The Ministry of Finance and the State Administration of Taxation have issued the "Interim Measures for Deducting Input Tax on Long-term Assets".

On February 2nd, the Ministry of Finance and the State Administration of Taxation issued the "Interim Measures for Deducting Input VAT for Long-term Assets". It mentions that taxpayers who acquire the following long-term assets for mixed use should deduct the input VAT in full at the time of purchase. During the period of mixed use, the input VAT that cannot be deducted from the output VAT due to the five non-deductible items corresponding to the adjusted period limit will be calculated and adjusted annually. Taxpayers who acquire long-term assets other than those specified in Article 9 of this measure for mixed use can deduct the corresponding input VAT in full from the output VAT. The original text is as follows: Interim Measures for Deducting Input VAT for Long-term Assets According to the relevant provisions of the "Value-added Tax Law of the People's Republic of China" (hereinafter referred to as the VAT Law) and the "Implementing Regulations of the Value-added Tax Law of the People's Republic of China" (hereinafter referred to as the Implementing Regulations), these measures are formulated. Chapter I Scope of Long-term Assets Article 1 For general taxpayers of value-added tax (hereinafter referred to as taxpayers) who acquire long-term assets specified in Article 25 of the Implementing Regulations of the Value-added Tax Law, the corresponding input VAT should be handled in accordance with the relevant provisions of these measures. Article 2 The acquired long-term assets refer to long-term assets obtained through direct purchase, self-production, research and development, construction, investment, donations, or debt settlement; excluding leased long-term assets, temporary buildings or structures constructed at construction sites, and real estate projects developed by real estate development enterprises that are accounted for as inventory. Article 3 Fixed assets in long-term assets include supporting equipment, tools, and instruments that constitute its entity; intangible assets include relevant legal rights and knowledge achievements that constitute its core value and rights basis; real estate includes building decoration materials, water supply and drainage, heating, sanitation, ventilation, lighting, communications, gas, fire protection, central air conditioning, elevators, electrical, photovoltaic power generation, intelligent building equipment, and supporting facilities that constitute its entity. Chapter II Method of Deducting Input VAT for Long-term Assets Article 4 The input VAT corresponding to long-term assets refers to the input VAT specified in the VAT deduction vouchers for the original value of the long-term assets. Article 5 If taxpayers acquire long-term assets used exclusively for general taxable items, the corresponding input VAT can be deducted in full from the output VAT. Article 6 Taxpayers who acquire long-term assets exclusively for simple taxable items, VAT-exempt items, non-taxable transactions that cannot be deducted, collective welfare, or personal consumption (referred to collectively as five non-deductible items) cannot deduct the corresponding input VAT from the output VAT. Article 7 After taxpayers acquire long-term assets and deduct the input VAT, if abnormal losses occur as specified in Article 19 of the Implementing Regulations of the VAT Law or the use changes and is exclusively used for the five non-deductible items, the input VAT that cannot be deducted should be calculated according to the following formula in the month when abnormal losses or use changes occur and deducted from the current input VAT: Article 8 If taxpayers acquire long-term assets exclusively for the five non-deductible items and later change the use to be exclusively for general taxable items, or if they are used for both general taxable items and the five non-deductible items (referred to collectively as mixed use), the deductible input VAT should be calculated according to the following formula in the month of the change: Deductible input VAT = input VAT corresponding to long-term assets net value rate Article 9 If taxpayers acquire the following long-term assets for mixed use, they should deduct the input VAT in full at the time of purchase, and then calculate the input VAT that cannot be deducted from the output VAT due to the five non-deductible items corresponding to the adjusted period limit during the mixed use period, adjusted annually. (A) Single long-term assets with an original value exceeding 5 million yuan that should start to be accounted for as relevant assets according to the accounting system from January 1, 2026, or have completed capitalization transformation before December 31, 2025, and have an original value exceeding 5 million yuan after the capitalization transformation and start to be accounted for as relevant assets in the accounting system from January 1, 2026. Article 10 Taxpayers who acquire long-term assets other than those specified in Article 9 of these measures for mixed use can deduct the corresponding input VAT in full from the output VAT. Article 11 The original value of long-term assets refers to the recorded value at the time of acquisition. If there are capitalization transformation expenditures after the formation of long-term assets, the original value should be adjusted according to the accounting system. Capitalization transformation refers to repairs, upgrades, renovations, reconstructions, expansions, repairs, decorations, etc., that meet the capitalizations conditions of the accounting system. Article 12 Taxpayers who acquire long-term assets other than those specified in Article 9 of these measures and encounter situations as specified in Articles 7 and 8 of these measures, should treat the remaining balance after depreciation or amortization according to the accounting system as the net value of long-term assets. Article 13 For long-term assets acquired as specified in Article 9 of these measures, the net value refers to the asset balance calculated using the average method according to the adjusted period limit specified in Article 17 of these measures. The calculation formula is as follows: Article 14 Taxpayers who fall under the situations specified in Article 9 of these measures shall adjust the input VAT for long-term assets on an annual basis according to the following phased adjustment method: (1) Determine the phased adjustment base for the input VAT during the mixed use period for the year. (2) Calculate the input VAT corresponding to two non-deductible items during the year. (3) Calculate the input VAT corresponding to three non-deductible items during the year. (4) Calculate the input VAT corresponding to five non-deductible items during the year and deduct it from the output VAT in the tax declaration period of the following year. The input VAT corresponding to five non-deductible items during the mixed use period of the year = input VAT corresponding to two non-deductible items during the mixed use period of the year + input VAT corresponding to three non-deductible items during the mixed use period of the year Article 15 In addition to the provisions of the second paragraph of this article, the input VAT to be adjusted for long-term assets that need adjustment as specified in Article 14(1) of these measures refers to the input VAT corresponding to long-term assets specified in Article 4 of these measures. For long-term assets specified in Article 9(2) of these measures, the input VAT to be adjusted refers to the input VAT corresponding to the capitalization transformation expenditures. The input VAT corresponding to the part other than the capitalization transformation expenditures shall be adjusted separately according to the provisions of Articles 10 and 12 of these measures. Article 16 When adjusting the input VAT for long-term assets according to Article 14 of these measures, if the actual service life of the long-term assets is shorter than the adjusted period limit, the remaining unadjusted input VAT should be adjusted in a lump sum during the tax declaration period when the use is discontinued. Article 17 The adjusted period limit of Article 25(2) of the Implementing Regulations of the VAT Law is implemented as follows: (1) real estate and land use rights - 20 years, (2) airplanes, trains, ships - 10 years, (3) other long-term assets - 5 years. For taxpayers who acquire long-term assets specified in Article 9(1) of these measures, the adjusted period limit starts from the month when the long-term assets are acquired or when the capitalization transformation is completed after the original value exceeds 5 million yuan. For taxpayers who acquire long-term assets specified in Article 9(2) of these measures, the adjusted period limit starts from the month when the capitalization transformation is completed after 2026 and the original value exceeds 5 million yuan. Article 18 If long-term assets undergo capitalization transformation during the adjusted period limit and stop depreciating or amortizing according to the accounting system, the adjusted period limit will be suspended accordingly. When depreciation or amortization resumes, it will continue to be executed according to these measures. Article 19 Taxpayers who adjust the input VAT for long-term assets according to these measures, if the long-term assets undergo another capitalization transformation after the adjusted period limit ends and the new recorded value exceeds 5 million yuan, it will be treated as a new long-term asset. The input VAT corresponding to the capitalization transformation expenditures shall be adjusted according to these measures, and the adjusted period limit starts from the month when depreciation or amortization is resumed after the capitalization transformation is completed. Chapter III Disposal of Long-term Assets Article 20 When taxpayers dispose of a single long-term asset as a whole, they should adjust the input VAT for the asset according to Articles 7, 8, and relevant tax policies at the time of disposal. Article 21 If taxpayers partially dispose of a single long-term asset, they should determine the proportion of the disposed part and the remaining part based on the book value confirmed by the accounting system at the time of disposal, and adjust the input VAT for the disposed asset according to Articles 7 and 8, and relevant tax policies at the time of disposal based on the proportion of the disposed part. Taxpayers who partially dispose of a single long-term asset and implement phased adjustments within the adjusted period limit should continue to follow the relevant provisions of these measures for the remaining period and make adjustments accordingly. Chapter IV Daily Management Article 22 If taxpayers obtain VAT deduction vouchers for long-term assets after depreciating or amortizing according to the accounting system, they should retrospectively calculate the input VAT for the long-term assets and adjust the corresponding input VAT along with the input VAT corresponding to the five non-deductible items for the tax declaration of the year. Article 23 Taxpayers should promptly collect VAT deduction vouchers for long-term assets, keep records, archive them properly, and establish a ledger for the input VAT deduction of long-term assets according to these measures. They should record the acquisition, use, disposal, and input VAT deduction situation of single long-term assets with an original value exceeding 5 million yuan, and truthfully and accurately handle tax declarations. Article 24 If taxpayers fail to deduct the input VAT for long-term assets in accordance with these measures, resulting in underpayment of taxes, early tax refunds, or over-refunds, the competent tax authorities will handle it in accordance with the VAT Law, Implementing Regulations of the VAT Law, the "PRC Tax Collection and Management Law", and relevant provisions. This article was selected from the official website of the Ministry of Finance; GMTEight Editor: Chen Xiaoyi.