We discuss the expansion of e-invoicing in China as the digital e-fapiao program widens its pilot roll-out with unique features. For more information, please contact Helen Bao and Ada Zhou.
Fully digitalized e-fapiao, which are electronic invoices (e-invoices), is a completely new type of electronic invoice, which is different from the previously introduced normal value-added tax (VAT) e-fapiao and the traditional paper fapiao but has the same legal effect.
The pilot program of fully digitalized e-fapiao kicked off on December 1, 2021, when selected taxpayers in in Shanghai, Guangdong (Guangzhou, Foshan, Guangdong-Macao Intensive Cooperation Zone), and Inner Mongolia (Hohhot) started to issue and accept fully digitalized e-fapiao.
In 2022, the pilot program of fully digitalized e-fapiao was further expanded, with a broader scope of taxpayers being able to issue and accept fully digitalized e-fapiao.
Under the fully digitalized e-fapiao programs, a national unified e-invoicing service platform will provide pilot taxpayers 24-hour online services to issue, deliver, and verify fully digitalized e-fapiao free of charge. This means the special tax control equipment, such as golden tax USB disk, tax control USB disk, and tax UKey, are no longer needed.
Following the introduction of the normal VAT e-fapiao and the construction of the Golden Tax System Phase IV, the fully digitalized e-fapiao marks the latest effort by the Chinese government to promote the digital upgradation and intelligent transformation of tax collection and administration and reduce the cost of tax management.
In this article, we’ll introduce the key features of fully digitalized e-fapiao, walk you through the pilot fully digitalized e-fapiao programs in 2022, and explain the potential impacts of fully digitalized e-fapiao on your businesses.
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The fully digitalized e-fapiao is a completely new type of electronic invoice. It has the same legal effect and usage as the existing paper fapiao but has 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 also look neater, with only 17 items of content: 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.
With their introduction, there will be a total of six kinds of fapiao co-existing in China during the country’s ongoing fapiao system reforms. The six types are 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.
The samples of the fully digitalized electronic fapiao can be found below:
In comparison, the normal VAT electronic fapiao and conventional fapiao looks more complicated as below:
As a new type of electronic invoice, the fully digitalized e-fapiao will have unique features as explained below.
Eventually, newly established taxpayers can issue a fully digital e-fapiao as soon as they start the business and there will be no conventional ‘prepositive procedures.’
In addition to the above, in the future, the e-invoicing service platform is expected to support the direct connection with ERP and other financial software of the majority of enterprises to realize the integrated operation of invoice reimbursement, entry, and filing.
After the first round of trial in Shanghai and selected cities of Guangdong and Inner Mongolia, the pilot fully digitalized e-fapiao program expanded the scope of issuers and recipients in 2022:
Going forward, the acceptance scope of the fully digitalized e-fapiao issued by pilot taxpayers will be gradually expanded nationwide, as stated in respective announcements issued by the tax bureaus of Shanghai, Guangdong, and Inner Mongolia. The specific timing will be announced by each provincial-level tax bureau.
*Taxpayers who do not use or have the Internet are temporarily excluded from the pilot fully digitalized e-fapiao program.
Fully digitalized e-fapiao is expected to greatly reduce the workload of enterprises’ financial and accounting staff and increase the efficiency of issuing a fapiao in the long run.
However, businesses may face short-term challenges regarding the processing and archive of fully digitalized e-fapiao, as the corresponding financing processes need to be adjusted based on the new features of the fully digitalized e-fapiao.
Companies are suggested to take this chance to 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.
On the other hand, under the pilot program of the fully digitalized e-fapiao and the promotion of the Golden Tax System Phase IV, businesses might be exposed to bigger tax risks as the tax bureau’s ability in spotting incompliance tax behavior will be enhanced by big data technology.
Businesses are suggested to arrange regular tax health checks and pay more attention to their internal controls. A regular tax health check, either conducted internally or by a professional third party, will help identify the weak points in the business’s daily operations and reduce the risk of triggering worse tax investigations from the tax bureau. Considering third-party service firms are usually more professional on relevant matters and more confidential when reviewing financial and operational documents, it is highly recommended if the company’s budget allows.
To conclude, it is important for businesses to get prepared and develop a thorough strategy for e–fapiao to alleviate operational risks and get the most out of the e-invoicing system.
(The article was first published on June 27, 2022, and was last updated on August 25, 2022.)
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at email@example.com. Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
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