China Moves to Implement the Electronic Invoice
China will implement the electronic invoice and it is expected to begin mandating companies to adopt the invoice I 2021. Since 2020 31 regions have adopted the voluntary pilot program. The program has been promoted by the China Tax Bureau (CTB). Currently paper invoicing still exists, and the adoption of e-invoicing is voluntary.
The Chinese invoicing system is called the Golden Tax System or Fapiao System. The China Tax Bureau (CTB) oversees its development.
The Chinese Electronic Invoice – e-fapiao
In China invoices are called fapiao. A Fapiao is a physical legal receipt issued on paper, distributed, printed and administered by the STA (State Taxation Administration). The Fapiao is used as a proof of purchase for goods and services in China. Companies in China must buy fapiao’s from the STA before conducting any sales, effectively meaning that they pay taxes before conducting sales. Companies must buy different kinds of fapiao’s depending on the sector a company operates in, as well as the total invoiced amount. There are also limited amounts of fapiao types. There are many different kinds of fapiao: general fapiao, general fapiao with VAT, and fapiao with special VAT.
The e-fapiao is the digital representation of a fapiao, two types exist: general and special.
- Like the paper invoice, the general e-fapiao is issued for a commercial transaction where the VAT is not deductible.
- The special e-fapiao allows for the deduction of VAT and is the focus of the pilot program. This primarily impacts B2B transactions.
The Chinese invoicing system - Golden Tax System
The Chinese invoicing system is based on the obligation to emit invoices (e-fapiao) through the government’s central platform called the Golden Tax System. Invoices issued by taxpayers are verified through authorized companies. Currently, only two function as a trusted third party. Every e-fapiao must be validated by those two companies exclusively.
Once the invoices have been validated a unique identification code is assigned used to prevent tax fraud. The invoices are then returned to the issuer who can then distribute them through electronic means: e-mail, QR code, SMS, PDF, printed e-fapiao, etc.…
Evolution of the electronic invoice in China
The electronic invoice was introduced to the Chinese tax system in 2015. However, it was not until December 2020 that the Announcement N.º 22 (2020) about the “Implementation of Electronic VAT Invoices Between Recently Established Taxpayers” was proclaimed enabling recently established taxpayers to issue e-fapiao with special VAT.
With this law the government intends to implement the “Business Environment Optimization Regulation”, to deepen decentralization, management and service of the tax environment, and to increase the use of the electronic invoice through the three regional pilot projects in Ningbo, Shijiazhuang and Hangzhou.
The electronic invoice is currently expanding throughout China. The latest regions to join the issuance of special VAT e-invoices are: Beijing, Shanxi, Mongolia Interior, Liaoning, Jilin, Heilongjiang, Fujian, Jiangxi, Shandong, Henan, Hubei, Hunan, Guangxi, Hainan, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai.
We expect that 2021 will be the year that electronic invoicing between companies exponentially increases, although currently paper invoices are still around and the electronic invoicing system is voluntary.
EDICOM’s China Golden Tax System – e-fapiao Service
The STA platform is available for manual “special VAT e-fapiao” operations and automated “general VAT e-fapiao” operations, meaning that it is not possible to automate the liquidation or validation of a large quantity of B2B electronic invoices. However, as neighboring countries have shown the implementation of the electronic invoice in the Asia Pacific region is unstoppable and its implementation is synonymous with an open and competitive economy.
Companies must preemptively prepare their systems for the major changes in tax reporting through electronic files, and must analyze the structural changes and processes needed to emit electronic invoices.
EDICOM is and specialized electronic invoice provider that is currently developing electronic invoicing services in China. This will enable us to accompany and provide more services to companies undergoing the invoice digitalization process around the world.
EDICOM’s International eInvoicing Platform enables us to provide services to our clients undertaking the transition to electronic invoicing in over 70 countries.