From question How to replace a character for a newline in Vim?. You have to use \\r when replacing text for a newline, like this
:%s/%/\\r/g
From http://vim.wikia.com/wiki/Search_and_replace :
When Searching ... \n is newline, \r is CR (carriage return = Ctrl-M = ^M) When Replacing ... \r is newline, \n is a null byte (0x00).
When Searching
...
\n is newline, \r is CR (carriage return = Ctrl-M = ^M)
\n
\r
CR
Ctrl-M
^M
When Replacing
\r is newline, \n is a null byte (0x00).
0x00