Because there is no need to pay VAT, interest-free loans provided by banks to employees can be VAT-free.

According to the "Notice of the Ministry of Finance and the State Administration of Taxation on Comprehensively Launching the Pilot Program of Replacing Business Tax with Value-Added Tax" (Caishui [2016] No. 36) Annex 1 "Implementation Measures for the Pilot Program of Replacing Business Tax with Value-Added Tax" Article 10 It stipulates: "Sales of services, intangible assets or real estate refers to the paid provision of services and paid transfer of intangible assets or real estate, except for the following non-business activities: (3) Units or individual industrial and commercial households provide services for hired employees." Therefore, no VAT is payable.

Value-added tax is a turnover tax levied based on the added value generated during the circulation of goods (including taxable services) as the basis for tax calculation.