What are Fapiao invoices?
Fapiao invoices in China are official receipts issued by the government for goods or services purchased. They serve as proof of transaction and are used to calculate and report taxable income. In China, Fapiao invoices are a necessary document for all taxable transactions, and their role in taxation is crucial. They are used to claim tax deductions, reimburse expenses, and verify transactions for auditing purposes. Fapiao invoices play a significant role in the Chinese tax system, and it is important for individuals and businesses to understand their importance and usage.
Fapiao invoice Types
There are two main types of Fapiao invoices in China: General Fapiao and Special Fapiao. General Fapiao is used for normal transactions, while Special Fapiao is used for specific purposes such as exports, tax-free transactions, or transactions between government agencies.
General Fapiao: This type of Fapiao is used for normal transactions and is the most common type of Fapiao invoice.
Small businesses, enterprises with annual revenue of less than 5 million RMB, and those prohibited from issuing special VAT fapiao, such as general commercial taxpayers selling items like cigarettes, alcohol, food, clothing, shoes, hats, cosmetics, and other consumer goods, typically use General VAT fapiao.
Special Fapiao: This type of Fapiao is used for specific purposes such as exports, tax-free transactions, or transactions between government agencies.
Special VAT fapiao are provided to VAT-registered general taxpayers or small businesses who have been granted permission by the tax authorities to issue them. These invoices are used to claim input VAT credits and reduce the VAT due. After the abolition of the business tax in May 2016 and the implementation of VAT for all goods and services in China, the Special VAT fapiao became a crucial tool to encourage compliance with tax regulations.
It is also called:
· General VAT fapiao
· Special VAT fapiao
The difference between the two is that the special VAT fapiao can be used for a tax deduction by general taxpayers whose turnover is above RMB 5 million or newly established companies that have applied voluntarily for such status, while the general VAT fapiao cannot.
These two types of fapiao have been available for a long time in paper form. The accountant in charge would purchase (now they are available for free from the local tax bureau) numbered papers (i.e. fapiao) from the local tax bureau to use for fapiao issuance to be distributed by selected providers. Once the tax receipt had been confirmed by the relevant finance team, it would be sealed with a dedicated invoice seal showing the issuer’s name and tax identification code.
For newly established companies, there is a standard threshold number of VAT fapiao that can be issued every month, equal to 25 special fapiao valued at RMB 10,000 per fapiao and 50 general fapiao valued at RMB 10,000 per fapiao.
If the company needs to invoice for a higher amount, a special application for a temporary increase shall be submitted to the tax bureau. After 3 consecutive months of the fapiao being fully used and within specific requirements, companies can apply for a permanent increase to RMB 100,000 per fapiao.
Both General Fapiao and Special Fapiao serve as proof of transaction, but they are used in different circumstances, depending on the type of transaction and the tax regulations involved. Knowing the differences between these two types of Fapiao invoices is important to ensure proper compliance with Chinese tax laws and regulations.
Obtaining Fapiao Invoices
Fapiao invoices can be obtained from the business or individual providing the goods or services. They can be issued either in paper or electronic form. To obtain a Fapiao invoice, the recipient must provide their tax identification number and the necessary details about the transaction.
Further Usage of Fapiao Invoices:
Fapiao invoices are used for several purposes, including:
· Claiming Tax Deductions: Fapiao invoices serve as proof of transaction and can be used to claim tax deductions on expenses related to business operations.
· Reimbursing Expenses: Fapiao invoices can be used to reimburse business expenses for tax purposes.
· Calculating Taxable Income: Fapiao invoices are used to calculate taxable income and report it to the tax authorities.
· Verifying Transactions: Fapiao invoices are used for auditing purposes and can be used to verify transactions and ensure compliance with tax laws and regulations.
Obtaining and using Fapiao invoices correctly is important for individuals and businesses to comply with tax laws and regulations and to ensure proper tax reporting.
VAT and Fapiao
Value-Added Tax (VAT) Fapiao invoices in China are a crucial document for companies operating in the country. VAT Fapiao invoices serve as proof of transaction and are used to calculate the VAT due on a particular transaction. Companies that are obliged to use VAT Fapiao invoices are those that are registered for VAT in China and engage in taxable activities such as selling goods or providing services. This includes both domestic and foreign companies operating in China.
It is mandatory for these companies to issue VAT Fapiao invoices to their customers and to keep accurate records of their transactions for tax purposes. Failure to do so may result in penalties and fines imposed by the tax authorities. In summary, VAT Fapiao invoices play a critical role in the business and tax system in China and are a legal requirement for companies engaged in taxable activities.
Introduction of Electronic Special VAT Fapiao
In China, before December 20, 2020, electronic fapiao was only available for general VAT fapiao and special VAT fapiao had to be in paper format. The popularity of electronic fapiao among the general public, especially in the B2C sector, has prompted the Chinese tax authorities to adopt a similar system for B2B transactions, giving them more power to detect tax evasion.
The State Taxation Administration (STA) announced on December 20, 2020, through Announcement No. 22  that the ability to issue electronic special fapiao would initially be restricted to newly established companies (with dates of establishment or tax registration after December 20, 2020) in select pilot locations, divided into two batches.
Fapiao invoice – Differences:
The main difference between paper special VAT Fapiao and electronic special VAT Fapiao is the format in which they are issued and stored.
Paper Special VAT Fapiao: This type of Fapiao is issued in paper format and must be physically stored. They are more susceptible to damage or loss, and their information is more difficult to access and manage.
Electronic Special VAT Fapiao: This type of Fapiao is issued in electronic format and is stored in a digital database. They are more convenient to access, easier to manage, and less prone to damage or loss compared to paper invoices. The electronic format also enables more efficient data analysis and tax management by the authorities.
If requirements not met
Errors in the collection of taxes through Fapiao invoices can result in various penalties. Some of the consequences of incorrect or incomplete Fapiao invoices include fines, additional taxes, and even criminal prosecution in cases of tax evasion.
Tax authorities may conduct audits of companies to verify the accuracy of their Fapiao invoices, and any discrepancies found may result in penalties. Companies that are found to need to be more compliant with the regulations regarding Fapiao invoices may also face damage to their reputation, as well as a loss of credibility in the business community.
To avoid these penalties, it is important for companies to ensure that their Fapiao invoices are accurate, complete, and in compliance with the relevant regulations.
Recent Changes and updates
The latest updates regarding the pilot program of issuing fully digital e-fapiao in China are as follows:
· On January 28, 2023, the program was expanded to selected taxpayers in five regions including Chongqing, Qingdao, Dalian, Tianjin, and Shaanxi provinces.
· On January 20, 2023, the program in Shanghai was expanded to cover all newly registered taxpayers.
· On November 30, 2022, the program was expanded to selected taxpayers in Xiamen.
· On October 28, 2022, the program was expanded to selected taxpayers in Sichuan province.
It is highlighted that taxpayers included in these pilot programs will not need to use traditional paper invoices.
In 2022-2023, the program of fully digital e-fapiao has been growing, with more taxpayers being able to use and accept this type of invoice. The goal is for this program to be implemented nationwide by 2025.
The fully digital e-fapiao system will be available through a national unified e-invoicing platform, offering 24/7 online services for issuing, sending, and verifying these invoices for free. This eliminates the need for tax control equipment, like the golden tax USB disk and tax UKey.
This shift to fully digital e-fapiao is part of the Chinese government’s ongoing effort to upgrade its tax collection and administration processes and make tax management more efficient. It follows the introduction of the normal VAT e-fapiao and the creation of the Golden Tax System Phase IV.
Taxpayers and Businesses adopting the fully digitized e-invoice Fapiao
The transition to fully digitalized e-fapiao promises improved efficiency for businesses in the long run but may bring short-term challenges in adapting to the new process. To make the most of the e-invoicing system, companies are advised to gradually integrate technology into their financial and tax management procedures. On the other hand, the enhanced tax compliance monitoring with the pilot program and Golden Tax System Phase IV may increase tax risks for businesses, so it’s recommended to regularly assess and improve internal controls. A professional third-party tax health check may also be beneficial in reducing the risk of tax investigations. In summary, it’s crucial for businesses to be proactive in developing a comprehensive e-fapiao strategy.
FDI China is a valuable service provider for companies looking to establish successful operations in China. The process of obtaining Fapiao invoices can be complex and challenging, but FDI China can provide valuable support to ensure a smooth and efficient process. FDI China has a team of experts who have a deep understanding of China’s tax laws and regulations, as well as a wealth of experience in assisting companies with the Fapiao invoice process.
Fapiao invoices play an important role in China’s business and taxation system. They are legally required for all taxable transactions and serve as proof of transaction for various purposes. It is important for individuals and businesses to understand the importance and usage of Fapiao invoices in China.
Whether you need help navigating the different types of Fapiao invoices, or require assistance in ensuring that you are fully compliant with the relevant regulations, FDI China is here to help. By partnering with FDI China, you can be confident that you have the support you need to achieve success in your operations in China.