China’s Fapiao Invoice System
China’s fapiao invoice system is a legal receipt that serves as evidence for purchase of goods and services. However, the largest fapiao invoice system is an essential component of Chinese tax law. It is also an important compliance component for businesses.
The Tax Authority of China requires the use of fapiao so that companies can pay taxes before the end of the sales process. In this way, invoices use as tax receipts. Thus China’s fapiao invoice system acts as a guarantee against tax evasion.
The Tax Authorities print, distribute and manage fapiao. It enables businesses to purchase relevant fapiao according to their business scope. In this respect, while individuals need the fapiao system to reclaim their operating expenses, companies have to record the entire business transaction flow in the fapiao system. Therefore, a solid understanding of the system is an essential requirement.
Types of Fapiao
Fapiao has two main categories:
- General fapiao
- Special value-added tax (VAT) fapiao
The main difference between the two types is that while the special fapiao is used for a tax deduction, the general fapiao cannot be used for this purpose.
Since the VAT fapiao is used for tax deduction purposes, it will contain much more detailed information including the seller’s tax code, address, phone number, and bank account information.
In addition, the purchase amount in a VAT fapiao is usually divided into taxable and non-taxable components. Tax is generally included in the amount shown in the general fapiao.
Considering the different types of fapiao, companies should consult an accountant to verify what type of fapiao they need before making any fapiao purchases with the tax authority.
General VAT fapiao
The general VAT fapiao is used as proof of payment in cases where the special VAT fapiao is not valid. However, there are two forms of the General VAT fapiao:
- General VAT invoices
- Roll invoices
It is possible for taxpayers to choose both forms of tax. However, the latter is mostly used in the service sector. The most common taxpayers for the general VAT fapiao are usually:
- Business taxpayers
- Small taxpayers
VAT taxpayers are not allowed to issue special VAT invoices. For example, general business taxpayers selling cigarettes, alcohol, food, clothing, shoes, and other consumer goods.
Organizations or individuals who are unable to regulate a special VAT fapiao should regulate a general fapiao when selling goods, providing taxable services, or conducting other business activities.
Special VAT fapiao
S-VAT fapiao are issued by general taxpayers to customers when selling goods/providing taxable services. A special VAT fapiao cannot be issued for the sale of goods without tax.
A special VAT Invoice consists of the following three basic copies:
- Bookkeeping copy – a bookkeeping slip for the exporter
- Deduction copy – a tax deduction voucher for the purchasing customer
- Invoice copy- a bookkeeping voucher for the customer.
A number of fapiao that can be printed. The capital value of each fapiao are subject to quotas. Local tax office (LTO) sets quotas according to actual production and/or business activity of taxpayer.
LTO determines situation after submitting a maximum invoice amount applied to taxpayer. For invoice applications in excess of “¥100,000 ($14,458), authorities conduct a field review of applicant.
After LTO approves quotas for custom VAT invoice, a taxpayer prints invoices using LTO’s printers. Moreover they are specifically designed and integrated into the tax system. If a company exceeds the quota approved by LTO, company apply for an additional fapiao. Usually, the latter is easier for businesses.
Fapiao liability in China
It is very important for a company to use fapiao system correctly and without errors. Also, if a company fails to produce a fapiao when requested by its client, this becomes an illegal act as all business transactions are legally required to be recorded in a fapiao.
For customers, fapiao acts as proof of expense to recover their operating expenses. In conclusion, it is the customer’s responsibility to obtain a fapiao from a service provider.