CITIC Securities: No worries about VAT for internet companies, focus on high-tech enterprise certification

Starting from January 1, 2026, the “Value-Added Tax Law of the People’s Republic of China” and the “Implementation Regulations of the Value-Added Tax Law of the People’s Republic of China” will officially come into effect. Currently, there are no adjustments to internet enterprise tax rates involved. On the other hand, the management measures for high-tech enterprise recognition may be updated; if the standards become stricter, some non-leading internet companies may find it difficult to enjoy preferential corporate income tax rates. The main tone of current tax policies remains focused on supporting technological innovation.

The core tax types for Chinese internet companies are mainly VAT and corporate income tax.

Generally, internet companies are required to pay VAT, corporate income tax, personal income tax, VAT surcharges, stamp duty, etc. The VAT rate for general taxpayers is: 13% for sales of goods/lease of tangible movable property, 9% for basic telecommunications/real estate-related services, and 6% for value-added telecommunications/information technology/advertising/software services. Modern services such as core information technology, advertising, software services, as well as financial and lifestyle services, currently all apply a 6% rate. The statutory base rate for corporate income tax for general internet companies is 25%, but those recognized as key high-tech enterprises supported by the state can pay a 15% rate and enjoy additional deductions for R&D expenses.

Adjustments in VAT scope lead to some industry rate increases.

Starting from January 1, 2026, the “Value-Added Tax Law of the People’s Republic of China” and the “Implementation Regulations of the Value-Added Tax Law of the People’s Republic of China” will replace the original “Provisional Regulations of the VAT,” with several supporting notices issued by the Ministry of Finance and the State Taxation Administration. The “Notice on Specific Scope of VAT Taxation” stipulates that, from January 1, 2026, business activities providing mobile traffic services, SMS, MMS, and internet broadband access within the People’s Republic of China using fixed networks, mobile networks, satellites, or the internet will have their tax category changed from value-added telecom services to basic telecom services, with the VAT rate adjusted from 6% to 9%. Additionally, profit-oriented medical beauty industry will no longer enjoy VAT exemption; tax supervision of e-commerce live streaming industry will be strengthened; small-scale taxpayers meeting standards will be converted to general taxpayers; planning methods such as splitting construction contracts are restricted, and the classification of equipment sales and installation services is more standardized, leading to increased tax burdens for some businesses.

VAT-related business activities of internet companies mainly involve providing production and lifestyle services, with no similar adjustments to telecom service tax brackets.

According to the “Notice on Specific Scope of VAT Taxation,” sales services mainly include transportation, postal services, telecommunications, construction, financial services, and production and lifestyle services. The R&D and information technology services provided by internet companies belong to production and lifestyle services. “Virtual items in online games” are intangible assets, and their service tax logic differs from the recent telecom service rate adjustment: the telecom service rate adjustment is a reclassification (from added value to basic), while internet services currently have no similar process. According to estimates by CITIC Securities Research Department’s internet team, in an extreme scenario where the VAT rate for internet-related services increases from 6% to 9%, the profit impact is expected to be only in the low single digits.

The recognition management measures for high-tech enterprises may be updated, with a clear trend toward stricter recognition standards for internet companies.

The current “High-Tech Enterprise Recognition Management Measures” and the “Guidelines for High-Tech Enterprise Recognition” have been in effect for ten years. On July 28, 2025, a symposium of heads of the national industry and information technology departments was held in Beijing, where it was mentioned that the high-tech enterprise recognition management measures would be revised. The core trend in high-tech enterprise recognition is “improving quality + strict review,” and signals of tightening recognition for internet companies are clear. In 2025, over 4,300 high-tech enterprises had their qualifications revoked nationwide; many regions continued to conduct intensive clean-ups in early 2026. In Henan Province alone, 1,077 high-tech enterprises were revoked in January, mainly due to failure to meet R&D expense ratio standards. Violations such as “faked patents,” “fictitious R&D expenses,” and “personnel outsourcing” are key issues. Guangzhou Duoyi Network Co., Ltd. had its high-tech enterprise qualification revoked for 2021-2023 in December 2025; corporate income tax was adjusted from 15% back to 25%, and corresponding tax benefits for those years were recovered. Leading internet companies focusing on core technology R&D (such as game engines, AI algorithms) generally meet high-tech recognition standards; however, those only providing marketing services without core independent intellectual property rights or continuous R&D transformation may face increased difficulty in recognition.

The tax burden reform of new business models represented by the internet is a long-term process, and legal revisions do not happen overnight.

The “Decision of the Central Committee of the Communist Party of China on Further Deepening Reform and Promoting Chinese-Style Modernization,” adopted at the Third Plenary Session of the 20th CPC Central Committee, proposes to “study a tax system compatible with new business models.” These include emerging industries such as “Internet+”, sharing economy, and platform economy. We believe the direction of tax burden reform for new business models is to achieve tax fairness, improve tax collection efficiency, and promote healthy development of these industries. For internet companies, future policies are expected to further clarify the taxation rules for digital products and services, gradually reduce and adjust VAT brackets, strengthen tax collection, optimize deduction chains, and eliminate unfair competition caused by tax differences between online and offline activities. Given that the “Value-Added Tax Law of the People’s Republic of China” has already been officially implemented, any further revisions typically involve four main stages: proposal, review, voting, and announcement. During the review stage, it generally requires three sessions of the Standing Committee of the National People’s Congress before being put to a vote.

Risk factors:

Risks include slower-than-expected policy implementation and macroeconomic slowdown risks.

Source: CITIC Securities Research

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