A long-standing issue that had been unclear now finally has clear guidelines.

Fixed assets, intangible assets, and real estate purchased by enterprises often serve more than one purpose. A piece of equipment may be used to produce both taxable and tax-exempt products; a building may be used for the company’s own office space, while part of it serves as employee housing.

In the past, there were inconsistent interpretations regarding whether the input tax on such “mixed-use” long-term assets could be fully deducted. Following the implementation of the *Regulations for the Implementation of the Value-Added Tax Law* on January 1, 2026, Article 25 provides clear rules on this matter.

5 million yuan is the cutoff point

The regulations classify mixed-use long-term assets according toOriginal Cost of an Individual AssetThese are handled in two ways:

• Individual long-term assets with an original value not exceeding 5 million yuan: The corresponding input tax can befull rateDeducted from output tax
• Individual long-term assets with a historical cost exceeding 5 million yuan: Upon purchase, the input tax is fully deducted; thereafter, during the period of mixed use, based onAdjustment PeriodCalculate the inputting tax that cannot be deducted corresponding to the five categories of non-deductible items,Adjusted annually

The “five categories of items not eligible for tax credits” referred to here are: items taxed under the simplified tax calculation method, VAT-exempt items, non-taxable transactions not eligible for tax credits, collective welfare benefits, and personal consumption.

This is a real boon for small businesses.

The significance of the 5 million yuan threshold lies in:For the vast majority of small and medium-sized enterprises, individual items of equipment, vehicles, and software all fall within the full deduction range.

In the past, to play it safe, many companies adopted a conservative approach of allocating deductions for mixed-use assets based on sales proportions, thereby voluntarily forfeiting a portion of their deduction entitlements. Now that the new regulations have been clarified, companies can confidently claim the full deduction for such assets, effectively freeing up a significant amount of cash flow.

The challenge in adjusting major assets year by year lies in the ledgers

For individual assets valued at more than 5 million yuan, the non-deductible portion must be calculated annually based on the adjustment period. The real challenge isn’t the calculation itself, but ratherChain of Evidence::

1. Usage Ledger. There must be verifiable records showing the proportion of assets allocated to each of the five categories of non-deductible items in each fiscal year; these cannot be based on arbitrary estimates made at the end of the year.
2. Determining the Adjustment Period. The specific implementation measures will be formulated by the competent authorities for finance and taxation under the State Council; enterprises should pay attention to the subsequent release of detailed rules.
3. Consistency Across Fiscal Years. Once an adjustment method is adopted, it should be applied consistently from year to year; any mid-year changes must be supported by reasonable grounds and documented.

For companies that own factory buildings, large-scale production lines, and office buildings for their own use, this requirement involves a significant amount of work; we recommend establishing the relevant records by the end of 2026.

A Few Boundaries That Are Easily Confused

Boundary 1: Distinguishing Between Fixed Assets and Inventory. The regulations provide a clear definition of “fixed assets”—machinery, equipment, and vehicles with a useful life exceeding 12 months, as well as other equipment, tools, and implements related to production and operations. Low-value consumables are not included in this definition.

Threshold 2: 5 million yuan refers to the original value of a single item, not the annual total. Multiple small-value assets cannot be combined for calculation purposes.

Boundary 3: Determination of Mixed-Use Status. This applies only when an asset is indeed used for both purposes simultaneously; if the asset’s use changes entirely, it falls under a different set of accounting rules.

Landing Moves

• Compile a list of existing long-term assets, noting their original cost and breakdown by use.
• For individual assets valued at more than 5 million yuan, maintain an annual ledger tracking their usage percentages.
• Review the deductions that were waived in previous years based on a conservative approach and assess whether they can be adjusted while remaining in compliance.
• Stay tuned for specific operational guidelines regarding input tax credits for long-term assets to be issued by the Ministry of Finance and the State Taxation Administration.

If you’re verifying that your materials align with the reporting guidelines, feel free to contact a consultant at Qicaiying (WeChat/Phone: 18676749275), and we’ll walk you through the entire process from start to finish.