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China has rolled out a series of sweeping tax reforms and guidance aimed at supporting strategic sectors, tightening compliance, and fostering sustainable development, according to the Ministry of Finance and the State Taxation Administration. The measures, announced in October 2025, are expected to affect foreign-invested enterprises, real estate developers, and high-emission industries.
Targeted VAT Incentives for Green Energy
China is shifting from broad-based value-added tax (VAT) incentives to a more focused approach, offering support to offshore wind and nuclear power projects while phasing out benefits for mature industries such as coal, aircraft maintenance, and platinum and diamond imports. Companies in the green energy sector are eligible for partial VAT refunds, reinforcing Beijing’s commitment to its low-carbon transition.
Land Appreciation Tax Standardisation
Draft rules for the Land Appreciation Tax (LAT) aim to unify compliance practices nationwide, reducing uncertainty in real estate transactions. Key provisions include clarified pre-collection timelines, deductions for public infrastructure costs, and exemptions for residential units with moderate appreciation. The rules are open for public consultation until the end of November.
Environmental Protection Tax Expands to VOCs
China has broadened its environmental tax to cover volatile organic compounds (VOCs), signaling a move toward precision environmental governance. Petrochemical, coatings, and industrial painting companies will need to monitor emissions closely to comply with the new regime.
Corporate Restructuring and M&A Guidance
The Ministry of Finance issued the country’s first comprehensive multi-tax guide for corporate mergers and restructuring, streamlining corporate income tax, VAT, deed tax, LAT, and stamp duty procedures. The framework is designed to reduce tax costs, improve transparency, and encourage business consolidation.
Additional Measures
- NEV and energy-efficient vehicles: Stricter technical standards for tax incentives will apply from 2026, rewarding only high-performance models.
- Gold trading: New VAT rules for standard gold transactions on the Shanghai Gold and Futures Exchanges aim to enhance market transparency.
- Duty-free policies: Hainan and national duty-free regulations have been expanded to include new products and shoppers, supporting domestic consumption.
- Advance tax ruling in Shanghai: Companies can now seek binding guidance on complex future transactions, improving predictability for investors.
- Water resource tax in Guangdong: Refinements focus on efficiency-based incentives and stricter industrial qualification criteria.
Market Implications
The reforms are expected to reshape investment priorities across China. Green energy, high-tech manufacturing, and strategic sectors stand to gain from targeted VAT incentives and streamlined restructuring rules, while legacy industries and high-emission sectors may face increased tax burdens. Observers note that clear guidelines on mergers, LAT, and environmental taxes will improve predictability, but companies that fail to adapt quickly risk higher compliance costs and potential penalties. Investors and multinational firms are advised to reassess tax planning strategies to capitalize on incentives and mitigate exposure in transitional sectors.
