China: Recent important regulation highlight

The Implementation Rules further clarify the thresholds for preparing the Master File and Local File, as follows:

• Master File: Required if (i) the annual total amount of controlled transactions exceeds MOP 1 billion, or (ii) the taxpayer engages in cross-border controlled transactions and the ultimate parent entity of the group (whose financial statements consolidate those of the taxpayer) has prepared a Master File.
• Local File: Required if, in the relevant fiscal year, the total amount of controlled transactions meets any of the following thresholds:

1. Transfer of ownership of tangible assets exceeds MOP 200 million;
2. Transfer of ownership of financial assets exceeds MOP 100 million;
3. Transfer of ownership of intangible assets exceeds MOP 100 million;
4. The total amount of other controlled transactions exceeds MOP 40 million.

In addition, the Implementation Rules specify that if the total amount of controlled transactions in a given fiscal year reaches MOP 10 million, the taxpayer must submit a summary report as referred to in Article 13(1)(h) of the Supplementary Income Tax Regulation together with the annual income tax return filed with the Financial Services Bureau.

Recently, the Chinese MOF and the SAT jointly issued the Announcement on Improving the VAT Input Credit Refund Policy (hereinafter referred to as the “Announcement”), which takes effect starting from the VAT filing period of September 2025. This new regulation marks the transition of China’s VAT input credit refund mechanism established in 2019 from a temporary measure to a permanent system.

According to the Announcement, taxpayers are classified into three categories, with differentiated refund arrangements as follows:

• Taxpayers in four key industries — manufacturing, scientific research and technical services, software and information technology services, and ecological protection and environmental management – may apply for a full monthly refund of their remaining VAT input credits at the end of the period, provided that the sales revenue from the relevant business activities accounts for more than 50 percent of total sales.
• Real estate development and operation enterprises may apply for a refund of 60 percent of the incremental VAT input credits accumulated since the end of March 2019, if the combined share of sales revenue and prepayments related to real estate activities exceeds 50 percent.
• Other taxpayers may apply for a proportional refund based on the increase in their remaining VAT input credit at the end of the period compared with the balance as of the end of the previous year.