Ministry of Finance and State Administration of Taxation Announcement No. 2026-28: "Administrative Measures for Domestic Entities Withholding Value-Added Tax on Natural Persons" will come into effect onEffective 2026-11-1。
2026/1/1 to 10/31 is the transition periodFor natural persons providing 7 services, VAT remains self-declared by the individual, and enterprises are not currently required to withhold VAT. However, the obligation to withhold personal income tax remains unchanged.
Finance professionals, business owners, finance leaders, and sales teams—be sure to save this!
One key takeaway: Starting 11/1, companies will face "double deductions"!
After 2026-11-1, enterprises pay natural persons7 specific service feeEnterprises are no longer just withholding individual income tax; they have become withholding agents for value-added tax.
Must withhold both individual income tax and VAT plus surcharges!
What is commonly known as:Double Knock
Note: Not all payments to individuals require VAT withholding. Only the following 7 service categories trigger this requirement.
2. Value-added tax withholding applies only to these 7 service types!
Not part of the billable items; VAT withholding not required:
VAT is self-filed and paid by individuals; the enterprise only withholds personal income tax.
Key Point: Not all individual payments are subject to VAT. Only these 7 categories apply!
3. Threshold Rule: 1000 CNY (tax-exclusive) per transaction
Sales per transaction1000 CNY or less (tax excluded)Value-added tax (VAT) must be withheld once the threshold is reached. Single transactions under 1000 yuan are exempt from VAT.
Note:
- Manual contract splitting is prohibited. Splitting multiple transactions on the same day to avoid withholding by keeping each below 1000 will result in consolidated tax calculation by the tax authority.
- Tax exemption does not mean you don't need to file a return.
Calculation Formula:
Tax-exclusive Sales Amount = Tax-inclusive Price ÷ (1 + 1%)
VAT = Tax-exclusive Sales × 1%
Additional Taxes = VAT × (City Construction 7% + Education Surcharge 3% + Local Education Surcharge 2%) × 50%
Current levy rate is 3%, with preferential tax calculation at 1%; city maintenance and construction tax, education surcharge, and local education surcharge are withheld simultaneously. Additional taxes and fees may qualify for a 50% reduction under the "Six Taxes and Two Fees" policy.
4. Individual Income Tax vs. Value-Added Tax: Withholding Rules Comparison
| Project | Individual Income Tax (Remuneration for Personal Services) | VAT (Service Category 7) |
|---|---|---|
| Withholding Agent | Domestic payer requiring long-term withholding | Auto-debit for 7 service types is only available after 1 of month 11. |
| Threshold | Single transaction ≤ 4000: deduct 800; > 4000: deduct 20% fee; no minimum threshold of 1000 yuan—even a 300 yuan transaction requires full zero declaration for all staff. | 1000 per occurrence (tax-exclusive). No VAT due as the amount is below the threshold, but withholding declaration is still required. |
| Submission Channel | Individual Income Tax E-Tax Service (Withholding Terminal) | VAT Withholding Declaration Module |
| Invoice Rules | Individuals can have their digital invoice handled by the withholding agent based on withholding records. | No withholding required if VAT has already been paid during issuance. |
Key Exemption:
The individual has obtained a tax invoice from the tax bureau, and the invoice remarks or tax payment certificate confirm that VAT has been collected. The enterprise will not withhold VAT again.
V. Practical Case: Financial and Tax Consulting Fee 5000 CNY
Example:Hire an individual financial and tax consultant. The taxable consulting fee is 5000 CNY, classified as 7 consulting services.
Starting from 11/1, the consultation fee remains at 5000. However, companies will now need to handle VAT, surcharges, and individual income tax withholding simultaneously, which will affect net payout calculations.
6. Legal Risks: Key Focus Areas for Contract Review
1. VAT not deducted when it should have been
Under the Tax Collection Administration Law, a fine of 0.5 to 3 times the unpaid tax will be imposed; this will also negatively impact the enterprise's tax credit rating.
2. Withholding fee refund
Withholding agents may apply for a 0.5% refund of withholding fees, with an annual cap of 70 million yuan per taxpayer. Applications must be submitted by 31 of the following year.
3. Contract Risk
Many contracts only specify the net price after tax. Under the new policy, calculating the gross amount requires back-calculating VAT, surcharges, and personal income tax from the net price, making the estimation more complex.
How do I modify the contract terms?
Option A: Tax-Inclusive Pricing (Recommended)
Contract price: XX CNY (including VAT and surcharges). Party A (the paying entity) shall withhold VAT, surcharges, and individual income tax in accordance with national tax laws. The remaining amount shall be paid to Party B (the natural person).
Option B: Net pay agreed for individuals
The contractor's net take-home pay is XX CNY; the client assumes and remits VAT, surcharges, and personal income tax. The contract specifies the total price including taxes.
Suggestion:
- Prefer the all-inclusive price to avoid future disputes.
- Always calculate the net pay in advance to prevent actual company costs from exceeding the budget.
8. Implementation Tips for Finance and Tax Services
Tax liability arises based on the occurrence date, not the contract signing date.
Consulting services of type 7 signed before 2026/11/1 and paid after 11 are subject to the new policy No. 28, which requires withholding of value-added tax.
Specialized identification for due diligence and contract review with enterprise clients
Is paying consulting fees to natural persons classified under the 7 category? Does this create a new VAT withholding obligation? Should the quotation and contract templates be updated?
Pre-call reminder for sales
The new policy affects payments, invoicing, tax deductions, and net proceeds. Clarify this upfront to prevent future disputes.
Financial System Pre-configuration
Prepare in advance for VAT withholding declaration, individual income tax full-amount reporting, and surtax calculations.
9. Common Misconceptions Clarified
10. Final Summary: Before 11/1, consider doing these 5 things
- 1Review existing contracts: Which involve natural person 7 services?
- 2Modify contract template: Add tax-inclusive price, VAT withholding, surcharges, and individual income tax clauses.
- 3Train sales and customer service teams: Proactively inform customers about the impact of new policies.
- 4Financial System Settings: VAT Withholding Declaration, Individual Income Tax Declaration, and Surcharges Calculation
- 5Confirm the execution guidelines with the competent tax authority to avoid risks of under-withholding.
Remember in one sentence:
After 11/1, when companies pay natural persons for 7 services, income tax withholding alone is no longer sufficient; instead"Double deduction": VAT + surcharges + personal income tax。
Tax & finance consulting, design, R&D, software, film production, cultural services, and education services — priority focus!
Policy Original Attachment
Administrative Measures for Withholding Value-Added Tax by Domestic Entities on Behalf of Natural Persons (PDF)
This content is compiled based on publicly available policy information. Actual implementation shall be governed by official documents and the guidance of the competent tax authority. We recommend sharing this with business owners, finance teams, and sales staff to prepare for contract and pricing adjustments in advance.