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Fully digitalized e-fapiao will bring more efficiency and transparency to invoice system in China

Foreign companies doing business in China are most likely familiar with the term fapiao, which refers to the Chinese invoice system. This key system is currently undergoing a digital transformation and its implementation has had a significant impact on the accounting and financial processes of enterprises.

A fapiao is an official invoice, registered with the tax bureau in China, that is issued for goods sold or services rendered. The fapiao serves a dual purpose as a legal receipt for the exchange of goods and services, as well as a tax invoice.

Incorporate in China

As the main tax document, a fapiao sets out the applicable value-added tax (VAT) rate and VAT amount that is due. This is used by tax authorities for the recording and tracking of transactions and as an effort to reduce tax evasion.

Fully digitalized e-fapiao is a completely new type of electronic invoice, which is different from the previously introduced normal VAT e-fapiao and the traditional paper fapiao but has the same legal effect.

In an effort to modernize and upgrade the system, the Chinese government launched a pilot program in 2021 in a few regions and expanded it in 2022 to start issuing and accepting fully digitalized e-fapiao.

Under this program, a national unified e-invoicing service platform will provide taxpayers 24-hour online services to issue, deliver, and verify fully digitalized e-fapiao free of charge. In this case, the special tax control equipment, such as golden tax USB disk, tax control USB disk, and tax UKey, will no longer be needed.

After introducing the normal VAT e-fapiao and the construction of the Golden Tax System Phase IV, the Chinese authorities launched the fully digitalized e-fapiao to reduce the cost of tax management and administration, and to better transform the tax collection system.

A fapiao’s main purpose is to serve as proof of the purchase and sale of goods and services. Therefore, a fapiao serves as a warranty against tax evasion for the tax authorities in China.

The fully digitalized e-fapiao is a new version of electronic invoice, with the same legal status as the existing paper fapiao but no sheets. Like other VAT electronic fapiao, it has no invoice copies (normal paper fapiao consists of the stub copy, the deduction copy, and the account-keeping copy for the fapiao issuers and receivers to keep and use).

The fully digitalized e-fapiao will be clearer, with only 17 pieces of information: dynamic QR code, invoice number, issuance date, buyer information, seller information, project name, specification and model, unit, quantity, unit price, amount, tax rate/levy rate, tax amount, total, ad valorem and tax total (in words and figures), remarks, and invoice.

During this transition period, there will be a total of six kinds of fapiao co-existing in China: special VAT fapiao, general VAT fapiao, special VAT e-fapiao, general VAT e-fapiao, fully digitalized special VAT e-fapiao, and fully digitalized general VAT e-fapiao.

In general, fapiaos can be divided in two main categories: General VAT Fapiao (issued by any company but not used for VAT deductions. Generally used for B2C or tax-free transactions) and Special VAT Fapiao (used by taxpayers with more than RMB 5 million turnover per year or if they have applied and been granted special taxpayer status, to ease their VAT obligations).

The fully digitalized e-fapiao will have unique characteristics, such as no special tax control equipment, no application needed with the tax bureau and no limits by the number of pieces. Also, the processes to obtain and issue fully digitalized e-fapiao will be simpler.

“No medium”: Taxpayers won’t need to get the special tax control equipment (the medium) in advance to issue fapiao; Instead, they can issue the fully digitalized e-fapiao through the national e-invoicing service platform.

“Fapiao number automatic assignment system”: Taxpayers won’t have to obtain the fapiao through application to the tax bureau; Instead, they can obtain the fully digitalized e-fapiao through the e-invoicing service platform, which will automatically assign a unique fapiao number when the fapiao information is generated.

“Managing the total amount of fapiao based on taxpayers’ credibility”: The tax authorities will determine the initial maximum amount of invoices issued by the taxpayer in a calendar month and make dynamic adjustments thereto – based on the risk level, taxpaying credit rating, actual operating conditions, and other factors of a taxpayer.

The maximum invoices amount refers to the upper limit of the total invoice amount the pilot taxpayer’s invoice issued within a month, excluding VAT. Different from traditional paper fapiao, the fully digitalized e-fapiao is not limited by the number of fapiao pieces or the maximum among of a single fapiao.

Newly established taxpayers will be able to issue a fully digital e-fapiao as soon as they start their business and there will be no conventional ‘prepositive procedures.’ They will enjoy more convenient ways to issue, deliver, and verify fapiao.

Diversified channels to issue fapiao: Pilot taxpayers can issue the fully digitalized e-fapiao through the unified e-invoicing service platform. In the future, they may be able to issue such e-fapiao through a terminal or the mobile app. There will be no need for special tax control equipment.

One-stop e-invoicing service platform: After logging onto the platform, pilot taxpayers can issue, deliver, and verify fapiao on the single one platform, instead of completing related operations on multiple platforms as before.

More widely applicable fapiao data: Pilot taxpayers’ tax digital accounts on the e-invoicing service platform will automatically collect invoice data for inquiry, downloading, and printing by pilot taxpayers.

Once the fully digitalized e-fapiao is issued, the information will automatically be sent to the tax digital accounts of both the issuer and the receiver to check and download. The issuers can track the invoice usage of the receiver in real time through the tax digital account (such as whether the VAT has been deducted or not).

These digitalized fapiao data will also lay a foundation for taxpayers to pre-fill the ‘one integrated form’ for tax declaration.

No specific digital formats required: Unlike normal VAT e-fapiao, which has to be in PDF or OFD formats, fully digitalized e-fapiao is not required to be saved in a specific digital format. Pilot taxpayers can deliver fully digitalized e-fapiao through their tax digital accounts on the e-invoicing service platform, or deliver fully digitalized e-fapiao by email, QR code, or other means. This will reduce fapiao delivery costs and make it easier for taxpayers to process fapiao.

Unblocked channel to access tax services: The e-invoicing service platform will incorporate more interactive features, such as smart consulting and objection submission functions.

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In the future, the e-invoicing service platform is expected to support the direct connection with ERP and other financial software of most enterprises to realize the integrated operation of invoice reimbursement, entry, and filing.

Business financial and accounting teams will enjoy a reduced workload. However, businesses may face short-term challenges regarding the processing and archive, as the corresponding financing processes need to be adjusted based on the new features of the fully digitalized e-fapiao.

Companies should consider adopting technologies to facilitate their e-fapiao management, reimbursement management, accounting, tax, and supply chain management processes, step by step, as the added value of e-fapiao, is deeply associated with the automation level of the relevant processes.

The fully digitalized e-fapiao system will enable the tax authorities to identify tax violations and noncompliance more easily, therefor businesses should be more careful and execute regular health checks and internal controls.

However, in the short-term, adopting the new system can provide challenges for companies as they attempt to understand the relevant regulations and timeline. It is important for companies to develop a strategy for implementing the e-fapiao to reduce risk and take full advantage of what the system provides.

The digitization of fapiaos will lead to greater financial transparency. Because the system is online and easily accessible, companies will be able to analyze their financial decisions faster and in greater detail. Once this e-fapiao system has been integrated into a company’s standard business practices, tax calculation and filing, transaction posting, and other necessary financial operations can be automated to reduce human errors and increase productivity.

The implementation of the e-fapiao will create a significant increase in productivity in traditional finance, as well as improve the efficiency of the supply chain and general business operations. The e-fapiao is currently restricted to the pilot areas but as it becomes more stable, it is likely to expand to the rest of the country.


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