DCC Regulatory & Policy Update – Issue No. 8 | August 2026
Issue No. 8 | August 2026
Contents
1.1. MOFCOM Countermeasuers, a National Security Investigation and Tighter Drone Controls
2.1. The End of the Dividend Tax Exemption for Foreign Individuals 2.2. VAT: What Sits Outside the Tax, and When Input VAT Must Be Reversed
3.1. Personal Information Rules Split by Size
3.2. Integrated Circuit Layout Designs: First Systematic Revision in 25 Years
Executive summary
What stands out in this August issue is that China is now operating the same categories of outward-facing legal instrument that some of its trading partners use against it, and applying them in coordinated bursts: a countermeasure list that reaches supplier verification service providers, a national security investigation into embedded software in imported equipment and a draft extraterritorial anti-corruption statute. These can be recognized as mirror images of European and American instruments.
1. Trade & Export Control
1.1. MOFCOM Countermeasures, a National Security Investigation and Tighter Drone Controls
Background
On 5 August 2026 China’s Ministry of Commerce (“MOFCOM”) issued four separate instruments, accompanied by two press spokesperson briefings. The Ministry framed them as countermeasures against a series of negative China-related measures by the US Federal Communications Commission and the Department of Homeland Security.
Two were Ministerial Orders (令) made under the Anti-Foreign Sanctions Law and approved by the national anti-foreign-sanctions working coordination mechanism. Two were Announcements (公告), one opening a trade investigation and one tightening export controls. All four took effect on the day of issue.
Readers of our June Update issue will recognise the pattern. Multiple instruments, different legal bases, different departments, released in a single window. This is now the observable operating method rather than a coincidence.
Key provisions
MOFCOM Order No. 2 of 2026 (商务部令2026年第2号) — countermeasure list.
Six US entities, led by Applied DNA Sciences, were added to the countermeasure list under Articles 3, 4, 6, 9, 10 and 15 of the Anti-Foreign Sanctions Law and Articles 3, 5, 8 and 10 of its implementing provisions. The measure prohibits organisations and individuals within China from engaging in transactions, cooperation or related activities with them. The stated ground is that the six assisted and supported US sanctions on Chinese companies imposed on so-called forced labour grounds.
MOFCOM Order No. 3 of 2026 (商务部令2026年第3号) — countermeasure list.
A US compliance testing company was designated on the same day, on the same legal basis and with the same prohibition.
MOFCOM Announcement No. 33 of 2026 (商务部公告2026年第33号) — foreign trade national security investigation.
Under Articles 41 and 42 of the Foreign Trade Law, MOFCOM opened an investigation into imported office equipment with printing and copying functions that contains foreign system software, defined as driver software and embedded software developed, tested or maintained by foreign individuals or entities. The Ministry stated that preliminary information indicates such equipment may affect national security interests in foreign trade. The investigation may proceed by written questionnaire, hearings, on-site investigation and commissioned investigation.
MOFCOM Announcement No. 34 of 2026 (商务部公告2026年第34号) — drone export controls.
Exports to the United States of drones, their key components and related technology listed on the Dual-Use Items Export Control List are now subject to case-by-case strict review, with licence facilitation measures disapplied.
Why this matters
The countermeasure designations reach the compliance industry itself, and that is the development to absorb. Applied DNA Sciences operates DNA-based cotton traceability — the technology used to establish whether textiles contain Xinjiang cotton. Order No. 3 designates a compliance testing business. These are not defence contractors or technology champions. They are the service providers that Western companies retain in order to discharge their own supply chain due diligence obligations.
For a German group subject to the Lieferkettensorgfaltspflichtengesetz, or for any company preparing for the EU Forced Labour Regulation, the consequence is concrete. The verification provider you require your Chinese supplier to engage may be one that supplier is now prohibited from dealing with. Companies should therefore establish now which of their verification, testing and traceability providers have a China connection, and what the fallback scenario would be if a provider becomes unusable on the Chinese side.
Announcement No. 33 is much broader than printers. The investigation target is narrow, however, the definition is broad. Embedded and driver software developed, tested or maintained abroad is now, in principle, a national security question for goods imported into China. Printers and copiers are specifically mentioned, but should be understood as the test case. The definition scope under Announcement 33 could be read to reach machine tool controllers, medical devices, industrial controls, laboratory and measurement instruments, and process automation — which is to say, a substantial proportion of what European industry sells into China.
This is also, in structure, the mirror image of what the United States and the European Union have done in relation to Chinese network equipment. This type of symmetry reflects the long standing principle of reciprocity in foreign affairs. European exporters who have followed those debates as a matter of geopolitics rather than out of own compliance needs should note that the instrument now points the other way.
Announcement No. 34 uses a mechanism we have described before. Removing licence facilitation and requiring case-by-case review does not prohibit exports; it converts routine shipments into individual applications. We made the same observation in our June issue regarding the Watch List treatment applied to Japanese entities. The practical advice would be to first focus on production planning and lead times before looking into legal compliance.
On sequencing, because relevant reporting seems confused. China's drone measure is dated 5 August. The United States signed its proclamation imposing tariffs of up to 100% on drones and their parts and components, reportedly on 13 August, with 25% on smaller or less sensitive drones and components and 15% on drones originating in the European Union, Japan, Liechtenstein, South Korea and Taiwan, phased in over 21 to 180 days. Beijing moved first in this exchange and Washington followed. We note this because the opposite sequence has appeared in commentary, and because the EU rate is not zero: European drone manufacturers are exposed to Chinese controls on their inputs and US tariffs on their output simultaneously, while being the primary target of neither.
What to watch
The identity of the designated entities beyond Applied DNA Sciences, and of the compliance testing company in MOFCOM Order No. 3, which the MOFCOM announcements do not name in the summaries we have seen.
The conduct and duration of MOFCOM Announcement No. 33 investigation, and in particular whether questionnaires are issued to foreign manufacturers rather than only to importers. Participation in the questionnaire process, when invited, is likely to be more useful than abstention.
Whether the investigation produces an administrative measure and what form it takes. Article 41 of the Foreign Trade Law does not prescribe the remedy, and the range of possible outcomes — from procurement restrictions to certification requirements to nothing — is rather wide.
Whether the foreign system software concept migrates to other product categories. Nothing in the definition of MOFCOM Announcement 33 is specific to printing equipment.
Whether further countermeasure designations reach service providers rather than manufacturers. If they do, that is a distinct trend from the entity listings of the first half of the year.
Internally: map which of your compliance, testing, certification and traceability providers operate in or through China, and identify the alternatives before you need them.
2. Tax & Customs
2.1. The End of the Dividend Tax Exemption for Foreign Individuals
(Released 1 September 2026, one day after our review period closed. We punlish it now because it took effect on release.)
Background
On 1 September 2026 the Ministry of Finance ("MOF") and the State Taxation Administration ("STA") jointly released Announcement 2026 No. 27 (关于外籍个人股息红利个人所得税政策有关事项的公告) (for STA English summary, click here), ending the exemption that since 1994 allowed foreign individuals to receive dividends and bonuses from foreign-invested enterprises ("FIEs") without paying individual income tax ("IIT"). The announcement took effect on the date of release and repeals Article 2(8) of Caishuizi [1994] No. 20.
This removes one of the last significant pieces of super-national treatment (超国民待遇) surviving from the early reform era, introduced when the competitive question was whether foreign investors would come at all.
Key provisions
Dividends and bonuses received by foreign individuals from foreign-invested enterprises ("FIE") are now taxed at the standard 20% rate under the interest, dividend and bonus income category — the treatment PRC nationals have always received. Dividends from domestic non-FIE companies were already taxed at 20% and are unaffected.
The FIE paying the dividend becomes the withholding agent and must file and remit within 15 days of the following month.
Double taxation treaty relief remains available where a treaty exists, subject to a beneficial ownership test, and Chinese tax paid can generally be credited at home. The global tax cost does not necessarily rise by the full 20%.
The relief previously extended to Hong Kong, Macao and Taiwan residents on a treated-as-foreign basis is withdrawn.
The actual payment date governs, not the date of the distribution resolution. A dividend resolved in August 2026 but paid in October falls under the new rule.
Why this matters
The headline effect is a reduction of roughly 20% in after-tax proceeds for foreign individual shareholders. However, the structural consequences are more interesting.
The withholding duty is the immediate operational problem, and it lands on companies that have never had one. An FIE distributing to foreign individuals must identify which shareholders are foreign individuals, verify passports and tax residency, assess treaty eligibility and operate a monthly filing cycle. For a company whose shareholder register has not been examined since incorporation, this is register work before it is tax work, and the first payment date is the deadline.
A common structuring route has closed. Converting a domestic company to FIE status so that foreign individual shareholders could access the exemption was a recognised planning step. That rationale is now obsolete, and structures built on it should be reassessed for whether they still earn their costs.
The executive compensation calculation has changed. Foreign executives in China have long been compensated on a combination of tax-advantaged allowance benefits and, where they held equity, tax-free dividends. Half of that combination has been removed, and the question whether equity or cash is more favourable in China now has a different answer than prior to July 2026.
Note the direction of travel. Read with the offshore trust framework covered in our July issue, the pattern is consistent: China is closing the gaps between how foreign-connected and domestic individuals are taxed, and doing it through the individual income tax. The 10% corporate-level withholding on dividends to foreign corporate shareholders is untouched. It is individuals who are being brought into line.
What to watch
Whether the STA issues guidance on the beneficial ownership test as applied to natural persons. The test was developed for corporate treaty claims and its application to an individual is not obvious.
Local Tax Bureau practice on transitional cases — dividends resolved before 1 September and paid after. The rule is clear on its face; whether Tax Bureaus will apply it mechanically in the first cycle is not clear.
Whether distribution behaviour shifts toward retained earnings, capital increases or share transfers, and whether the STA treats any of those as avoidance.
Internally: whether your shareholder register identifies foreign individuals, whether any resolved but unpaid distribution is outstanding, and whether finance or payroll is set up to withhold and file monthly.
2.2. VAT: What Sits Outside the Tax, and When Input VAT Must Be Reversed
Background
On 27 August 2026 MOF and the STA released Announcement 2026 No. 25 (财政部 税务总局关于明确非应税交易等增值税有关事项的公告) on the VAT treatment of non-taxable transactions, effective 1 September 2026 and retroactively applicable to unresolved matters from 1 January to 31 August 2026.
The VAT Law took effect on 1 January 2026 and brought with it a restriction on input VAT attributable to non-taxable transactions that was stated in the abstract and left practitioners guessing. Announcement No. 25 converts that abstraction into a positive list and a negative list, and settles several long-running disputes along the way.
Key provisions
Positive list — six categories of non-taxable transaction where related input VAT stays deductible:
insurance payouts received as the insured party;
cash and non-cash donations received;
liquidated damages received where the contract was not performed and no taxable transaction occurred;
free provision of services, excluding free transfers of financial products;
transfer of receivables arising from the taxpayer's own taxable transactions, excluding securities; and
government subsidies not directly tied to sales revenue or volume.
Negative list — four categories where related input VAT must be reversed:
sales that do not qualify as domestic taxable transactions under Article 4 of the VAT Law;
paid transfers of equity, excluding securities;
dividends received from holding equity or shares; and
the non-physical-delivery leg of commodities futures trading.
Points now settled. Only self-produced agricultural products invoiced tax-free by the producer qualify for agricultural product invoice treatment. The technical school exemption applies only to institutions approved by provincial human resources authorities. The first admission ticket exemption covers the main entrance ticket only. In tax-free restructurings, the acquirer inherits the transferor's original cost basis for financial instruments.
Procedural changes. Waiving a VAT incentive now requires a written waiver statement specifying the start date, filed with the tax authority. Bundled telecom offers must be separately accounted and taxed at each item's rate. Commercial discounts reduce the taxable amount only if itemised in the amount column on the same invoice; a note in the remarks field is no longer sufficient.
Why this matters
This is the most consequential supporting guidance issued since the VAT Law commenced, and it has an unusual feature: the retroactive window is an opportunity rather than a threat.
The retroactive window should be worked, not avoided. Because the announcement applies retroactively to unresolved matters from 1 January, a company that took the wrong input VAT position on an indemnity receipt, a damages payment, a subsidy or a donation during the first eight months of 2026 can correct it under the new rules. That requires someone to go back through eight months of transactions. Most companies will not do this.
The equity transfer rule lands hardest on deal teams. Due diligence, valuation and adviser fees on an equity sale are now explicitly non-deductible input VAT. For private equity, venture capital and corporate M&A functions this is a direct increase in transaction cost that should be priced in up front.
The free services change is a win. Bundled warranties, free upgrades and free data allowances escaping deemed-sale treatment removes a long-standing irritation for equipment manufacturers and software vendors who provide post-sale support without separate charge. It is worth checking how your contracts describe such services, because the characterisation will matter.
Three buckets, not one. Input VAT can no longer be sorted into taxable and everything else. It needs three categories: deductible non-taxable, non-deductible non-taxable, and exempt. Defaulting to a blanket reversal for anything non-taxable, which was common practice, now over-pays.
What to watch
Local Tax Bureau treatment of retroactive corrections in the first filing cycles. The announcement permits correction; whether Tax Bureaus process it smoothly is separate.
Further guidance on the boundary between free provision of services and services provided for non-monetary consideration, which the announcement does not address.
Contract drafting practice on liquidated damages, since deductibility now depends on the contract not having been performed and no taxable transaction having occurred.
Internally: consider reopening transactions from 1 January to 31 August involving indemnities, damages, subsidies or donations; re-price live deal budgets for non-deductible transaction costs; and fix invoicing templates so discounts sit in the amount column.
3. Technology & Digital
3.1. Personal Information Rules Split by Size
Background
Two instruments now bracket China's personal information regime from opposite ends.
On 7 August 2026 the Cyberspace Administration of China ("CAC") published the Draft Provisions on Personal Information Protection for Large-Scale Personal Information Handlers (大型个人信息处理者个人信息保护规定（征求意见稿）) for public comment, with the consultation closed on 7 September 2026. The draft consolidates two earlier drafts circulated in late 2025, one on personal information protection supervisory committees at large online platforms and one on personal information protection at large online platforms.
Separately, the Provisions on Simplified Measures for Personal Information Protection for Small-Scale Personal Information Handlers take effect on 1 September 2026, reducing obligations for small scale personal information handlers.
Together they establish tiered administration: obligations calibrated to the scale and impact of a processor's data activity.
Key provisions
The threshold. A processor handling the personal information of more than 10 million individuals falls within the large-scale category, as do processors meeting two further limbs of the designation test.
Designation is not elective. A processor over the threshold must apply through its provincial CAC to the national CAC for designation. The provincial body has 15 working days to check completeness before forwarding. Where a regulator concludes a processor meets the conditions but has not applied, it must prompt it to do so. The national CAC, with the telecommunications and public security authorities, determines the list and announces it publicly. A designated processor that believes it has fallen below the conditions for six consecutive months may apply for removal.
Governance. Designated processors must appoint a personal information protection officer and establish a supervisory committee. The committee reports annually to the board or equivalent body in the first quarter. Where it is obstructed, it may escalate to the board and, if obstruction persists, report to the provincial CAC.
Localisation. The draft imposes strict data localisation obligations on designated processors.
Enforcement. Regulators may conduct on-site inspections and, in defined circumstances, mandate third-party data hosting. Liability runs under the Personal Information Protection Law and the Network Data Security Management Regulations.
Why this matters
The threshold is lower than it may seem. Ten million individuals is not a large number for a consumer-facing business in China. A mid-sized e-commerce operation, a hotel or airline loyalty programme, a retail chain with an app, an automotive brand with connected vehicles, or a payments-adjacent service can cross it without thinking of itself as a platform. The earlier drafts were framed around large online platforms; this one is framed around handlers, and the change of framing widens the net considerably.
The supervisory committee is the structurally novel element. An internal corporate body with a reporting line to the board, an annual report obligation and an escalation route to the regulator when obstructed is not an internal compliance function in the ordinary sense. It resembles more of a statutory audit committee, and for a foreign group it raises a governance question with no clean answer: a committee inside the China entity with an independent duty to report to a Chinese regulator sits awkwardly alongside global reporting lines. Work out where that committee reports, and what, before designation rather than after.
Localisation plus public listing is the combination to plan around. A designated processor appears on a published list, visible to regulators, counterparties and claimants at once. For any group running regional or global data infrastructure with a China node, structuring this requires some care.
What to watch
Publication of the final Provisions and whether the 10 million threshold survives consultation.
The first published list of designated large-scale handlers, and whether foreign-invested enterprises appear on it.
Clarification of the two further limbs of the designation test, since a processor below 10 million individuals can still be designated under them.
How the supervisory committee requirement interacts with the personal information protection officer registration regime already in place.
The small-scale Simplified Measures in operation from 1 September, in particular whether the provincial assessment route for small processors' outbound transfers is used in practice. That would be the first meaningful decentralisation in the cross-border transfer regime.
Internally: consider clarifying how many individuals' personal information your China entity actually holds. In our experience that number is rarely known to within an order of magnitude, and it is now a threshold question.
3.2. Integrated Circuit Layout Designs: First Systematic Revision in 25 Years
Background
On 3 August 2026 the State Council published the revised Regulations on the Protection of Layout Designs of Integrated Circuits (集成电路布图设计保护条例), issued as State Council Decree No. 842 (“IC Regulations”). It takes effect on 15 October 2026.
The IC Regulations replace the 12-article instrument promulgated in 2001 as Decree No. 300. This is the first systematic revision in 25 years.
Key provisions
The Ministry of Justice and the China National Intellectual Property Administration (“CNIPA”), China’s IP regulatory body, made some clarifications in a joint press conference on 3 August.
Scope expanded. The reference to semiconductor integrated circuits has been removed from the definition provisions, and layout designs of integrated circuits performing integrated photonic and quantum functions are expressly brought within protection.
Application and examination procedures refined. False applications are regulated, material requirements are detailed, rejection and revocation procedures are completed, and a rights restoration procedure is added.
Exclusive rights strengthened. The standard for defining the scope of rights is clarified and infringement damages are increased, with punitive damages reported at one to five times the base amount.
Utilisation promoted. Public services are strengthened, reward and remuneration measures are specified, transfer, licensing and pledge requirements are refined, and the exercise of rights by co-owners is regulated.
Foreign eligibility. Layout designs created by foreign persons, enterprises or other organisations enjoy exclusive rights under the regulations where the design is first commercially exploited within China, or where the creator's home country has a relevant agreement with China or both are party to a relevant international treaty.
Why this matters
The foreign eligibility rule is a trap that predates this revision and survives it. A design first commercially exploited outside China qualifies only through the treaty or agreement route. Any European company relying on Chinese protection for a layout design should confirm which limb it relies on rather than assuming protection follows from creation.
Registration timing determines the ceiling on damages. China’s Supreme People's Court (“SPC”) has shown a willingness to examine the basis of the right on its own motion. In the case No. 2025 Zui Gao Fa Zhi Min Zhong 452 ((2025)最高法知民终452号) the SPC declined protection for a registered layout design because registration had been applied for more than two years after first commercial exploitation. The new punitive damages provision in Art. 46 of the IC Regulations will operate alongside that scrutiny, which means registration timing, the quality of the originality statement and the evidence of the first commercial exploitation date determine what can actually be recovered. Roughly ten weeks remain before commencement.
The extension to photonic and quantum circuits is an industrial policy signal as much as an IP measure. Transistor scaling is approaching physical limits and the competitive frontier is moving to new architectures and materials. Providing a protection framework in advance for integrated photonics and quantum is consistent with what the provincial five-year plans say: Anhui claims national leadership in quantum, Hubei is building an optics cluster.
What to watch
The implementing departmental rules and normative documents, which CNIPA has said it is working to complete before commencement.
How courts apply the one-to-five-times punitive damages range in the first cases after 15 October, and whether the scrutiny of registration timing shown in case 452 continues.
Whether the photonic and quantum extension generates a distinct registration practice, since the examination criteria for such designs are not obvious from the text.
Internally: audit which of your layout designs are registered in China, when each was first commercially exploited, and whether the registration was applied for within two years of that date.
4. Governance & Compliance
4.1. Draft Anti-Cross-Border Corruption Law
Background
On 25 August 2026 the draft Anti-Cross-Border Corruption Law (中华人民共和国反跨境腐败法（草案）) (“AC Draft 1”) received its first reading at the 24th session of the Standing Committee of the 14th National People's Congress. It was released for public comment on 28 August, with comments due by 26 September 2026.
Enacting the law was included as a reform measure by the Third Plenum of the 20th Central Committee and placed on the NPC Standing Committee's 2026 legislative work plan. The central government’s anti-corruption Skynet 2026 Action (天网2026行动) launched on 2 April 2026 with an explicit instruction to investigate cross-border corruption cases and to draft this law.
If enacted, the AC Draft 1 would be China's first comprehensive statute on cross-border corruption, joining the US Foreign Corrupt Practices Act and the UK Bribery Act as the third dedicated regime in a major economy.
Key provisions
The AC Draft 1 covers the principles, scope and position of China's anti-cross-border-corruption work; the working mechanism and departmental responsibilities; case handling and international cooperation; corporate integrity and compliance obligations; and legal liability.
Article 3 AC Draft 1 defines cross-border corruption to include bribery of foreign public officials and officials of international public organisations by domestic citizens, domestic enterprises and other organisations and their branches and subsidiaries — and, materially for our readership, by overseas persons and overseas enterprises and other organisations and their branches, where the conduct occurs within China.
The draft also addresses the transfer of case leads, reporting, international law enforcement and judicial cooperation, the cooperation of relevant units in investigations, and the pursuit of fugitives and recovery of assets. The AC Draft 1 does not appear to create new criminal offences, instead establishes processes for inter-agency and international cooperation. However, the official summary nonetheless describes a chapter on legal liability. We flag this as an open question.
Why this matters
Article 3 AC Draft 1 creates a Chinese nexus for conduct that until now was a matter for other regimes. A German group whose Chinese entity handles third-country business in Southeast Asia, Central Asia or Africa acquires exposure under Chinese law alongside its existing exposure under the FCPA, the UK Bribery Act and domestic law. The relevant question is not whether your China operation deals with Chinese officials; it is whether it deals with officials anywhere.
The investigation cooperation provisions create the sharper problem. The AC Draft 1 regulates the cooperation of relevant units in investigations and international judicial assistance. That runs directly into the constraint we described in our May Update in the context of the Outbound Investment Regulations: where Chinese entities are required to provide evidence or materials to foreign authorities, they must first comply with Chinese law on state secrets, data security, personal information protection and export controls, and obtain prior approval where required.
A group conducting an internal investigation into a bribery allegation in China will therefore face a Chinese duty to cooperate, a Chinese restriction on transferring the material, and a foreign regulator's expectation of disclosure. This is the same structure as the blocking order conflict we covered in our May Update, relocated into investigations and internal compliance. It is also the structure that most compliance manuals will handle worst, because they were in most cases written on the assumption that cooperation is always the safe choice.
The compliance obligations chapter is where the practical guidance will sit. Whether subsequent AC Draft versions provide anything resembling an adequate procedures defence, and what a compliant integrity programme is required to contain, remains to be seen and will be the ones to look out for in a revised AC Draft.
What to watch
Whether the second reading of the AC Draft clarifies the extraterritorial reach of Article 3 AC Draft 1 and its interaction with the Criminal Law provisions on bribery of foreign officials.
The content of the corporate integrity compliance obligations chapter, and whether a compliance programme mitigates liability.
How the cooperation-in-investigations provisions are reconciled with the state secrets, data security and export control restrictions on outbound transfer of evidence.
Whether the law creates a reporting duty, and if so on whom.
5. Economics & Macro-Regulation
5.1. Draft Local Surtax Law
Background
On 28 August 2026 the MOF opened public consultation on a draft Local Surtax Law (地方附加税法（征求意见稿）) (“Surtax Law Draft”), consolidating the urban maintenance and construction tax and the education surcharges into a single local surtax levied on VAT and consumption tax actually paid. The proposed rate is between 11% and 13%, with the rate within that band set by each provincial-level government.
Why this matters
For most taxpayers the arithmetic changes little; the combined burden of the existing surcharges already sits in a comparable range. What changes is the architecture.
Provincial rate-setting discretion is being formalised rather than removed. The regulatory direction in 2026, covered in our March and June issues, has been to strip local governments of discretionary fiscal tools: fair competition review, the campaign against irregular local tax incentives, the negative list for local fiscal subsidies. This Surtax Law Draft moves in another direction, granting provinces an explicit, bounded and published discretion. That is consistent rather than contradictory. Unwritten, negotiable local advantages are being replaced by written, non-negotiable ones, and a two-point band applied openly to everyone is a very different instrument from a rebate negotiated behind a door.
Elevating a surcharge to statute has consequences beyond the rate. A tax levied under a law passed by the National People's Congress is harder to waive locally and harder to negotiate away, and it fits the wider programme of putting each Chinese tax on a statutory footing.
For location decisions this is a small input that is easy to over-read. The 11–13% range on a surtax base is likely less of a location selection factor but rather it is worth tracking because a province that sets 13% is signalling something about its revenue position.
What to watch
The consultation closing date and the final rate band. The 11–13% range is a proposal.
Which provinces announce at the top and bottom of the band, and how quickly.
Whether the law preserves the exemptions and reductions attached to the current surcharges.
Progress through the NPC Standing Committee readings, and whether consolidation extends to further local levies.
6. Miscellaneous
Battery consumption tax — administration detail published. Following the resumption of consumption tax on batteries covered in our July issue, the STA has published the operational requirements: correct product tax classification codes on invoices, a Battery Tax Deduction Ledger where already-taxed batteries are used in continuous production, and compliant inspection reports and exemption schedules for products claiming relief. The tax resumed on 1 September 2026.
IIT on restricted share transfers (MOF/STA/CSRC Announcement 2026 No. 26, effective 28 August). Bonus and transfer shares generated after lock-up release are brought into the taxable scope where registration occurs on or after 28 August. More significantly, companies completing initial share registration after that date without reporting shareholders' original cost basis face withholding on full transfer proceeds with no cost deduction, replacing the 15%-of-proceeds default that survives only for earlier registrations. An annual reconciliation allows settlement by 30 June of the following year.
Beijing publishes a further controlled foreign company case. A Beijing enterprise's offshore holding company, earning mainly passive dividend and interest income, taxed below 12.5% and with profits left undistributed, was identified through big-data risk analysis, resulting in a voluntary back-payment of RMB 8.29 million. Read with the offshore trust framework in our July issue, the direction is consistent: offshore structures holding passive income are being surfaced analytically rather than through audit selection.
STA Guide to Tax Services for International Transport. The first cross-border tax guide the STA has aimed at a single industry. It introduces no new rules but consolidates treaty treatment, non-resident administration requirements and risk areas across wet lease, time charter, voyage charter, ancillary services and bareboat arrangements. A guide of this kind is an enforcement signal; shipping, freight, aviation, logistics and equipment leasing businesses should expect closer scrutiny.
Aviation bonded repair (MOFCOM and eight ministries, 19 August). Thirteen measures supporting the maintenance, repair and overhaul sector. Export tax refund and exemption now applies to outbound repair services under bonded repair arrangements. Domestic sale of bonded-repaired goods follows materially different tax paths depending on whether repair occurred inside or outside a comprehensive bonded zone — a difference to model into pricing before quoting. Reusable parts removed during repair may now enter domestic circulation after inspection and airworthiness certification, subject to a customs-networked ERP system providing full material traceability.
China–Norway tax treaty. STA Announcement 2026 No. 17 of 10 August confirms the new treaty and protocol entered into force on 16 June 2026, replacing the 1986 agreement, applying to income derived in tax years beginning on or after 1 January 2027. Dividend withholding falls to 5% for corporate holders with a 25% or greater stake held for 365 days or more, and 10% otherwise. The construction and installation permanent establishment threshold moves from a flat six months to a cumulative 183 days in any 12-month period, with anti-fragmentation rules.
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