China Accelerates VAT E-Invoices Implementation Process

As multiple cities around China are in lockdown or facing severe travel restrictions, many companies are facing disruptions in their invoicing processes, due to the limited possibility of accessing the premises where normal administration and finance procedures are carried out.

Financing has evolved in recent years in China, allowing for many procedures to be processed digitally, which includes issuing e-invoices (e-fapiao).

On the 30th of November 2021, Shanghai, Guangdong Province, and the region of Inner Mongolia have issued the Pilot Program for Full-Process Digitalization of VAT E-Invoices (referred to as “Pilot Program”).

The Pilot program launched in the said three regions for taxpayers starting from December 1st 2021, which in itself is a further step in advancing the State Administration of Taxation ’s 2020 Announcement No.22, which only allowed newly registered Chinese VAT taxpayers to issue electronic VAT special invoices (permitting tax deductibility by taxpayers, unlike general VAT invoices) from January 21st 2021.

The said Pilot program has made further advances and allows taxpayers to register, initiate, issue and cancel VAT e-invoices themselves online, 24 hours a day, 7 days a week, via an online e-invoice service platform

for Shanghai Municipality: https://etax.shanghai.chinatax.gov.cn

for Guangdong Province: https://etax.guangdong.chinatax.gov.cn

for Inner Mongolia Region: https://etax.neimenggu.chinatax.gov.cn

Under the Pilot program, any VAT e-invoices issued electronically will bear the same legal effect as their paper versions.

• Scope of Application

Two groups of taxpayers are designated for the pilot program:

– Any new VAT taxpayers registered in the pilot areas after December 1st 2021;

– Any existing VAT taxpayers having access to the said online platform in the pilot areas.

It is important to note that in order to enable this function, a company shall undergo the relevant application procedures.

• Quota Setting

A VAT invoice issuer will be subject to quota management in value terms, based on its current quota and managed as follows:

– The quota will cover the aggregate value of all invoices issued in either paper or electronic format in a month. Taxpayers should be mindful of using the two options under a set quota value; and

– At a later stage, taxpayers will still have the option to apply for a higher quota, based on their business status, needs, risk level, credit rating, operation scale, etc.

• Our Observations

VAT e-invoicing would undoubtedly bring more convenience and efficiency to taxpayers. E-invoices can be delivered fast digitally via e-mail or a QR code in order to accelerate payment collection processes. The issuance of an e-fapiao only requires a U-key without the need to access an invoice printing machine. Furthermore, as all records are kept digitally, e-invoices offer convenience for a company’s bookkeeping and storage activities.

Although the program is still in its pilot-run stage, for taxpayers in the pilot regions, the tax authorities have signaled a willingness to make continuous advances in VAT e-invoicing nationwide, as the list of geographical regions which implement this program is expanding. Furthermore, in the current environment, when access to standard fapiao issuance machines may be limited, an e-fapiao management system in place would allow companies in China to experience less disruptions in its daily operations and invoice issuance procedures.

If you would like to know more about how PHC Advisory can assist your business with implementing the e-fapiao management system, as well as updates on the most recent tax and financial developments in China, please contact us at info@phcadvisory.com.