China’s SAT Introduces Online Electronic Invoicing System

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Mar. 15 – China’s State Administration of Taxation (SAT) recently promulgated the “Administrative Measures for Online Electronic Invoices (SAT Order No.30, hereinafter referred to as the ‘Measures’),” which standardizes the issuance and use of online electronic invoices (or “fapiao”). The Measures will come into effect on April 1, 2013. The system serves the dual purpose of enhancing efficiency for taxpayers in terms of the tax declaration and for tax authorities in terms of tax administration.

Under the online electronic invoicing system, taxpayers will register with the tax authorities to open an account. To issue an invoice, they will fill out the required information and issue the electronic fapiao online. The issued fapiao is verified through matching the information against that in the online system. This contrasts with using traditional paper invoices, whereby the taxpayer has to physically travel back and forth to the tax bureau to obtain and verify invoices.

Taxpayers also have to purchase machines for printing paper fapiao from the local tax authority. These are not necessary under the online invoice system, thus effectively lowering the extra costs associated with both tax collection and payment. Furthermore, the tax authorities can monitor taxpayers’ information online and curb issues such as fake invoices, thus preventing loss of tax revenue.

The online electronic invoicing system was launched in select locations in China on a pilot basis in 2009. According to the Measures, tax authorities at or above the provincial level can adopt the online electronic invoice system on a pilot basis if they can ensure the reliability and safety of the invoicing system.

Issuing invoices (or fapiao in Chinese) is an essential element of China’s tax system. It keeps records of transactions and serves as important evidence of tax payment. It is also the way in which the government monitors value-added tax (VAT) paid on any transactions.

Fapiao can mainly be sorted into two categories – general invoices and special VAT invoices. Special VAT invoices are issued by general taxpayers to their customers when selling commodities or providing taxable services. Enterprises or individuals who are not able to issue special VAT invoices (for example, business tax taxpayers and VAT small-scale taxpayers) should issue general invoices when selling commodities, providing taxable services, or conducting other operating activities.

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