China’s invoicing system is different than the invoice systems used in the west. This article discusses the Chinese Fapiao, which is the invoice that is critical for all financial services in China.
Invoicing in China
When in Rome, be as a Roman, and in China be as a Chinese. When it comes to the national tax invoice management system, one word you must know is Fapiao. This is the Chinese translation to the invoice known in the west, and is very common in the Chinese business environment.
What is a Fapiao?
Fapiao is, in essence, invoicing in China. Put simply, fapiao is legal proof of purchase for a good or service. When a local transaction occurs, the seller issues a fapiao. And just to state the obvious, ALL domestic transactions in China have to be recorded, and fapiaos must be provided. If a seller refuses to issue a fapiao, the buyer is allowed to appeal to the tax bureau.
The fapiao system is run by China’s State Taxation Administration (STA). The governmental body issues, distributes, records and supervises fapiao handling across China. The STA allocates fapiaos to companies in China based on their business scope. For instance, the quota for small taxpayers might include a fapiao booklet that contains 25-50 sheets, and each sheet’s value cannot exceed 10,000 RMB.
Please note that new WFOEs that have just been set up are subject to several restrictions regarding how many invoices they can issue and each invoice’s total value. These conditions vary between different localities in China, and are handled locally at the relevant tax bureau office.
Usages of the fapiao:
- Buyers use the fapiao for reclaiming business expenses
- Sellers use the fapiao for tax offsetting and rebates
- The government uses the fapiao for combatting tax evasions and tracking payments
Types of fapiaos
These are usually used as evidence of payments. It’s a China tax invoice, if you will. Compared to the other type of fapiao, the general fapiaos are easier to process, and they are more common among small-scale taxpayers, the B2C sector, life services industries and tax-free transactions. General fapiaos can’t be used for VAT deductions purposes.
Special VAT Fapiao
These serve for VAT deduction purposes, in addition to being proof of purchase. They cannot be used by small-scale taxpayers, and are therefore more common in the B2B sector. VAT fapiaos must be kept in a safe place. The penalty for a lost fapiao sheet will be at least equivalent to its original value.
The special VAT fapiao requires filling out more detailed information over three sheets:
- The bookkeeping sheet: serves as the seller’s accounting record
- The tax deduction sheet: serves as proof of the amount of input tax paid by the buyer
- The invoicing sheet: is used by the customer for his/her accounting
The e-fapiao reform
After the completion of implementation of the general e-fapiao reform in 2016, and as part of China’s efforts to digitize and streamline business procedures, a special VAT e-fapiao pilot program was launched in 3 cities in China in September 2020. The program was planned to be implemented nationwide by the end of 2020.
The advantages of the e-fapiao
Here are some of the most apparent advantages:
- They are easier and faster to buy, process and deliver
- A fapiao sheet can be authenticated and verified online before applying for tax deductions
- Fapiaos are stored online so they are never lost and can be re-printed
Please note that while companies benefit from the new reform, it also increases the government’s ability to monitor corporate activity.
Last updated: May 2021
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