Editor’s Note:The Administrative Measures for the Withholding and Remittance of Value-Added Tax by Domestic Entities on Behalf of Natural Persons will take effect on November 1, 2026, further clarifying the VAT withholding rules applicable to domestic entities purchasing seven categories of services from natural persons. In fulfilling their withholding obligations, domestic entities should pay particular attention to the scope of covered transactions, tax filing requirements, and other relevant matters. This article outlines the key provisions of the new rules, examines the principal issues withholding agents should consider in applying them, and offers recommendations for tax compliance.

01 Further Clarification of VAT Withholding Rules for Natural Persons

Article 35 of the Implementing Regulations of the Value-Added Tax Law provides that, where a natural person carries out a taxable transaction meeting the prescribed conditions, the domestic entity paying the consideration shall act as the withholding agent. The specific procedures for withholding and remittance shall be formulated by the finance and tax authorities under the State Council. Accordingly, on September 3, 2026, the Ministry of Finance (MOF) and the State Taxation Administration (STA) jointly issued the Announcement on the Issuance of the Administrative Measures for the Withholding and Remittance of Value-Added Tax by Domestic Entities on Behalf of Natural Persons (the “Measures”) (MOF and STA Announcement No. 28 of 2026). The Measures will take effect on November 1, 2026. The STA also issued the accompanying Announcement on Tax Filing Matters Concerning the Withholding and Remittance of Value-Added Tax by Domestic Entities on Behalf of Natural Persons (STA Announcement No. 19 of 2026), setting out the relevant tax return forms, supplementary schedules, and completion instructions. This announcement will take effect on the same date as the Measures.

This arrangement draws on the informational advantages of domestic entities as purchasers of services to improve the efficiency of VAT administration for natural persons. Natural persons providing services are widely dispersed, and some transactions occur only occasionally, making it difficult for tax authorities to obtain comprehensive transaction information under a self-filing system. Domestic entities, by contrast, generally have access to contracts, details of the services provided, and settlement and payment information. Requiring them to withhold and remit VAT at the time of payment links tax collection to transaction settlement, helping to lower tax administration costs, reduce filing omissions, and prevent tax revenue losses.

The Measures further clarify the tax compliance arrangements and the respective rights and obligations of both parties to a transaction. For natural persons carrying out taxable transactions meeting the prescribed conditions, VAT withholding and remittance by domestic entities in accordance with the rules can reduce their self-filing requirements and ease their tax compliance burden. Where VAT has already been withheld and remitted as required, natural persons need not pay VAT again when applying to the tax authorities for invoices to be issued on their behalf. During the withholding process, natural persons must provide truthful information. Those eligible for preferential VAT treatment must inform the withholding agent and provide truthful supporting materials, cooperating with the agent in fulfilling its statutory withholding obligations. Natural persons are also entitled to request information from the withholding agent on tax withheld and remitted, withholding return records, and other relevant matters, and to request corrections to reported information that does not reflect the actual circumstances. Their identity information and supporting materials for preferential tax treatment are subject to confidentiality protections under the law.

For withholding agents, the Measures provide more detailed operational rules and establish corresponding tax management requirements. Although existing individual income tax withholding procedures for the relevant transactions may provide an operational foundation, domestic entities must still refine their processes for identifying covered transactions, verifying information, filing withholding returns, and managing records in line with VAT withholding requirements. They must also allocate appropriate management resources to mitigate tax risks that may arise in fulfilling their withholding obligations.

 

02 Key Provisions of the Measures and Practical Considerations for Their Application

(1) Scope of Application: Parties to the Transaction, Service Categories, and Scope of Consideration

Article 1 of the Measures defines their scope of application by reference to three elements: the service provider, the type of transaction, and the purchaser. Where a domestic natural person provides any of seven categories of services—research and development services, software services, design services, consulting services, radio, film and television program (work) production services, cultural services, or educational services—the domestic entity purchasing the services in the taxable transaction must fulfill its VAT withholding and remittance obligations in accordance with the rules.

As regards the parties to the transaction, eligible service providers are limited to domestic natural persons, excluding individual industrial and commercial households, entities, and overseas natural persons. Taxable transactions carried out within China by overseas natural persons are subject to tax administration under Article 15 of the Value-Added Tax Law and other relevant provisions. Withholding agents are limited to domestic entities acting as purchasers in taxable transactions. Under Article 3 of the Implementing Regulations of the Value-Added Tax Law, “entities” include enterprises, administrative organs, public institutions, military units, social organizations, and other entities. Accordingly, withholding agents are not limited to enterprises. The party responsible for withholding cannot be identified solely by reference to who actually transfers the funds; whether that party is the purchaser in the transaction must also be considered.

As regards transaction types, the specific scope of each of the seven service categories should be determined in accordance with the relevant explanatory notes. Annex 2, Explanatory Notes on the Sale of Services, Intangible Assets, and Immovable Property, to the Announcement of the Ministry of Finance and the State Taxation Administration on Matters Concerning the Specific Scope of VAT Taxation (MOF and STA Announcement No. 9 of 2026) defines the nature and scope of each of these services. All seven categories fall within “production and livelihood services.” In applying the rules, domestic entities should classify services by reference to the substance of the transaction and the relevant explanatory notes, rather than relying solely on the contract title, payment description, or the industry in which the purchaser operates.

As regards the scope of consideration, both monetary and non-monetary consideration are included. The third paragraph of Article 1 of the Measures specifies that consideration encompasses the full value of economic benefits in monetary and non-monetary forms. Under Article 19 of the Value-Added Tax Law, where the sales amount takes a non-monetary form, it must be determined by reference to market prices. Accordingly, where consideration for services is paid in non-monetary forms, such as assets in kind or rights and interests, both parties must determine the taxable amount in accordance with the law. They should also verify whether the agreed valuation is consistent with market prices, taking into account the timing of the transaction, comparable subject matter, and comparable transaction terms, and retain the relevant pricing documentation for inspection.

(2) Exclusion: Transactions Covered by Qualifying Tax Filing Arrangements through Internet Platforms Fall Outside the Measures

Article 14 of the Measures provides that the Measures do not apply where natural persons working through internet platforms carry out taxable transactions within the seven service categories through such platforms, the transactions meet the relevant requirements for tax filing on their behalf, and the platform enterprises file VAT returns on their behalf in accordance with the rules. This arrangement coordinates two methods of tax administration: withholding and remittance by domestic entities and tax filing by platform enterprises on behalf of natural persons. This exclusion from the scope of the Measures should be distinguished from circumstances in which no tax needs to be withheld but filing is still required, such as where the natural person has already paid the tax or the transaction is exempt from VAT.

(3) Principal Obligations of Withholding Agents

1. Withhold and Remit Tax in Accordance with the Rules

Under Articles 3 and 4 of the Measures, where a natural person carries out qualifying taxable transactions with a single withholding agent, the sales amount per transaction (or per day) reaches the threshold applicable to taxation on a per-transaction basis, and no circumstances apply that remove the need to withhold tax, such as a tax exemption or prior payment of the tax, the withholding agent must withhold VAT when paying the consideration and concurrently withhold the applicable surtaxes and surcharges in accordance with the rules. Under the current policy, from January 1, 2026 to December 31, 2027, the threshold for taxation on a per-transaction basis is RMB 1,000 in sales per transaction (or per day). Where multiple taxable transactions occur within a single day, the threshold applies on a daily basis. Whether the threshold is reached is determined by reference to the VAT-exclusive sales amount calculated in accordance with the rules. Where the natural person has already paid the tax on the relevant transaction, the domestic entity need not withhold VAT again.

With respect to tax calculation, Articles 2 and 9 of the Measures require withholding agents to calculate the VAT to be withheld by multiplying the VAT-exclusive sales amount by the prescribed levy rate, based on the information provided by the natural person. Where the natural person qualifies for preferential VAT treatment, duly informs the withholding agent, and provides truthful information and supporting materials as required, the withholding agent must calculate the tax to be withheld in accordance with the applicable preferential provisions and must not unilaterally alter the information provided by the natural person.

2. Remit Tax and File Returns on Time

Under Articles 5 and 9 of the Measures, the tax period for the remittance of withheld tax is one month. Withholding agents must file withholding returns with the competent tax authority and remit the tax, based on the information provided by the natural person, within the first 15 days of the month following the month in which the taxable transaction occurs. Where a sales allowance, suspension, or return changes the amount of tax required to be withheld for a transaction on which VAT has already been withheld and remitted, the withholding agent must, in accordance with Article 7, amend the withholding return for the period in which the tax was originally withheld.

For taxable transactions falling within the scope of the Measures, the absence of a requirement to withhold tax does not remove the filing obligation. Article 6 specifies that, where a natural person carries out qualifying taxable transactions with a single withholding agent, the withholding agent must still file a return with the competent tax authority within the above deadline even if no VAT needs to be withheld because the sales amount per transaction (or per day) falls below the threshold applicable to taxation on a per-transaction basis, a VAT exemption applies, or the natural person has already paid the tax.

Regarding the coordination of tax filing, payment, and invoicing, the second paragraph of Article 5 provides that, where VAT has already been withheld and remitted in accordance with the Measures, the natural person need not pay the tax again when applying to the tax authority for an invoice to be issued on their behalf. If the natural person has not yet applied, the withholding agent may initiate an invoicing reminder, following which the natural person may confirm and apply to the competent tax authority for an invoice to be issued on their behalf.

3. Fulfill Obligations to Provide Information, Report Irregularities, Retain Records, and Maintain Confidentiality

Under Article 8 of the Measures, withholding agents must, upon request by natural persons, provide information on tax withheld and remitted, withholding return records, and other relevant matters. Regarding irregularities arising during the withholding process, the second paragraph of Article 9 and Article 12 require withholding agents to report to the competent tax authority if they discover that information provided by a natural person does not reflect the actual circumstances and the natural person refuses to correct it. Where a natural person refuses to allow a withholding agent to fulfill its statutory withholding and remittance obligations, the agent must promptly report the matter to the competent tax authority.

Under Articles 10 and 11 of the Measures, withholding agents must retain, as required, accounting books for tax withheld and remitted, valid supporting vouchers for such tax, and records including natural persons’ identity information, taxable transaction information, settlement and payment records, and supporting materials for preferential tax treatment. They must also maintain the confidentiality of natural persons’ identity information, supporting materials for preferential tax treatment, and other information subject to confidentiality requirements.

(4) Legal Liability and Transitional Arrangements

Article 13 of the Measures provides that, where a withholding agent fails to withhold tax as required, fails to file withholding returns in accordance with the rules, fails to remit or under-remits tax already withheld, or borrows another person’s identity or impersonates another person, the competent tax authority shall handle the matter in accordance with the Law on the Administration of Tax Collection and other relevant laws and administrative regulations. Regarding implementation, Article 15 provides that the Measures will take effect on November 1, 2026. For qualifying taxable transactions carried out between January 1 and October 31, 2026, natural persons must file their own tax returns and pay the tax in accordance with Article 44 of the Implementing Regulations of the Value-Added Tax Law.

03 Practical Considerations and Tax Risks in Fulfilling Withholding Obligations

(1) Transaction Misclassification and Improper Information Handling May Lead to Failures to Withhold Tax and Disputes over Liability

An inaccurate assessment of whether a transaction falls within the scope of the Measures may cause a domestic entity to overlook its withholding obligations. The Measures specify seven categories of services, whose precise scope is determined by the relevant explanatory notes and is subject to applicable policy adjustments. If an entity classifies services solely by reference to contract titles or payment descriptions, or continues to apply previous criteria after policy changes take effect, it may overlook transactions subject to withholding. For transactions involving internet platforms, an entity may also fail to withhold tax or file the required returns if it assumes that the Measures do not apply merely because the natural person works through a platform or payment is settled through the platform, when the conditions for exclusion under Article 14 are not actually met.

Inaccurate tax-related information or supporting materials provided by natural persons may lead to errors in tax calculation and disputes over withholding liability. For example, a natural person may provide proof of tax payment that does not relate to the transaction in question, or supporting materials that do not establish eligibility for preferential tax treatment. If an entity relies on such materials to withhold no tax or less tax than required, disputes may subsequently arise over whether sufficient tax was withheld and who should bear responsibility. Although the Measures require entities to carry out withholding based on information provided by natural persons, they also require entities to report to the competent tax authority upon discovering discrepancies between that information and the actual circumstances. Entities should therefore be able to demonstrate that they have fulfilled their duty to conduct a reasonable review of the information and supporting materials on their face, and have promptly reported the matter as required. Improper handling of irregularities may also make it difficult for an entity to demonstrate that it has fulfilled its obligations. Where an entity discovers inaccurate information and the natural person refuses to correct it, or the natural person refuses to allow the entity to perform its statutory withholding obligations, the entity may face disputes over whether it has duly fulfilled its obligations if it simply ceases processing the matter on the grounds of non-cooperation without reporting to the competent tax authority as required under Articles 9 and 12.

(2) Failure to Fulfill Statutory Withholding and Related Administrative Obligations Gives Rise to Corresponding Legal Liability

Sales below the tax threshold, the application of a tax exemption, or prior payment of tax by the natural person do not remove the filing obligation under Article 6 of the Measures. Where a natural person carries out qualifying taxable transactions with a single withholding agent, the agent must still file returns as required, even if no VAT needs to be withheld for any of these reasons. An entity that reports only transactions on which tax has actually been withheld may therefore omit transactions that must be reported. In addition, where a sales allowance, suspension, or return relating to a transaction on which tax has already been withheld and remitted changes the amount required to be withheld, the withholding agent must amend the return for the original withholding period in accordance with Article 7. If a withholding agent fails to submit the required withholding and remittance materials within the prescribed time limit, the tax authority shall order it to rectify the failure within a specified period; in serious cases, a fine shall be imposed.

Liability for violations at the tax withholding and remittance stages should be determined separately. First, where a withholding agent fails to withhold tax as required, the tax authority will recover the tax from the taxpayer and impose a fine on the withholding agent. Second, where a withholding agent fails to remit tax already withheld within the prescribed time limit, the tax authority will order payment within a specified period and impose late payment surcharges. If the tax remains unpaid after that period expires, the tax authority will recover it through compulsory enforcement measures and may impose a fine. Third, where a withholding agent employs the means specified in Article 63 of the Law on the Administration of Tax Collection to avoid paying, or to underpay, tax already withheld or collected, and the conduct constitutes tax evasion, the tax authority will recover the unpaid tax, impose late payment surcharges, and levy a fine. Where the conduct constitutes a criminal offense, criminal liability will be pursued in accordance with the law. Record retention and information confidentiality obligations also carry corresponding legal consequences. Where a withholding agent fails to establish or retain accounting books for withheld tax, accounting vouchers, or related materials as required, the tax authority will order it to rectify the failure within a specified period and may impose a fine. A withholding agent that unlawfully discloses or uses a natural person’s personal information may also incur liability under the Personal Information Protection Law and other relevant laws.

(3) Failure to Obtain Compliant Supporting Documents after Withholding and Remittance Affects Deductibility for Enterprise Income Tax Purposes

The second paragraph of Article 5 of the Measures provides that, where a natural person has not applied to the tax authority for an invoice to be issued on their behalf, the withholding agent may send an invoicing reminder to the natural person, who may then confirm and submit an application to the competent tax authority. This provision links withholding and remittance with invoice issuance by the tax authority. However, unlike the arrangements for tax filing by platform enterprises on behalf of natural persons, the Measures do not provide that domestic entities may directly use tax payment certificates as supporting documents for deductions for enterprise income tax purposes. Entities therefore still need to remind natural persons to apply for invoices to be issued on their behalf and use those invoices as compliant supporting documents for such deductions. If an entity relies solely on a tax payment certificate to substantiate a deduction, the tax authority may disallow the deduction for the recorded costs on the grounds that compliant supporting documents have not been obtained.

04 Compliance Management Recommendations for Domestic Entities

(1) Review Service Procurement Transactions to Identify Withholding Obligations and Applicable Rules

Before the Measures take effect, domestic entities should review their existing and planned purchases of services from natural persons. Taking into account the contractual terms, actual performance, and whether they are the purchasers in the transactions, entities should refer to MOF and STA Announcement No. 9 of 2026 and the explanatory notes on services in its annexes to determine whether the withholding rules apply. Where uncertainty remains, they may promptly consult the competent tax authority. For transactions conducted through internet platforms, entities should also verify whether the relevant conditions for tax filing on behalf of natural persons are met and whether the platform enterprises have filed VAT returns on their behalf as required. Based on this review, entities should compile a list of transactions subject to the withholding rules and maintain registers by category, paying particular attention to contracts spanning the implementation date and unsettled payments. They should also monitor changes to the specific scope of taxable transactions and related policies, and update their internal procedures promptly.

(2) Refine Contractual and Payment Arrangements to Clarify Pricing, Tax Treatment, and Cooperation Obligations

Entities should enter into written service contracts with natural persons, specifying whether the service fees are inclusive of tax, how the relevant tax burden is to be allocated, and how the net amount payable after withholding is to be calculated. Where non-monetary consideration is used, the contracts should also specify the valuation basis and arrangements for making funds available to meet the withholding and remittance obligations. Contracts may also specify the natural person’s obligation to cooperate in obtaining invoices issued by the tax authority on their behalf, the deadlines for doing so, and the corresponding liability for breach. They may further set out requirements for providing identity information, supporting materials for preferential tax treatment, proof of tax payment, and other relevant documents. Before payment, the business and finance departments should verify transaction and settlement information and ensure coordination among contract performance, actual payment, and withholding return filing. This will help reduce disputes arising from unclear pricing and tax terms, incomplete documentation, or insufficient cooperation in obtaining invoices.

(3) Standardize Withholding Return Filing and the Handling of Irregularities, and Retain Records of Compliance

Entities should withhold tax, file returns, and remit the tax as required. Their compliance procedures should also cover transactions that require filing even though no tax needs to be withheld, including those below the tax threshold, those eligible for a tax exemption, and those for which the natural person has already paid the tax. Where a sales allowance, suspension, or return relating to a transaction on which tax has already been withheld and remitted changes the amount required to be withheld, the entity should amend the return for the original withholding period as required. Entities should promptly report to the competent tax authority if they discover that information provided by a natural person does not reflect the actual circumstances and the natural person refuses to correct it, or if a natural person refuses to allow them to fulfill their statutory withholding obligations. For such irregularities, entities should retain records of communications, reports, and follow-up actions as evidence of how they have fulfilled their obligations. They should also follow up on obtaining invoices and related supporting documents, properly retain tax-related records as required, and implement confidentiality requirements for natural persons’ information.