Invoicing in any country can be tricky, let alone China. But no worries, that’s why we are here; to explain in a brief matter what exactly are the changes that digital invoicing brought into effect, and review the outline of how invoicing in China is done:
Before we start, the most important element to understand is that when it comes to the national tax invoice management system in China, there should be no cutting corners, knowing and understanding Chinese bureaucracy is essential for your business. And just to state the obvious, ALL domestic transactions in China must be recorded, and invoices must be provided. If a seller refuses to issue an invoice, the buyer is allowed to appeal to the tax bureau.
So, what is a Fapiao and e-Fapiao?
Fapiao (发票) in English translates to receipt, and it is simply the way invoicing is done in China. Meaning, Fapiao is a legal proof of purchase of either goods or services, just like a receipt in any other country. So, a Fapiao is China’s tax invoice. It is a legal, physical receipt issued using paper, distributed, printed, and administered by the STA (State Taxation Administration).
Following a recent pilot program put forward by the Chinese government in December 2020, the “Fapiao” has changed into an Electronic Fapiao or e-Fapiao. In fact, as a result of the Covid-19 outbreak, and the lockdowns that followed it, the need for a paperless version of fapiao accelerated. Therefore, the current way to invoice in China in most major cities has changed from a printed paper form to a digital form.
e-Fapiao system is run by China’s State Taxation Administration (STA). The governmental body issues, distributes, records, and supervises fapiao handling across China and of 2022 the platform for e-Fapiao. The STA allocates invoices to companies in China based on their business scope. For instance, the quota for small taxpayers might include a physical fapiao booklet that contains 25-50 sheets of paper, and each sheet’s value cannot exceed 10,000 RMB. But, thanks to the new e-Fapiao all of this can be done online with no paperwork.
If you are doing business in China or starting a business in China, note that new WFOEs (wholly foreign-owned entities) that have just been set up are subject to several restrictions regarding how many invoices they can issue monthly and each invoice’s total value. These conditions vary between different locations in China and are handled locally at the relevant tax bureau office.
Usages of the Fapiao or e-Fapiao:
- Buyers use them for reclaiming business expenses
- Sellers use them for tax payments, offsetting, and rebates
- The government uses the e-Fapiao or fapiao system for tracking payments and combatting tax evasion.
Converting to e-Fapiao – digital invoicing in China
After the completion of the implementation of the general e-Fapiao reform in 2016, and as part of China’s efforts to digitize and streamline commercial procedures, a special VAT e-Fapiao pilot program was launched in China in September 2020. The implementation of e-Fapiao in China’s mega-cities was completed in 2022, and full implementation across the country will be achieved by 2025. Any company wishing to enter the Chinese market from now on will be able to benefit from the relief that the electronic version brings to invoicing in China.
Why e-Fapiao is good for your business
Here are some of the most apparent advantages of digital invoicing in China:
- They are easier and faster to buy, process, and deliver
- A fapiao sheet can be authenticated and verified online before applying for a tax return in China
- e-Fapiaos are stored online, so they are never lost and can be re-printed
- e-Fapiaos can be easily integrated into the company’s systems and streamline broader processes, e.g., annual reporting, supply chain management, etc.
- They eliminate the need for paper, ink, and delivery services, and they are environmentally friendly
Read more about the financial aspects of running a business in China in the Financial regulations guide for foreign companies in China
Three practical meanings of e-Fapiao for your businesses
- Optimization and automation – The shift to e-Fapiao has affected not only WFOE accounting and general accounting in China but the entire business operation in China. Therefore, many companies have taken the opportunity to update and optimize additional business functions, to achieve greater precision and productivity thanks to the e-Fapiao. Note: there might be additional costs and periodic updates for the new electronic system.
- Increased transparency – These digital tools increased transparency. Therefore, the digital system has increased not only the government’s ability to monitor corporate activity in China, But also for the company’s management.
- Careful handling – As e-Fapiaos are easier to generate and can be re-printed, financial teams should pay careful attention to duplicated e-Fapiaos and replicas, to prevent repeated reimbursements.
Types of e-Fapiao:
Just like the regular Fapiao, there are also two kinds of digital e-Fapiao: General VAT and Special VAT.
The general e-Fapiao is issued for commercial transactions of a service or product,
and the VAT (Value Added Tax) is non-deductible.
The special VAT e-Fapiao allows to deduct VAT,
which makes it more business oriented as it is best for B2B companies
Just like in any other country, when doing business, it is imperative to know the rules and regulations regarding paying taxes. After all, you do not want to be on the wrong side of the tax officials. Remember, that managing a company in China requires full compliance with Chinese accounting rules which are different than the accounting rules in western countries.
PTL Group has more than two decades of experience providing accounting services in China and more financial services in China. Our local experts on the ground provide vital support in meeting the financial needs of international companies in China. We provide financial reporting in accordance with Chinese standards, while making all the necessary adjustments to meet the needs of the overseas CFO. We operate as our client’s in-house Finance Manager, Financial Controller or accountant. We provide them with transparent and clear accounting reports.
PTL Group’s financial experts support its clients whether they already have a business license in China or just Starting a Business in China. Read more about our financial services in China.