What is a fapiao?
Fapiao (发票) is the Chinese word for invoice. It’s used in China to document the transfer of goods or services for both the purchaser and the seller. The fapiao is different from commercial invoices or receipts used in other countries because it serves multiple functions that invoices in other countries might not serve.
Fapiaos are used in mainland China for accounting, reimbursement, and tax invoices. Since the fapiao is so integral to legal and accounting departments, businesses need to familiarize themselves with the concept of the fapiao, as well as relevant changes to its regulations, to ensure compliance and benefit from tax incentives.
The fapiao can be divided into two categories: general VAT fapiao (普通发票), and special VAT fapiao (专用发票). (There are subtle differences between these two categories that we go into more detail with).
These two types of fapiaos are printed and distributed by the State Taxation Administration (STA). Before the implementation of the e-fapiao, companies had to go through a complicated process to issue paper fapiaos. To issue paper fapiaos, they would first have to obtain blank fapiaos from the local tax office, print their transactions onto the fapiao using a special printer that was linked to the tax system, and then seal the fapiao inside an envelope that showed the company name and tax identification code.
This process was difficult for industries with high inventory turnover, like retail, food and beverage, and online commerce. This antiquated, unnecessarily complicated, and time-consuming process lead to the introduction of the e-fapiao.
What is an e-fapiao?
The e-fapiao has a similar function to the paper fapiao. However, there are a few important distinctions. The main distinction is that the e-fapiao system can easily take advantage of digital technology to increase efficiency, improve data structures to better organize and analyze financial data, and use more accurate anti-counterfeiting measures to ensure the authenticity of each fapiao. The physical copy uses older methods to accomplish the same goals, making the process more complicated and less secure.
The physical fapiao requires the original and two copies, one for the assignee and one for the merchant. The e-fapiao circumvents this process by simply allowing businesses to submit the fapiao online. Once the physical fapiao is processed for reimbursement, only the original physical copy will be accepted. The e-fapiao can be printed on an A4 sized paper or downloaded in PDF format.
The advantages of this process certainly outweigh the costs involved. The e-fapiao can be saved as a PDF and printed out whenever required. The PDF can then be emailed to process reimbursement and is much more environmentally friendly.
In 2020, the STA created new regulations to better facilitate corporate use of fapiaos. These regulations expanded the geographic areas and categories that have access to e-fapiaos. Now, the e-fapiao is being used in both the general and special cases. As the government is increasingly relying on big data to govern, the roll out of services like e-fapiao will be faster and encompass the entirety of China.
How is the e-fapiao being used?
Because of its widespread adoption, the general e-fapiao can now be issued automatically whenever a client completes a transaction. The necessary information can be provided through a digital service without needing the help of an operator. For example, once a customer has paid a bill for a meal, the restaurant will provide a receipt with an attached QR code. In the case that the customer needs a fapiao for reimbursement, they would simply need to scan the code and complete the process on their own. These codes are valid for up to 30 days.
Because the process is more automated and requires less employee involvement, businesses save time and resources that can be spent on more critical tasks. Additionally, customers save time as well, encouraging businesses to use tis more frequently in the future. As this system is expanded and adopted at a greater rate, it will become commonplace and eventually completely replace the physical process of the traditional fapiao.
General VAT Fapiaos
The general VAT fapiaos are used as evidence of payment in situations where the special VAT fapiao does not apply. There are two types of general VAT fapiaos: normal and roll fapiaos. Taxpayers can choose between these two types at their discretion. However, the roll type is generally used for life services industry.
The most common type of taxpayer that uses the general VAT fapiao are typically:
- business taxpayers.
- VAT small enterprises.
- taxpayers who by law are not allowed to issue special VAT fapiaos.
Commercial taxpayers who are not allowed to issue special VAT fapiaos include vendors of cigarettes, alcohol, food, clothing, and other similar consumer goods. To ensure compliance, businesses will benefit greatly from having a local tax consultant help them identify if their business operations fit into these categories.
Special VAT fapiaos
Special VAT fapiaos are used for issuance by general taxpayers to customers when selling commodities and providing services that can be taxed. Special VAT fapiaos cannot be used on financial transactions that are related to tax-free commodities. A special VAT fapiao should be provided for bookkeeping, deduction, and an invoice.
The local tax office will review the special VAT fapiaos for accuracy. For invoices that are over RMB 100,000, the tax authorities will perform an on-site inspection to verify the need for the request. Once the company has been approved for use, they can issue special VAT fapiaos that exceed this limit.
Benefits of Using an E-Fapiao
Because the e-fapiao is digital, it provides benefits to both the tax administrators and the taxpayers. It is easier to acquire, provide, and store than the physical version. These advantages will lead to a more efficient and economical system. Its digital nature provides opportunities to streamline repetitive processes, build and analyze data structures, and improve accuracy. As a result of these changes, the entire economy can benefit. Some of these benefits include:
- More convenient – The new system will eliminate the unnecessary bureaucracy that is associated with the paper system. Businesses will no longer need to go through the arduous process of getting physical copies from the local tax bureau, and the process will no longer require special printing hardware for producing these paper fapiaos.
- Simplified – E-fapiaos only need one copy, instead of the multiple copies required in the old system. The e-fapiao removed the ‘seller’ column, and changed the ‘goods or taxable services, service name’ column to the much simpler ‘project name’. This will accelerate the issuance process.
- More cost efficient – E-fapiaos do not have unnecessary costs associated with them like the physical versions. With e-fapiaos there is no need to pay for storage, printing, or delivery. Employees are freed from wasting time on these steps and can focus on more important functions that add real value to the business.
- More durable – The e-fapiao can be delivered through emails, links, and QR codes. When comparing these methods to the physical process, which requires on-site delivery, the increase in efficiency becomes clear. Physical copies have the disadvantage of being able to be damaged through accidents, weather, or carelessness. In the case of damage to the physical copy, companies would have to spend time recovering them from the local tax bureau.
- More efficient record keeping – The digital version of a fapiao is safely stored electronically and can be recovered through the STA platform for free. Additionally, digital copies can be easily searched for through an online database and do not need to be converted to AI searchable documents because they are already searchable.
- More automated process – Before the implementation of the e-fapiao, taxpayers were required to input the code, number, issue date, and other relevant information into the National VAT fapiao Verification Platform themselves. The e-fapiao automates this process.
Digital Fapios as a Whole
The digitization of fapiaos will lead to greater financial transparency. Because the system is online and easily accessible, companies will be able to analyze their financial decisions faster and in greater detail. Once this e-fapiao system has been integrated into a company’s standard business practices, tax calculation and filing, transaction posting, and other necessary financial operations can be automated to reduce human errors and increase productivity.
The implementation of the e-fapiao will create a significant increase in productivity in traditional finance, as well as improve the efficiency of the supply chain and general business operations. The e-fapiao is currently restricted to new businesses in the pilot areas. But as the system becomes more stable, it is very likely to continue to expand.
Companies should closely follow the implementation of the e-fapiao system and understand the regulations as they are implemented to establish proper protocols for financial staff to assure legal compliance before the full implementation of the system. This will prevent any incorrect practices from piling up and causing problems in the future. This includes installing the necessary software and receiving approval from the STA to use this software.
The STA is determined to have widespread application of the digital format. With that in mind, businesses should understand the importance of implementing the system, earlier rather than later. The digital nature of the e-fapiao will bring many benefits for all parties involved.
However, in the short-term, implementing the system can provide challenges for companies as they attempt to understand the relevant regulations and timeline for their applicability. It is important for companies to develop a strategy for implementing the e-fapiao to reduce risk and take full advantage of what the new system provides.
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