Commercial transactions in China are particularly regulated, especially when it comes to operational invoicing. It is obligatory to use specific invoices registered at, and provided by, the tax bureau. These are called “FAPIAOS”.
What are FAPIAOS for?
In China, only the tax bureau is allowed to print invoices. Any financial transaction recorded without using one of these invoices is not recognized in Chinese tax administration. These FAPIAOS are specifically designed to prevent tax fraud, especially with regards to VAT.
In a system without standardized invoices, it is easier for sellers to avoid paying part of the VAT collected. As for the consumer, they can only prove a purchase (to their employer for reimbursement for example) with the presentation of a FAPIAO.
Types of FAPIAO
There are 2 main types of FAPIAO:
– The special VAT FAPIAO which may only be provided for taxable operations. Any taxpayer with a “general” status can therefore ask the local tax office to provide a special VAT FAPIAO if they intend to collect the VAT from taxable services or products. In the case where these products or services are not taxable, the taxpayer does not have the right to use this kind of FAPIAO.
– The general VAT FAPIAO is therefore to be used in all cases where a taxpayer subject to VAT is not authorized to give out the special VAT FAPIAO, notably for non-taxable transactions. It is used primarily by small retailers (food, clothing, alcohol and cigarettes etc.)
Invoicing regulations can therefore be complicated for a foreign professional who is looking to develop their business in China. Established in China since 2006, INS Global Consulting has in-depth knowledge of these regulations, and offers businesses a service for the efficient management of their invoices.