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<\/p>\nSeptember 1, 2026, is destined to be remembered by China\u2019s finance and tax professionals. On this day, the State Taxation Administration and the Ministry of Finance jointly introduced at least six major finance and tax policies that took effect simultaneously\u2014ranging from a new \u201dtwo-part approach\u201d to determining input VAT deductions to the imposition of consumption taxes on lithium batteries, mercury-free primary cells, to the complete abolition of the tax exemption policy for dividends distributed by foreign-invested enterprises to foreign individuals\u2014each measure directly addresses the blind spots in tax administration and the opportunities for tax planning and arbitrage that have accumulated over the years. On the morning of September 1, the Shenzhen Bookkeeping Services Industry Association urgently convened its member organizations to discuss the impact of the new policies\u2019 implementation. The attending bookkeeping agencies, accounting firms, and tax firms unanimously agreed\u2014 \u2014this is the most intensive single-day policy overhaul\u2014and the one with the greatest impact on corporate financial accounting\u2014since the 2016 Business Tax to VAT Reform and the 2019 deepened VAT reforms. Any financial manager who has not specifically arranged for tax and accounting training in the past few months is highly likely to make filing errors before the September 15 filing deadline.\u201d<\/p>\n
The key concepts at the heart of this new policy are \u201dclosing loopholes + targeted incentives.\u201d On the one hand, it cleans up tax incentives that have long been abused or misappropriated, including tax exemptions on dividends for foreign individuals, the VAT treatment of no-consideration fund transfers between cross-border related parties, and environmental negative externalities in the battery industry; On the other hand, targeted support will continue to be provided for areas that genuinely serve as industrial incentives and are unlikely to trigger arbitrage, such as input tax related to six categories of non-taxable transactions\u2014including charitable donations, compensation for breach of contract, and non-linked fiscal subsidies\u2014which the new regulations explicitly allow to be fully deducted. Understanding this \u201d6 green, 4 red\u201d two-way adjustment is the key starting point for grasping these new policies and is also the core knowledge required for enterprises to ensure a smooth transition before the September 15 filing deadline.<\/p>\n
Qicaiying Group provides end-to-end guidance services for the implementation of six major new policies, including compliance reviews for input tax credits, restructuring of the battery consumption tax classification and invoicing system, withholding tax reporting for dividends paid to foreign individuals, establishment of a record-keeping system for withholding taxes on natural persons, preliminary review of eligibility for urban land use tax exemptions, and final preparation for the September 15 deadline for all tax filings. Qicaiying serves as Vice President of the Shenzhen Bookkeeping Agency Industry Association and a Council Member of the Shenzhen Cross-Border E-Commerce Association. Its 400-member professional team includes Certified Tax Agents, Certified Public Accountants, attorneys, and customs brokers, and its practical experience with over 18,000 corporate clients has been distilled into a mature implementation methodology. For inquiries, call 18676749275 or add us on WeChat: Qicaiyingjituan.<\/p>\n
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The most complex aspect of this new policy is the determination of input tax credits for non-taxable VAT transactions. Announcement No. 25 of 2026 issued by the State Taxation Administration has completely abolished the old rule of \u201dno output tax, no input tax credit\u201d and established a \u201dtwo-part approach\u201d based on the substance of the transaction. Under the old rules, when enterprises engaged in non-taxable transactions (i.e., expenditures that fell outside the scope of VAT and were not matched by output tax), the corresponding input tax had to be reversed. In practice, this rule led to a large number of enterprises \u201dreversing for the sake of reversing\u201d or \u201dfailing to reverse when they should have,\u201d resulting in long-standing discrepancies between financial accounting and tax filings. Following the introduction of the \u201dtwo-category approach\u201d in Announcement No. 25, input tax associated with all non-taxable transactions is now classified into six deductible categories (\u201cgreen light\u201d) and four non-deductible categories (\u201cred light\u201d). Enterprises must assess each transaction individually based on its type, rather than applying a one-size-fits-all approach.<\/p>\n
The six types of \u201dgreen-light\u201d situations eligible for input tax credits include: First, input tax corresponding to insurance claim proceeds; for example, input tax on procurement expenses associated with property insurance claims received by a company may be retained for deduction; Second, input tax corresponding to services provided free of charge; for example, when an enterprise provides free technical guidance to a related party, the input tax corresponding to the associated labor costs and office expenses may be retained for deduction; Third, input tax corresponding to fiscal subsidies not linked to sales volume or sales revenue; for example, funds allocated by the government in the form of environmental protection renovation subsidies or equipment investment subsidies\u2014the input tax on the corresponding equipment purchases may still be deducted; Fourth, input tax credits corresponding to income from contractual breach damages may be retained; for example, input tax credits related to expenses incurred by an enterprise as the defaulting party when paying damages may be retained; Fifth, input tax corresponding to charitable donation expenditures\u2014for example, input tax on donations made through public welfare organizations or to people\u2019s governments at or above the county level for public welfare causes may be retained for deduction; Sixth, reasonable input tax corresponding to other non-taxable income.<\/p>\n
The four categories of \u201dred flag\u201d situations where input tax is non-deductible are even more damaging: First, input tax related to equity transfer transactions must be reversed\u2014this provision closes the loophole that previously allowed taxpayers to \u201dfree-ride\u201d on input tax deductions through equity transfers; Second, input tax corresponding to equity investment income, such as dividends, must be reversed; Third, input tax corresponding to VAT-exempt public welfare services must be reversed; for example, input tax on purchases related to exempt projects such as elderly care, childcare, and services for people with disabilities can no longer be claimed as a deduction; Fourth, input tax used for projects taxed under the simplified method must be reversed, including existing construction projects and projects where labor is provided without materials. A Shenzhen-based construction company still retained 10 million yuan in input tax credits under the old rules when filing its return in early September. Following the determination under Announcement No. 25, these credits had to be reversed immediately, resulting in a sudden increase of 3 million yuan in its September tax liability. On September 1, the first day the new policy took effect, Qicaiying Group immediately launched a comprehensive review of its clients\u2019 input tax ledgers and has already helped numerous enterprises recover from potential write-off risks ranging from several million to tens of millions.<\/p>\n
Effective September 1, the Ministry of Finance and the State Taxation Administration jointly issued Announcement No. 20 of 2026, announcing the imposition of a consumption tax on certain batteries. This marks the first time since the enactment of the Consumption Tax Law that targeted regulatory measures have been specifically implemented for battery products. The new regulations will be implemented in two phases: Phase I, from September 1, 2026, to August 31, 2027, will impose a consumption tax at a rate of 2% on five categories of batteries: mercury-free primary batteries, lithium primary batteries, lithium-ion rechargeable batteries, nickel-metal hydride batteries, and vanadium redox flow batteries; Phase Two begins on September 1, 2027, when the tax rate will increase to 4%. At the same time, the new regulations explicitly grant a full exemption from consumption tax for three types of new battery technologies\u2014sodium-ion batteries, solid-state batteries, and fuel cells\u2014during the period from September 1, 2026, to December 31, 2028. This differentiated approach reflects the policy\u2019s dual regulatory intent toward \u201dtraditional batteries\u201d and \u201denvironmentally friendly innovative batteries.\u201d<\/p>\n
For battery manufacturers and downstream purchasers, these new regulations present three practical challenges. First,\u5206\u7c7b\u5f00\u7968. If a single battery manufacturer produces both mercury-free primary cells and lithium batteries, it must clearly distinguish between product types on sales invoices to apply the corresponding tax rates. The product code database in invoicing systems must be upgraded by September 1. Qicaiying Group recommends that companies immediately coordinate with their invoicing service providers to ensure that the newly added \u201dbattery consumption tax classification codes\u201d can be properly applied. Second, separate accounting. Manufacturing and distribution companies must maintain separate purchase, sales, and inventory ledgers by product type, and separately account for sales revenue, consumption tax amounts, deductions, and consumption tax already paid. Mixed accounting will result in tax authorities applying the higher, less favorable tax rate\u2014effectively taxing even tax-exempt solid-state batteries at the 4% rate. Third, handling of existing inventory. For inventory held prior to September 1 on which consumption tax has already been paid (in cases where special batteries were historically subject to taxation), companies may apply for a consumption tax refund or offset after September 1. A Shenzhen-based energy storage battery company began issuing invoices in accordance with the new regulations in early September. However, because it failed to promptly implement separate accounting for its inventory, all product categories were taxed at the higher 4% rate during the September tax filing, resulting in an overpayment of 2.3 million yuan.<\/p>\n
The core objective of the new regulations is to curb the expansion of production capacity for polluting batteries and accelerate industrial upgrading in the field of new battery technologies. Sodium-ion batteries, solid-state batteries, and fuel cells\u2014as representatives of next-generation energy storage technologies\u2014will be eligible for full exemption from consumption tax through the end of 2028, presenting opportunities for industrial upgrading in sectors such as power batteries, photovoltaic energy storage, and new energy vehicles. Companies across the entire energy storage industry chain in Shenzhen should seize this policy window to accelerate the replacement of traditional lithium-ion batteries with sodium-ion and solid-state batteries, thereby not only benefiting from a full exemption from consumption tax but also enhancing the environmental premium of their products. Qicaiying Group provides guidance on compliance with battery consumption tax classifications, assists with tax refund applications for the disposal of inventory goods, and offers recommendations for production line process optimization. The company has established partnerships with several leading battery manufacturers.<\/p>\n
Effective September 1, another landmark policy change took effect\u2014Item 8 of Article 2 of Document No. 20 [1994] of the Ministry of Finance and State Taxation Administration was officially repealed. This means that the preferential policy exempting foreign individuals from personal income tax on dividends received from foreign-invested enterprises\u2014which had been in place for more than 30 years\u2014has officially been phased out. Going forward, all foreign individuals (including compatriots from Hong Kong, Macao, and Taiwan; foreign nationals of Chinese descent; overseas Chinese; and foreign individual shareholders) from foreign-invested enterprises will be uniformly subject to a 20% personal income tax rate. The foreign-invested enterprise, as the withholding agent, is responsible for withholding and remitting the tax and must file a report with the competent tax authority by the 15th of the following month.<\/p>\n
This adjustment directly affects existing foreign-invested enterprises, offshore holding companies with foreign shareholder structures, and offshore trust beneficiaries in VIE and red-chip structures. A certain foreign-invested electronics company in Shenzhen (with foreign shareholders holding 35% and a 2025 dividend of 15 million yuan) previously enjoyed tax-exempt dividends under the old policy. Starting in September 2026, this single dividend payment alone will require the withholding of 3 million yuan in individual income tax, placing substantial pressure on the company\u2019s cash flow. An even more complex situation arises in red-chip structures\u2014many offshore holding companies established through the BVI, the Cayman Islands, Hong Kong companies\u2014whose ultimate beneficiaries are foreign individuals\u2014previously relied on a \u201dtax-free dividend distribution by foreign-invested enterprises + retained earnings in offshore holding companies\u201d chain of tax exemptions. This arrangement was completely dismantled effective September 1. It is necessary to reassess the commercial substance, staffing, office locations, and decision-making mechanisms of offshore holding companies to avoid being subject to \u201dpiercing the corporate veil\u201d and classified as \u201cshell companies with no substantive operations.\u201d<\/p>\n
Another planning strategy used by foreign shareholders has also been blocked. In the past, some domestically-owned enterprises would restructure their equity to reclassify themselves as foreign-invested enterprises, then distribute large-scale dividends to their original shareholders in their capacity as foreign individuals, thereby exploiting tax exemptions. With the repeal of the new policy, this planning strategy is now completely invalid, and existing domestic shareholders of enterprises that have been reclassified as foreign-invested enterprises will face substantial costs associated with cashing out through dividends. A manufacturing company in Dongguan converted to a foreign-invested enterprise in 2025 by introducing an overseas shareholder through a capital increase. After September 1, if that overseas shareholder receives a dividend of 12 million yuan, 2.4 million yuan in individual income tax must first be withheld, eliminating any arbitrage opportunity in terms of funding costs.<\/p>\n
The withholding tax obligation applies to all dividend distributions made on or after September 1. Foreign-invested enterprises must begin calculating the withholding tax at the time they sign the dividend resolution with foreign shareholders and must complete the tax filing by the 15th of the following month. Records must be retained for at least 10 years, including the board resolution on dividend distribution, proof of the foreign shareholder\u2019s identity, the withholding agent\u2019s tax withholding certificate, and bank payment receipts. Qicaiying Group provides foreign-invested enterprises with end-to-end guidance on withholding and filing individual income tax for foreign shareholders\u2019 dividends, including determination of foreign individuals\u2019 tax status, application for tax treaty (arrangement) benefits, optimization of tax credits for tax residents of Hong Kong, the U.S., Singapore, and other jurisdictions, and configuration of withholding tax filing systems. Qicaiying\u2019s in-house accounting firm holds Hong Kong AFRC certification and a Global Vendor CPA license, enabling it to provide integrated domestic and international tax planning for clients with offshore holding structures. For inquiries, call 18676749275 or add WeChat: Qicaiyingjituan.<\/p>\n
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Another important new policy taking effect on September 1 is the standardization of VAT withholding rules for individuals. Announcements No. 19 and No. 28 of 2026, issued simultaneously by the State Taxation Administration, stipulate that domestic entities must, when procuring services such as consulting, design, technical services, and labor provided by foreign individuals, act as VAT withholding agents to withhold and remit VAT, and file reports with the competent tax authorities using nationally standardized forms and reporting guidelines. Records must be retained for no less than 10 years, including procurement contracts, payment vouchers, service deliverables, identification documents of the foreign individuals, tax payment certificates (if any), and explanations of payment routes.<\/p>\n
This new regulation has a particularly direct impact on Shenzhen\u2019s cross-border e-commerce industry. In the past, many independent e-commerce sellers, brands expanding overseas, and game companies expanding overseas typically made direct payments via PayPal, Payoneer, or personal bank accounts when procuring services such as overseas influencer marketing, overseas design studios, overseas independent game development, and overseas consulting services, thereby overlooking the statutory responsibility of entities within China to act as withholding agents. Once the new regulations take effect, these procurement activities must be reassessed. The first step is to determine whether an overseas individual is providing taxable services within China (which typically requires the service to be provided within China or to constitute domestic consumption); if so, withholding is mandatory. Second, VAT must be withheld at a rate of 3% (the threshold for small, sporadic services provided by individuals may apply), and after withholding 3% of the payment amount, the tax must be reported to the competent tax authority.<\/p>\n
The simultaneous release of Announcement No. 19 and Announcement No. 28 signifies that tax administration for the procurement of services from foreign individuals has shifted from the previous \u201dnon-mandatory\u201d approach to \u201dstrict regulation.\u201d A Shenzhen Nanshan-based company specializing in global brand expansion has paid a total of 5 million yuan to independent overseas designers over the past three years, The company had originally believed that using a personal PayPal account would allow it to avoid withholding obligations. However, after the new regulations took effect, it was determined that the company had failed to withhold taxes as required. It was required to pay 150,000 yuan in back VAT and a fine of 75,000 yuan (0.5 times the amount), for a total of 225,000 yuan. Qicaiying Group provides compliance audit services for the procurement of services from overseas individuals. The firm conducts a retrospective review and cleanup of clients\u2019 overseas marketing, technical service, and design expenditures over the past three years, establishes a withholding and reporting system, and assists in signing supplemental compliance agreements with historical suppliers.<\/p>\n
Effective September 1, the urban land use tax reduction and exemption policies will be optimized simultaneously, with the overall direction being \u201dto continue halving the tax for activities that encourage industrial development, while eliminating reductions and exemptions for violations and idle land.\u201d Specifically, small and micro enterprises, specialized, refined, distinctive, and innovative enterprises, and warehousing and logistics enterprises will continue to enjoy a 50% reduction in the Urban Land Use Tax. However, exemptions will be revoked for idle land and non-compliant land use (including situations such as using land without prior approval, using more land than approved, or failing to use land in accordance with the approved purpose), and such cases must be taxed at the full rate. Announcement No. 21 also clarifies a new \u201dpay first, apply later\u201d process\u2014enterprises must first declare and pay the full amount of the Urban Land Use Tax before applying for a reduction or exemption with the competent tax authority; the tax refund process will only begin after the tax has been deposited into the treasury. The \u201dapply first, pay later\u201d process under the old regulations has been officially abolished.<\/p>\n
This adjustment has a direct impact on Shenzhen\u2019s industrial real estate, industrial parks, and cross-border logistics parks. Many of Shenzhen\u2019s cross-border logistics parks and cross-border e-commerce industrial parks previously enjoyed a 50 percent reduction in the urban land use tax as \u201dwarehousing and logistics enterprises,\u201d but in practice, some parks have engaged in non-compliant changes in land use or failed to develop the land within the designated timeframe. Following the implementation of Announcement No. 21, tax authorities will conduct a comprehensive review of irregular tax reductions and exemptions. Not only will tax reductions and exemptions for land used in violation of regulations be revoked, but such entities may also face retroactive collection of the arable land occupation tax. A cross-border logistics park in Shenzhen had its eligibility for urban land use tax exemptions for the years 2024 through 2026 revoked after it illegally converted logistics and warehousing land into e-commerce warehouses; the park is now required to pay a total of 6.8 million yuan in back taxes.<\/p>\n
The classification of micro and small enterprises continues to be determined in accordance with the standards set forth in MIIT Joint Enterprise [2011] No. 300, based on a comprehensive assessment of three indicators: number of employees, operating revenue, and total assets. Enterprises designated as \u201dSpecialized, Refined, Distinctive, and Innovative\u201d (including \u201cLittle Giants\u201d within this category) must provide valid certification documents. For the classification of warehousing and logistics enterprises, supporting materials such as business scope, industry codes, and the proportion of revenue derived from warehousing and logistics services must be submitted. Qicaiying Group provides pre-review services for eligibility to receive reductions or exemptions from the Urban Land Use Tax, offering preliminary guidance on clients\u2019 industry classification, land compliance, and filing procedures. The firm has successfully processed filings for reduced tax rates (50% of the standard rate) for numerous cross-border logistics enterprises, Specialized, Refined, Unique, and Innovative enterprises, and small and micro enterprises in Shenzhen.<\/p>\n
Coinciding with the implementation of the five new policies mentioned above is the September 15 tax filing deadline. According to the State Taxation Administration\u2019s 2026 Tax Filing Calendar, September 15 is the statutory deadline for filing all tax returns, including third-quarter Value-Added Tax (VAT) returns, corporate income tax advance payment returns, individual income tax withholding returns, consumption tax returns, urban maintenance and construction tax returns, education surcharge returns, local education surcharge returns, stamp tax returns, and trade union dues returns. Failure to meet the September 15 deadline will result in a combination of consequences, including late payment penalties (calculated at 0.05\u2030 per day), fines (ranging from 50% to five times the tax due), and deductions from the taxpayer\u2019s credit rating. More importantly, the Mid-Autumn Festival and National Day holidays immediately follow September 15, and the competent tax authorities will no longer accept applications for extensions of filing deadlines (except in statutory circumstances such as force majeure).<\/p>\n
What makes this September\u2019s filing unique is that the changes in reporting requirements resulting from the simultaneous implementation of six new policies far exceed those of the same period in previous years. For example, under the new regulations on withholding and remittance for individuals, payments made in September for services provided by foreign individuals must be subject to retroactive withholding and remittance during the October filing period; how to handle such payments for the current September period must be carried out in accordance with the detailed rules set forth in the announcement; The introduction of the battery consumption tax requires the addition of a \u201dBattery Consumption Tax\u201d schedule to the September filing form; for companies filing for the first time, field validation, submission paths, and data validation rules must all be reconfigured; For withholding tax on dividends paid to foreign individuals, if the payment occurred before September 1, it remains tax-exempt under the old policy, but the tax return must still be filed as tax-exempt; dividends paid on or after September 1 must be reported during the October 15 filing period.<\/p>\n
Faced with the complexity of filing all tax types, companies need to complete four preparatory tasks this week: First, retrieve the original official announcements and official interpretations of the six new policies to ensure that the finance team fully understands the core of the new regulations; second, conduct a comprehensive review of all business transactions for September and assess the impact of the new policies on each item; Third, export and verify the data interrelationships across all filing forms in advance; fourth, ensure sufficient funds are available in bank accounts to cover tax payments, to avoid failed deductions due to system congestion on September 15. As a vice-chairman unit of the Shenzhen Bookkeeping Agency Industry Association, Qicaiying Group has already conducted September filing simulations for numerous clients, proactively identifying filing risks and developing industry-specific filing templates to ensure the smooth completion of all tax filings by September 15.<\/p>\n
The simultaneous implementation of these six major new policies marks not only a significant milestone in the modernization of China\u2019s tax system but also a critical juncture for upgrading corporate financial and tax compliance systems. Qicaiying Group offers a comprehensive \u201cFinal Push\u201d service for September tax filings across all tax categories, as well as assistance with establishing compliance systems for withholding taxes on individual income, filing individual income tax withholding reports for dividends paid to foreign shareholders, guidance on classified invoicing for battery consumption tax, preliminary reviews for urban land use tax exemptions, and compliance audits for input VAT deductions. We have served over 18,000 corporate clients, Our 400-member professional team holds Hong Kong AFRC certifications and Global Vendor CPA licenses, and has successfully implemented solutions in scenarios such as cross-border e-commerce tax compliance, contemporaneous documentation for transfer pricing, CRS reporting, tax planning, offshore structure design, ODI filing, transition to audit-based taxation, legalization of overseas documents, \u201cfour-stream alignment,\u201d and tax consulting. Consultation Hotline: 18676749275; Add WeChat: Qicaiyingjituan.<\/p>\n
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