China: VAT is now withheld from payments to individual service providers

From 1 November 2026, an organisation in China that pays an individual for one of seven listed services must withhold value added tax (VAT) from the payment and send it to the tax authority, so the payer rather than the individual now carries the collection duty for those payments.

What happened

The Ministry of Finance and the State Taxation Administration issued the measures as Announcement No. 28 of 2026, released on 3 September 2026, and they took effect on 1 November 2026. From that date a domestic organisation paying a domestic individual for a covered service is the withholding agent for the VAT on that payment, and it must remit what it withholds by the 15th of the month following the transaction, with surtaxes and related fees withheld at the same time. Even a transaction below the threshold, or one that qualifies for an exemption, must still be declared by the agent.

Who it affects

The rule covers individuals, rather than companies or employees, who provide services to domestic organisations in China, across seven categories: research and development, software, design, consulting, radio and television production, cultural services, and education services. Withholding applies when a single transaction, or a day's sales with one withholding agent, reaches CNY 1,000; below that threshold the payment is exempt from VAT under the measures, although the organisation must still report it in full. The one clear exception is platform work: where an internet platform already manages VAT filing and payment for workers who use it, the organisation paying through that route does not withhold separately.

What changes in pay

For a covered payment at or above the threshold, the amount that reaches the individual is now net of the withheld VAT and surcharges. The Storm Media reports the collection rate for these payments at a preferential 1%, plus surcharges, with that rate reported to run to 31 December 2027, citing a notice from the University of Science and Technology Beijing, while specialist summaries of the measures describe a prescribed collection rate without stating a figure, so the 1% figure rests on that reported notice rather than on the specialist summaries.

The position before 1 November was self-declaration. From 1 January to 31 October 2026, individuals who earned this kind of income were expected to declare and pay the VAT themselves under Article 44 of the VAT Implementing Regulations, and universities and other organisations that pay outside lecturers, consultants, and contract workers had already rewritten their payment procedures, with notices in late October telling staff that withholding would start on 1 November.

What it means in general terms

Collection now happens at the point of payment, which means tax on a covered payment is taken before the money arrives instead of being left to a later self-declaration, and for organisations the duty becomes a compliance task with its own records: transaction details, the individual's identification, withholding documentation, and proof of any VAT preference claimed.

The limits matter as much as the duty itself. Only the seven listed categories are covered, only where the payer is a domestic organisation, and only at or above the CNY 1,000 threshold, with the platform exception noted above. A payment outside those limits stays outside the withholding duty, although the organisation must still declare it where the measures require a declaration. Anyone affected should check the withholding documents for a payment and keep proof of any exemption or preferential treatment claimed, since the payer holds the records that support the deduction.