The Chinese authorities have been working on the implementation of electronic invoicing for some time. In the last four months of 2020, several businesses in Anhui, Jiangsu and Zhejiang provinces have volunteered to test the electronic system in pilot trials. Given their success, the government hopes to extend the use of electronic invoicing, the e-fapiao in Chinese, to the entire country.

In this regard, China plans to add businesses in other provinces to the e-fapiao system through the first months of 2021. Initially, the electronic invoice will be voluntary. Subsequently, the objective will be to make electronic invoicing mandatory.

What is e-fapiao?

Fapiao translates as invoice. Consequently, e-fapiao is their electronic invoice. In China there are two kinds:

  • The general e-fapiao: this is the equivalent of the ticket. Although it is a valid document, VAT on the general e-fapiao may not be refunded. This document has been 100% digitized in China since 2015.
  • The special e-fapiao: this invoice allows VAT refunds.

Until the pilot was implemented, the special fapiaos had to be issued with specific software approved by the government. Only certain approved suppliers could issue this type of document. Consequently, businesses had to obtain these invoices singly and in person.

With the advent of the e-fapiao, busineses will be able to issue electronic invoices in three different ways:

  1. Obtaining government approval for the type of invoice and for a maximum number of documents.
  2. Using the government-issued tax control device – the Ukey – which includes a digital certificate.
  3. Through the portal of the State Public Service for electronic VAT-inclusive invoicing.

Benefits for businesses

The introduction of the special electronic fapiao aims to digitize the process of issuance and receipt of B2B invoices. The benefits for businesses will be manifold:

  • Elimination of the need for presence to generate and/or validate invoices.
  • Cost savings by not having to acquire special resources for document printing.
  • Saving of time and work for the businesses’ administrative departments.
  • Greater document control and reduction of discrepancies.

For the government, this will mean real-time control of invoices issued between companies, thus following an electronic invoice clearance model.
From a technical point of view, the e-fapiao must be issued as an ODT document format to be stored by the issuer.

The digitization of the Chinese tax system

The Chinese tax system was created several years ago with the aim of keeping records by means of paper invoicing. The government is currently in the process of digitizing the entire system. The implementation of the special e-fapiao is part of phase 3 – out of a total of four – of the comprehensive overhaul of the tax system grounded on innovation and consistency. China thus joins a trend that is booming throughout the world: electronic invoicing.

January 2021 Update

China has extended the e-fapiao regulation to further regions:

  • As of December 2020: Tianjin, Hebei, Shanghai, Jiangsu, Zhejiang, Anhui, Guangdong, Chongqing, Sichuan, Ningbo and Shenzhen.
  • As of January 2021: Beijing, Shanxi, Inner Mongolia, Liaoning, Jilin, Heilongjiang, Fujian, Jiangxi, Shandong, Henan, Hubei, Hunan, Guangxi, Hainan, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai.

As well as adding this new bloc of administrations, China has also specified certain technical details on the use of electronic invoicing:

  • The electronic signature replaces handwritten signatures and stamps.

Clearance system: issuers must send invoices to the government (STA) before forwarding them to their clients.

  • The electronic invoice format is OFD. However, the method of transmission may vary.
  • The lettering in rectifying invoices must be in red.

The voluntary use of electronic invoicing continues to be a premise for the Chinese government. However, although e-fapiao is advancing rapidly in China, operations via the STA platform must be done manually. Consequently, automation of electronic invoice transmission is not yet possible.