What is a fapiao?
In China, fapiao translates to “invoice”; more specifically it is an official invoice admistered by the STA that also serves as a tax tracking system. Businesses must record all transactions on fapiao, as the system serves to combat tax evasion and ensure compliance with trade laws.
It is up to businesses to purchase the correct fapiao from the STA based on their business scope.
The Golden Tax System and types of fapiao
The Golden Tax System is the tax administration system in China. The system was implemented several years ago and is now operating in its third stage called “Golden Tax System III.” Modern and innovative technology is the foundation of the system in order to establish consistency throughout the tax administration.
The main focus of the system was initially the registration and storage of paper invoices. In the past few years, the system has grown to allow for electronic issuance of some fapiao.
In China, there are two types of fapiao:
- General VAT Fapiao: issued as evidence of payment. This invoice type does not allow for VAT deduction and is typically used for B2C and tax-free transactions. As the General VAT Invoice is simpler than the Special VAT invoice, a process for electronic issuance has been available for several years.
- Special VAT Fapiao: issued by general taxpayers to customers when selling commodities or providing taxable services. This invoice types allows for VAT deductions and is typically used for B2B transactions.
B2B e-invoicing pilot stage
In September 2020, the provinces of Anhui, Jiangsu and Zhejiang started piloting the new system for the Special VAT fapiao together with the STA. Businesses in these provinces can now join the pilot stage on a voluntary basis, with more provinces joining as the system develops further.
The STA has set up a number of technical and accreditation requirements in order to interact with the new e-invoicing system. For instance, all e-invoices must be issued in ODT format and stored by the tax subjects, irrespective of whether they process the invoice electronically or on paper. The supplier has to submit the e-invoice to the mandatory infrastructure, which will validate as well as distribute the e-invoice to the buyer.
Following the pilot stage, there are plans to connect other provinces to the scheme by the end of 2020 or early 2021. Experts expect that, similar to the General VAT Fapiao, the Special VAT e-Fapiao will be voluntary prior to becoming mandatory for all relevant tax subjects in China.
Besides the commonly accepted benefits such as automation, cost reduction and improved data quality, the new system will bring a number of country-specific benefits for businesses operating in China:
- More time, less bureaucracy: The new e-invoicing system will remove time-consuming and bureaucratic processes that currently take place in person at local tax offices. Businesses will no longer have to physically show up to obtain training in fapiao issuance, apply for paper fapiao, or apply for additional volumes of paper fapiao. E-invoicing also eliminates the need to acquire special printing hardware for paper fapiao.
- Simplified validation. Under the current regulations, buyers have to manually check the validity of the received paper Special VAT Fapiao with the Golden Tax System. This will become redundant with the e-invoicing system, as the STA will provide valid Special VAT e-fapiao to the customer.