E-Fapiao in China: An Overview of the Electronic Invoicing System

China has been rapidly digitalizing its tax system in recent years, with the implementation of electronic VAT invoices (e-fapiao) being a key component of this transformation. Here’s a comprehensive look at the e-fapiao system in China:

What is E-Fapiao?

E-fapiao is the electronic version of the traditional paper fapiao (invoice) in China. Like its paper counterpart, e-fapiao serves as both a legal receipt and a tax invoice. There are two main types of e-fapiao:

• General VAT e-fapiao
• Special VAT e-fapiao

The special VAT e-fapiao can be used for VAT deduction purposes, while the general VAT e-fapiao cannot.

Development and Implementation

The rollout of e-fapiao in China has been gradual:

• 2015: Nationwide implementation of general VAT e-fapiao.
• 2020: Pilot program for special VAT e-fapiao launched in select cities.
• December 2021: Introduction of the “fully digitalized e-fapiao” pilot program in Shanghai, Guangdong, and Inner Mongolia.

The fully digitalized e-fapiao is a new type of electronic invoice that simplifies issuance for both B2B and B2C purposes through the national electronic invoice platform.

Expansion of the E-Fapiao System

China has been rapidly expanding the e-fapiao program across provinces:

• 2022: Expansion to various provinces including Sichuan, Xiamen, Chongqing, Qingdao, Dalian, Tianjin, and Shaanxi.
• 2023: Further expansion to Henan, Jilin, Shenzhen, Ningbo, Fujian, Yunnan, Beijing, Hunan, Shandong, Anhui, Qinghai, Ningxia, and Guizhou.
• November 2023: Tibet became the last province to join the system.

The Chinese government aims for widespread adoption of e-fapiao by 2025.

Key Features of E-Fapiao

• Format: XML is the accepted e-invoicing format.
• Content: E-fapiao must include 17 items, such as invoice number, issuance date, buyer and seller information, project details, tax information, and a dynamic QR code.
• Verification: E-fapiao can be verified using the national VAT invoice verification platform or through the tax digital account on the electronic invoice service platform.
• Storage: The required storage period for e-fapiao is 10 years from the invoice date.

Benefits of E-Fapiao

• Efficiency: Easier to obtain, issue, deliver, and store compared to paper fapiao.
• Cost-effectiveness: Reduces printing and physical storage costs.
• Environmental friendliness: Decreases paper usage.
• Automation: Enables streamlined business processes and enhanced internal controls.
• Real-time monitoring: Allows tax authorities better oversight and control.

Challenges and Considerations

• Short-term adaptation: Businesses need to understand new regulations, develop internal protocols, and upgrade software and equipment.
• Increased scrutiny: The traceability of e-fapiao may lead to higher tax scrutiny.
• System integration: Companies may need to integrate e-fapiao systems with existing financial software.
• Training: Staff may require training to handle the new e-fapiao system effectively.

Preparing for E-Fapiao Implementation

To prepare for the e-fapiao system, companies should:

• Stay informed about regulatory updates and compliance requirements.
• Assess and upgrade existing financial and IT systems as needed.
• Develop new accounting and financial processes to accommodate e-fapiao.
• Train staff on the new system and compliance requirements.
• Consider adopting domestic financial systems or seeking professional assistance for integrated financial and tax digitization solutions.

Future Outlook

The Chinese government is committed to fully implementing the e-fapiao system nationwide. As of November 2023, all regions in China except Tibet allow pilot companies to generate fully digitalized e-fapiao using the electronic invoice service platform. The State Taxation Administration (STA) intends to make special e-fapiao compulsory for all Chinese businesses by 2025.

Get in Touch with our Team of Professionals

The e-fapiao system represents a significant shift in China’s tax and invoicing landscape. While it offers numerous benefits in terms of efficiency and accuracy, it also requires businesses to adapt their processes and systems. As the system continues to evolve, companies operating in China must stay informed and prepared to comply with the changing regulations.

For tailored legal support, visit China Legal Solutions to connect with experienced professionals who can guide you through the complexities of business taxes and e-fapiao implementation in China.