read: China’s Double Taxation Avoidance Agreements

Other tax updates in August 2025

Additional VAT deduction for industrial mother machine enterprises

The Ministry of Industry and Information Technology (MIIT), MOF, and STA jointly issued a notice to organize the 2025 list of enterprises eligible for the additional VAT deduction policy:

• Application deadline: Qualified enterprises must submit applications and supporting documents via the designated reporting system by August 31, 2025.
• Preliminary review: Local MIIT departments will complete initial review and recommendation by September 15, 2025.
• Final approval: The three ministries will jointly review and publish the final list, with results available to enterprises from October 31, 2025 onward.
• Effective period: Enterprises included in the list will enjoy the additional VAT deduction retroactively from January 1, 2025.

IIT exemption for childcare subsidies

On August 18, 2025, the MOF and STA issued Announcement [2025] No. 6, confirming that childcare subsidies granted under the Implementation Plan of the Childcare Subsidy System are exempt from individual income tax (IIT).

• Coverage: Families with eligible children under three years old.
• Standard subsidy: Currently set at RMB 3,600 (US$497) per child per year.
• Tax handling: IIT exemption procedures will be completed by county-level health authorities at the time of subsidy distribution.
• Retroactive effect: The policy applies from January 1, 2025.

Also read: China Launches First-Ever National Childcare Subsidy: What You Must Know

Resumption of VAT on interest from new government and financial bonds

The MOF and STA issued Announcement [2025] No. 4, specifying that from August 8, 2025, interest income from newly issued government bonds, local government bonds, and financial bonds will again be subject to VAT. Bonds issued before this date (including subsequent re-issuances of the same series) remain exempt from VAT until maturity.

Customs clarification on Hainan FTP “zero-tariff” goods

On August 29, 2025, the General Administration of Customs released implementation guidelines for the tax administration of zero-tariff goods in Hainan FTP.
Key measures include:

• Transit import allowed: Zero-tariff goods may be imported through bonded transfer.
• Qualification withdrawal: If beneficiaries voluntarily give up their qualification, they are barred from reapplying for the same goods within 12 months.
• Supplementary tax rules: Beneficiaries are responsible for making up taxes; mechanisms are in place to avoid double taxation.
• Regulatory period: Vehicles, equipment, and other goods are subject to supervision over a specified period.
• Valuation method: Based on transaction price, with depreciation calculated by time proportion. Applicable tax rate and exchange rate are those on the tax payment date, and no deferred tax interest is charged.