Breaking News: additional Covid regulations
In the context of the pandemic, the Chinese government has now announced a series of measures to simplify the VAT system, which should also support small businesses. Even more detailed regulations on the exact implementation will presumably follow from the Ministry of Finance in the future. So far, the changes include the following:
- Small taxpayers will continue to benefit from the cash-based VAT regime, as the threshold for VAT registration will be raised from CNY 100,000 to CNY 150,000 per year
- The refund of input tax newly incurred by an advanced manufacturing enterprise will be on a monthly basis.
- In addition, the country intends to complete the implementation of electronic reporting for special invoices in spring 2021.
The Ningbo Municipal Taxation Bureau (NMTB) of the official tax administration launched a pilot program in September 2020 that allows taxpayers in China to handle their invoices electronically on a voluntary basis. This step is intended to further push e-invoicing in China.
The term “fapiao” translates as invoice in China, but it also describes official invoices managed by the tax bureau to help the system track taxes. This system is called the “Golden Tax System” and was implemented several years ago and is now in its third version, “Golden Tax System III”. As a country known for its modern and innovative technologies, this system is no exception and has provided uniformity within the tax administration, with the aim of minimizing tax evasion.
E-invoicing applies to all taxable persons providing goods or services in China. There are two types of VAT invoices: general and special.
General VAT invoice:
This type of invoice is issued as proof of payment and does not allow input tax deduction. Generally, this type is used for B2C and tax-exempt transactions, which is simpler as a process for issuing electronic invoices has already been in place for several years.
Special VAT invoice:
This type of invoice is issued by general taxpayers to customers when they sell goods or provide taxable services. It also allows input tax deduction and is therefore usually used for B2B transactions.
At the moment, however, Special VAT Invoices still need to be printed out and exchanged with trading partners in paper form. The parties involved in the transaction must also retain and store the original invoice for future audit.
Therefore, the goal of Ningbo’s new pilot program is to start a new e-invoicing era in China and promote the use of electronic invoices. Special VAT invoices have the same validity, purpose, and basic usage rules as their paper equivalent. The e-invoice service platform developed by the STA will also be able to provide free issuance services to taxpayers.
In the future, individuals and companies will be able to check their specific VAT invoices using a specially developed platform. There, they should also be able to download the respective electronic invoice and ensure the validity of the electronic signature.
Who is affected? The list of taxpayers selected to participate in the pilot program has been published on the official site of the NMTB. Only those who are included in the list will be given the opportunity to issue VAT invoices electronically to other taxpayers within the NMTB’s jurisdiction, which is also the program’s region.
Previous pilot programs in China have focused primarily on issuing general electronic invoices. Thus, the implementation of this program is a significant step toward the goal of introducing e-invoicing nationwide by the end of the year.
The success of the program will determine whether expanding the scope to other regions is already worthwhile and whether full implementation for electronic special VAT invoices is a tangible goal next year.
New deadlines of 2021
On December 20, 2020, the State Administration of Taxation (STA) of China published the new regulations for business process optimization, which also shed light on how the e-invoicing pilot program will proceed.
Under the regulations, electronic invoices are to have the same legal effect as traditional paper invoices. Nevertheless, the issuance of electronic invoices will remain voluntary and paper invoices will not be completely eliminated.
The following regions have already been allowed to issue e-sales tax invoices since December 21, 2020:
Since January 21, 2021, the issuance of e-invoices has been extended to the following parts of China:
Receiving electronic invoices is nationwide, which means all taxpayers can receive and process these invoices.
The Chinese e-invoicing model:
- E-signatures replace stamps and signatures
- Suppliers must match e-invoices with the STA platform before sending them to the buyer/recipient
- Suppliers issue e-invoices in OFD format, but can choose the method of delivery to the buyer, e.g. email, QR code, or other methods
- Buyer can download the e-bill from the STA platform and check the validity
- A red letter e-invoice must be issued to correct irregularities in the original invoice
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