Send Invoice in China

The Fapiao system in China is the official invoicing mechanism, serving as a legally recognized receipt and a critical component of the country's tax administration. Unlike standard invoices in many other countries, a Fapiao is a tax voucher that provides legal proof of purchase for goods and services, essential for accounting, expense reimbursement, and tax deductions. The system is centrally managed by the State Taxation Administration (STA), which oversees the printing, distribution, and administration of these invoices. Historically, businesses were required to purchase Fapiao booklets from tax authorities based on their business scope, effectively settling taxes in advance of sales. This approach was designed to combat tax evasion and enhance transparency in economic transactions. The evolution of the Fapiao system reflects China's ongoing efforts to modernize tax collection and streamline business processes, transitioning from a paper-based system to a digital one to improve efficiency and reduce fraud.

In China, there are two primary categories of Fapiao: the General VAT Fapiao and the Special VAT Fapiao, each with distinct uses and implications for Value Added Tax (VAT) compliance. The General VAT Fapiao serves as proof of payment for most transactions and is commonly used in business-to-consumer (B2C) transactions, by small-scale taxpayers, and in industries like life services. Crucially, the VAT amount stated on a General VAT Fapiao cannot be used by the recipient for input VAT deduction. For instance, a small-scale taxpayer, defined as an enterprise with cumulative taxable income below RMB 5 million over 12 months, typically uses General VAT Fapiao and is subject to a 3% levying rate, without the ability to deduct input VAT.

In contrast, the Special VAT Fapiao is primarily used for business-to-business (B2B) transactions and is vital for general VAT taxpayers to offset their input VAT against output VAT. General VAT taxpayers are typically enterprises with an annual taxable income exceeding RMB 5 million or those who have voluntarily applied for this status. Standard VAT rates for general taxpayers can be 13%, 9%, or 6%, depending on the goods or services provided. To illustrate, if a manufacturing company (a general VAT taxpayer) purchases raw materials, it would request a Special VAT Fapiao from its supplier. This Fapiao would detail the taxable amount and the VAT, allowing the manufacturing company to deduct this input VAT from the VAT it collects on its own sales. Special VAT Fapiaos contain more detailed information, including the trader's tax code, address, telephone number, and bank account information, which is essential for tax deduction purposes.

China is undergoing a significant digital transformation of its invoicing system, moving towards a fully digitalized e-Fapiao system, which replaces traditional paper invoices with secure digital ones. This shift is integral to the Golden Tax System, China's national tax administration platform, which has evolved through several generations to enforce a central clearance model for invoices. Under this system, no invoice is legally valid until it is issued via STA-approved software, submitted to the Golden Tax System/Leqi platform, and returned with a unique key and QR code.

The implementation of e-Fapiao began with pilot programs in 2020, with a nationwide rollout of fully digitalized e-Fapiao announced for December 1, 2024. A phased transition is expected until September 30, 2025, after which all businesses, regardless of size or transaction type (B2B or B2C), will be required to comply. This transition presents both technological advancements and challenges for businesses. E-Fapiaos offer benefits such as easier and faster processing, online authentication and verification, and reduced costs associated with paper, printing, and delivery. However, businesses must adapt their Enterprise Resource Planning (ERP) systems, integrate with the STA platform, and train staff to effectively manage digital invoices. The shift also means tax supervision is moving from "invoice-based tax management" to "data-based tax management," requiring greater diligence in financial reporting and compliance.

Maintaining strict compliance with China's Fapiao regulations is paramount for businesses, especially with the nationwide adoption of e-Fapiao. All e-Fapiaos must adhere to the State Taxation Administration's (STA) standard electronic invoice format, incorporate verified digital signatures, and be capable of online verification by tax authorities. Businesses are required to use government-authorized invoicing software or e-Fapiao platforms, ensure their business scope aligns with invoice content, and accurately input tax codes and descriptions. Furthermore, invoices must be issued promptly after a taxable transaction and retained for a minimum of 30 years, with electronic storage permitted if integrity, security, and accessibility are maintained.

Non-compliance with these invoicing rules can lead to significant penalties. Minor breaches may incur fines ranging from RMB 20,000 to RMB 100,000. More serious infractions, such as failing to meet reporting and tax verification requirements, can result in fines of up to RMB 500,000 and even the suspension of business operations. Illegally collected or forged Fapiaos, or those not based on real business transactions, can lead to tax losses, monetary penalties, and a demotion of a company's tax credit rating.

• STA Registration: Ensure your business is properly registered with the State Taxation Administration.
• Authorized Software: Utilize only STA-approved e-Fapiao software for issuance and management.
• Staff Training: Provide comprehensive training to your team on the new e-Fapiao system and its integration with accounting processes.
• Transaction Alignment: Verify that all issued Fapiaos accurately reflect genuine business transactions.
• Data Accuracy: Ensure correct tax codes, business descriptions, and recipient information are consistently used.
• Timely Issuance: Issue Fapiaos promptly after taxable transactions occur.
• Verification Procedures: Implement internal procedures for verifying the authenticity of received Fapiaos through the STA's official system.
• Record Keeping: Establish robust systems for long-term digital storage of all e-Fapiaos, ensuring their integrity and accessibility.
• Regulatory Monitoring: Regularly monitor for updates to Fapiao regulations and adapt internal processes accordingly.
• Internal Controls: Develop strong internal controls to prevent and detect Fapiao fraud and non-compliance.