VAT on Payments to Individuals in China: From Self-Declaration to Withholding at Source
A Commentary on MOF–STA Announcement [2026] No. 28 (Administrative Measures for the Withholding of VAT on Individuals by Domestic Entities)
This article is a policy commentary and does not constitute tax advice for any specific taxpayer. Statutory provisions are quoted as full sentences and can be verified against the document numbers cited. Chinese legal texts quoted in this article are English translations of the official Chinese originals; in case of any discrepancy, the Chinese originals prevail. The Chinese term 自然人 is rendered here as "individual"; it excludes individually-owned businesses (个体工商户), which fall outside the scope of Announcement No. 28.
I. Institutional Evolution
Historically, where a domestic individual provided services to an entity and received remuneration, the VAT was handled by the individual: either by applying to the tax authority to have an invoice issued on the individual's behalf (代开发票, referred to below as a "tax-authority-issued invoice") and paying the tax and surcharges in one sum at the time of issuance, or by filing a self-declaration return. The entity booked the cost and claimed the pre-tax deduction on the strength of the invoice, and had no obligation to withhold VAT (Article 15 of the VAT Law provides for withholding only in respect of overseas entities and individuals; domestic individuals are not within it).
Following the entry into force of the VAT Law, Article 35(1) of the Implementing Regulations of the PRC VAT Law (State Council Decree No. 826) makes the domestic entity paying the consideration the withholding agent, required to withhold and remit VAT on the individual:
"Where an individual carries out a qualifying taxable transaction, the domestic entity paying the consideration is the withholding agent. The specific operating procedures for withholding and remittance shall be formulated by the department of finance and the tax authority of the State Council."
Accordingly, the Ministry of Finance (MOF) and the State Taxation Administration (STA) issued the Administrative Measures for the Withholding of VAT on Individuals by Domestic Entities (MOF–STA Announcement [2026] No. 28, "Announcement No. 28" / "the Measures"), effective 1 November 2026. The following day, the STA issued the accompanying filing announcement (Announcement [2026] No. 19), publishing the withholding return form and its completion instructions, effective on the same date.
II. Key Content of the New Rules
The Measures comprise fifteen articles, summarised article by article below:
| Item | Key points of the article | Article |
|---|---|---|
| Scope of withholding | Where a domestic individual provides R&D services, software services, design services, consulting services, production services for radio, film and television programmes (works), cultural services, or education services (collectively "qualifying taxable transactions"), the domestic entity paying the consideration is the withholding agent. The specific scope follows MOF–STA Announcement [2026] No. 9 | Art. 1 |
| Withholding agent | "The domestic entity acting as the purchaser in the taxable transaction"; the consideration "includes the entire consideration corresponding to economic benefits in both monetary and non-monetary form" | Art. 1 |
| Tax computation | VAT to be withheld = sales amount × prescribed levy rate | Art. 2 |
| Trigger for withholding | Where an individual carries out a qualifying taxable transaction with a single withholding agent and the sales amount for the current transaction (day) reaches the per-transaction threshold, the tax is withheld at the time of payment; where the individual has already paid the tax, no withholding is required | Art. 3 |
| Surcharges | Surcharges are withheld together with the VAT | Art. 4 |
| Filing deadline | The tax computation period is one month; the withholding agent shall file the withholding return and remit the tax to the competent tax authority within fifteen days from the first day of the month following the taxable transaction | Art. 5 |
| Invoice interface | Where tax has been withheld, the individual need not pay tax again when applying for a tax-authority-issued invoice; where no application has been made, the withholding agent may issue an invoice reminder | Art. 5 |
| Nil-tax filing | Where the threshold is not met, an exemption applies, or no withholding is required under Article 3, filing is still required under Article 5 | Art. 6 |
| Discounts and refunds | Where the tax to be withheld changes, the withholding return for the period in which the tax was withheld shall be amended | Art. 7 |
| Provision of information | Where an individual requests information on tax withheld and filing records, the withholding agent shall provide it | Art. 8 |
| Use of information | Tax is computed and filing is made on the basis of the information provided by the individual and may not be altered without authority; where a discrepancy is found and the individual refuses to correct it, the matter shall be reported to the competent tax authority | Art. 9 |
| Retention of records | Withholding books and vouchers, the individual's identity information, transaction information, settlement and payment records, and documents supporting the application of preferences | Art. 10 |
| Confidentiality | The individual's identity information and documents supporting the application of preferences shall be kept confidential | Art. 11 |
| Refusal of withholding | Where an individual refuses, the withholding agent shall promptly report the matter to the competent tax authority | Art. 12 |
| Legal liability | Failure to withhold where required, failure to file as prescribed, failure to remit or under-remittance of tax withheld, and the borrowing or fraudulent use of another person's identity are dealt with under the Tax Administration Law and other provisions | Art. 13 |
| Platform carve-out | Individuals who are practitioners on an internet platform and carry out qualifying taxable transactions through the platform, where the platform enterprise handles the filing on their behalf under the relevant rules, are not subject to these Measures | Art. 14 |
| Effective date | Effective 1 November 2026; for the period 1 January to 31 October 2026, individuals file self-declaration returns under Article 44 of the Implementing Regulations | Art. 15 |
Comparison of the old and new regimes:
| Dimension | Old regime | New regime (from 1 Nov 2026) |
|---|---|---|
| Collection method | Individual applies for a tax-authority-issued invoice or files a self-declaration return | Withholding at source by the domestic entity at the time of payment |
| Withholding agent | None (except for overseas persons) | The domestic entity acting as purchaser |
| Tax computation | Taxed per transaction, 3% (reduced to 1% during the concession period) | Sales amount × prescribed levy rate |
| Threshold test | Assessed by the individual, RMB 1,000 per transaction (day) | Assessed by the withholding agent per transaction (day), "with a single withholding agent" |
| Filing | Where the threshold is met, self-declaration by 30 June of the following year | Withholding agent files monthly; filing required even where the threshold is not met |
| Invoices | Tax paid when the invoice is issued by the tax authority | After withholding, the individual may still (and in practice still must) apply for a tax-authority-issued invoice, with no further tax payable |
| Transition | —— | For transactions occurring 1 Jan – 31 Oct 2026, the individual files a self-declaration return under Article 44 of the Implementing Regulations |
III. Four Determinations: "Levy Rate", "Threshold", "Return Form" and "Withholding Obligation"
Whether tax is to be withheld on a payment, how much, and how it is filed all turn on these four determinations.
(1) "Levy rate": 3% (currently reduced to 1%), not 6%
The formula in Article 2 of Announcement No. 28 is "VAT to be withheld = sales amount × prescribed levy rate". Why a levy rate is used here rather than the 6% tax rate normally applicable to the supply of services is explained by the following chain of authority:
Article 7(1) of the Implementing Regulations: "Individuals are small-scale taxpayers."
Small-scale taxpayers apply the simplified tax computation method (VAT Law, Articles 10 and 14(2)).
Under the simplified method, tax payable = sales amount for the period × levy rate; Article 11 of the VAT Law: "The levy rate for VAT computed under the simplified tax computation method is 3%."
Current concession: Article 3(3)(6) of the Announcement on Matters Concerning the Transitional Arrangement of VAT Preferential Policies after the Entry into Force of the VAT Law (MOF–STA Announcement [2026] No. 10) — from 1 January 2026 to 31 December 2027, where a small-scale taxpayer carries out taxable transactions other than the sale or lease of immovable property or the transfer of land use rights, the tax is levied at the reduced rate of 1% instead of the 3% levy rate.
(2) "Threshold": amounts paid on the same day are aggregated, RMB 1,000
Article 1(2) of Announcement No. 10: "For those taxed on a per-transaction basis, the threshold is sales amount of RMB 1,000 per transaction (day). Where multiple taxable transactions occur within one day, the threshold standard is applied on a daily basis."
Article 3 of Announcement No. 28 uses "sales amount for the current transaction (day)", aligning with Announcement No. 10. More direct evidence appears in the completion instructions for the return form:
"Date on which the withholding obligation arises: fill in the date on which the withholding obligation arises, specified by year, month and day. Where the withholding agent carries out taxable transactions with the same individual on multiple days (including two days), a separate row shall be filled in for each different date."
"Taxable transaction item: … Where the withholding agent carries out multiple taxable transactions (including two) with the same individual, a separate row shall be filled in for each different taxable transaction item."
The granularity of a row in the return is therefore "the same individual + the same day + the same type of service". Two consulting fees paid to the same individual on the same day are combined into one row for the threshold test; payments made on two different days are entered in separate rows and tested separately.
In other words, whether withholding is required turns on whether the total amount paid to the same person on the same day reaches RMB 1,000, not on any single payment.
(3) "Return form": monthly filing, one row per day, three distinct scenarios
Filing frequency first. Article 5 of Announcement No. 28 expressly states that "the tax computation period is one month" and that the withholding agent "shall file the withholding return and remit the tax to the competent tax authority within fifteen days from the first day of the month following the taxable transaction". Article 6 requires that cases where the threshold is not met, an exemption applies, or no withholding is required must also be "filed with the competent tax authority in accordance with Article 5 of these Measures". Filing is therefore once a month, with multiple rows in the form — not one filing per transaction.
It should be noted that "once a month" refers to the filing action, not to filing each transaction separately: multiple payments to the same individual within one month are entered in multiple rows of the same return form, and the form is filed only once a month.
How rows are split. As set out in (2) above: different dates for the same individual are entered in separate rows, and different taxable transaction items on the same date are entered in separate rows.
How columns are completed. Column 7 of the return form asks "whether a tax-authority-issued invoice has been obtained", and the answer determines how the subsequent columns are completed: "Where the individual has applied for a tax-authority-issued invoice and the invoice has been issued, fill in 'Yes'; where no application has been made or the invoice has not been issued, fill in 'No'." The instructions for columns 9 to 13 and for most columns of the annex additionally state: "Where Column 7 'whether a tax-authority-issued invoice has been obtained' is filled in 'Yes', this column need not be completed."
Only three scenarios therefore arise in practice:
| Scenario | Column 7 | Tax columns | Outcome |
|---|---|---|---|
| Individual has obtained a tax-authority-issued invoice and paid the tax | Yes | Not completed | Nil-tax filing; transaction information only (corresponding to Article 3, "no withholding required where the tax has already been paid") |
| Threshold not met / exemption applies, no invoice issued | No | Sales amount + tax reduction/exemption category code + amount of reduction entered; VAT to be withheld is 0 | Nil-tax filing (corresponding to Article 6, "file even where no withholding") |
| Threshold met and no invoice issued | No | Completed in full | Withholding of VAT and surcharges at 1% |
(4) "Withholding obligation": only the amounts the agent itself pays, with no aggregation of the individual's income from elsewhere
Articles 3 and 6 of Announcement No. 28 both take "an individual and a single withholding agent" as the unit of assessment: the withholding agent tests only the consideration it pays itself to determine whether the threshold is met for the current transaction (day), and in respect of income the individual receives from other entities, it has been given neither the means to verify nor the obligation to do so.
IV. Three Recommendations for Enterprises
1. Build the ledger along three dimensions. The return form requires one row per "individual + date + taxable transaction item", so the enterprise's payment ledger must be maintained at the same granularity and must capture name, type of identity document and identity document number (columns 2–4). Multiple payments of the same type made to the same person on the same day must be capable of automatic aggregation.
2. Rewrite the consideration clause in contracts. State expressly whether the consideration is VAT-inclusive, who bears the withheld VAT and surcharges, and how the amount actually paid is calculated after withholding. A large number of service contracts currently specify only a "pre-tax amount" and make no mention of VAT, which will give rise to disputes once the Measures take effect.
3. Coordinate the computation with individual income tax (IIT). The IIT base for remuneration for services is the VAT-exclusive income (the same treatment is expressly stated, with respect to the commission income of insurance agents and securities brokers, in Article 3 of the Circular on Issues Concerning the Transitional Arrangement of Preferential Policies after the Amendment of the Individual Income Tax Law (Caishui [2018] No. 164): "the balance after deducting 20% of expenses from the VAT-exclusive income is the amount of income"). Note that the definition of "instance" (次) differs: VAT applies the threshold per transaction (day), whereas remuneration for services follows Article 11 of Announcement [2018] No. 61 — "where the income is a one-off payment, the receipt of that payment constitutes one instance; where the income is continuous income from the same project, the income received within one month constitutes one instance".
Under Article 2 of the Announcement on Tax and Fee Policies Concerning Further Support for the Development of Micro and Small Enterprises and Individually-Owned Businesses (MOF–STA Announcement [2023] No. 12), individuals, as small-scale taxpayers, should be eligible for the halving of the "six taxes and two fees".
A worked example (consulting services, RMB 10,300 VAT-inclusive, withholding agent located in an urban area):
| Item | Computation | Amount (RMB) |
|---|---|---|
| Sales amount | 10,300 ÷ (1 + 1%) | 10,198.02 |
| VAT to be withheld | 10,198.02 × 1% | 101.98 |
| Urban maintenance and construction tax (7%, halved) | 101.98 × 7% × 50% | 3.57 |
| Education surcharge (3%, halved) | 101.98 × 3% × 50% | 1.53 |
| Local education surcharge (2%, halved) | 101.98 × 2% × 50% | 1.02 |
| IIT on remuneration for services | (10,198.02 × 80%) × 20% | 1,631.68 |
| Net amount received by the individual | —— | 8,560.22 |
One further point: withholding VAT does not replace the invoice obligation. After discharging the withholding obligation, the enterprise must still obtain a compliant tax-authority-issued invoice for the individual as the supporting document for the pre-tax deduction.
V. Legal Authorities Cited
Announcement on the Issuance of the Administrative Measures for the Withholding of VAT on Individuals by Domestic Entities (MOF–STA Announcement [2026] No. 28, issued 3 September 2026, effective 1 November 2026) — MOF Tax Policy Department
STA Announcement on Filing Matters Concerning the Withholding of VAT on Individuals by Domestic Entities (STA Announcement [2026] No. 19, 4 September 2026) — STA Policy and Regulation Database; official interpretation
VAT Law of the People's Republic of China (Presidential Order No. 41), Articles 10, 11 and 14
Implementing Regulations of the VAT Law of the People's Republic of China (State Council Decree No. 826), Articles 7, 35 and 44
MOF–STA Announcement on Matters Concerning the Transitional Arrangement of VAT Preferential Policies after the Entry into Force of the VAT Law (MOF–STA Announcement [2026] No. 10), Article 1 (threshold) and Article 3(3)(6) (3% reduced to 1%)
MOF–STA Announcement on Matters Concerning the Specific Scope of VAT Taxation (MOF–STA Announcement [2026] No. 9), Annex 2 (Notes on the Supply of Services, Intangible Assets and Immovable Property)
STA Announcement on the Issuance of the Administrative Measures for Individual Income Tax Withholding and Filing (For Trial Implementation) (STA Announcement [2018] No. 61), Articles 8 and 11
Circular on Issues Concerning the Transitional Arrangement of Preferential Policies after the Amendment of the Individual Income Tax Law (Caishui [2018] No. 164), Article 3
MOF–STA Announcement on Tax and Fee Policies Concerning Further Support for the Development of Micro and Small Enterprises and Individually-Owned Businesses (MOF–STA Announcement [2023] No. 12), Article 2 (halving of the "six taxes and two fees"; eligible persons include small-scale taxpayers)
This article is a policy commentary and does not constitute tax advice for any specific taxpayer. Please consult a professional adviser on individual cases.
