Electronic invoicing in China: The Golden Tax System and the Fully digitalized e-Fapiao
China is actively promoting electronic invoicing as a fundamental aspect of its tax reform strategy. Starting in 2020, the China Tax Bureau (CTB) has required new taxpayers in the country to adopt the Golden Tax System or Fapiao System, a B2B electronic invoicing system. Participation in the system is voluntary for other taxpayers. Over the past few months, China has extended the e-Fapiao program to various provinces nationwide, anticipating widespread adoption by 2025.
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Golden Tax System III - Fully digitalized e-Fapiao - 3 数电发票
The ongoing expansion of the system for the fully digitalized e-fapiao is presently in phase 3, known as Golden Tax System Phase III, which began on December 1, 2021.
Starting from December 1, 2023, all regions in the country allow pilot companies to generate fully digitalized e-Fapiao using the electronic invoice service platform. Tibet became the most recent province to join the system in November 2023.
The fully digitalized e-fapiao is a new type of invoice that differs from the normal VAT e-fapiao and the traditional paper Fapiao. It contains 17 items: dynamic QR code, invoice number, issuance date, buyer information, seller information, project name, specification and model, unit, quantity, unit price, amount, tax rate/levy rate, tax amount, total, ad valorem, and tax total (in words and figures), remarks, and invoice.
There are six kinds of fapiao co-existing in China during the country’s ongoing fapiao system reforms. The six types are special VAT fapiao, general VAT fapiao, special VAT e-fapiao, general VAT e-fapiao, fully digitalized special VAT e-fapiao, and fully digitalized general VAT e-fapiao.
Golden Tax System IV - Natural System - 4 全电发票
Recently, China has disclosed the initiation of the subsequent stage of the Golden Tax System, Golden Tax 4, presently in the pilot phase. The aim is to transform tax management from "managing tax through invoice" to "managing tax through big data". This model is currently accessible exclusively to companies with an annual turnover surpassing 50 million RMB (around 6 million euros) and with annual invoices issued exceeding 50k copies.
The government developed its platform called Leqi Platform, allowing companies to connect to tax authorities directly via API or enlist the services of a provider to establish bidirectional communication from the ERP to the platform via API, thereby automating the exchange of information.
How does electronic invoicing work in China?
Electronic invoicing in China operates through a validation or clearance model:
- The invoice is sent in XML format to the State Taxation Administration (STA).
- The national platform validates the invoice and includes the required elements: validation confirmation, Key ID, and QR Code.
- Once validated, the platform sends it to the invoice issuer in PDF or OFD format.
- The invoice issuer then sends it to the recipient.
China’s Electronic Invoice - e-Fapiao
In China, the term "fapiao" denotes the invoice. A fapiao is a legally recognized physical receipt issued on paper, distributed, printed, and overseen by the State Taxation Administration (STA), serving as evidence of the purchase of goods and services in China. Companies operating in China are required to obtain fapiao from the STA before conducting sales, essentially settling taxes before finalizing transactions. Depending on the industry and projected revenue, companies are obligated to procure various types of fapiao, each with a restricted maximum quantity. These fapiao types include general fapiao, general fapiao with VAT, and special VAT fapiao.
Types of e-Fapiao
E-Fapiao serves as the digital counterpart of the traditional fapiao and comes in two categories: general and special. Much like its paper counterpart, general e-Fapiao is generated for commercial transactions involving a product or service, and the Value Added Tax (VAT) is non-deductible. On the other hand, special e-Fapiao permits the deduction of VAT and falls within the realm of business-to-business (B2B) transactions.
The fiscal digitization initiative in China has progressed in two phases, differentiating between non-deductible invoices, referred to as General e-Fapiao, and deductible invoices, known as Special e-Fapiao.
General e-Fapiao Electronic Invoice
The initial invoices to undergo digitization were General e-Fapiao in 2015. Given their non-deductible nature for recipients, their implementation was relatively uncomplicated compared to Special fapiao. In 2017, the government opted to broaden the application of General e-Fapiao to high-frequency transaction sectors, including e-commerce, telecommunications, finance, and express mail, as part of an effort to encourage greater adoption of electronic invoicing.
Special e-Fapiao Electronic Invoice
Building on the success of General e-Fapiao, in 2020, the government chose to digitize deductible invoices by introducing Special e-Fapiao through Announcement No. 22 (2020) regarding the "Implementation of VAT Electronic Invoices among Newly Established Taxpayers." This regulation was progressively embraced by all Chinese provinces throughout 2021. In both instances, the utilization of e-Fapiao is obligatory for new taxpayers and voluntary for other companies.
e-Fapiao: Provinces Adhering to the e-Fapiao Program for Electronic Invoice Issuance
The pilot program's schedule for allowing electronic invoice issuance by regions is as follows:
September 2020: The pilot program in China began allowing electronic invoice issuance in Ningbo, Shijiazhuang, and Hangzhou.
December 2020: The pilot program expanded to Tianjin, Hebei, Shanghai, Jiangsu, Zhejiang, Anhui, Guangdong, Chongqing, Sichuan, and Shenzhen.
January 2021: The pilot program expanded to include Beijing, Shanxi, Inner Mongolia, Liaoning, Jilin, Heilongjiang, Fujian, Jiangxi, Shandong, Henan, Hunan, Guangxi, Hainan, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, Ningxia, Xinjiang, Dalian, Xiamen, and Qingdao.
December 2021: China launched a new pilot program called the fully digitized invoice, starting with three provinces: Shanghai, Inner Mongolia, and Guangdong. The "fully digitized invoice" is a new type of electronic invoice that simplifies issuance for both B2B and B2C purposes through the national electronic invoice platform in China.
The pilot program schedule is as follows:
- October 2022: Sichuan
- November 2022: Xiamen
- January 2023: Shanghai, Chongqing, Qingdao, Dalian, Tianjin, and Shaanxi
- March 2023: Henan, Jilin, Shenzhen, Ningbo, Fujian, and Yunnan.
- October 2023: Beijing, Hunan, Shandong, Anhui, Qinghai, Ningxia, and Guizhou
- November 2023: Tibet
EDICOM’s e-Fapiao Solution - China Golden Tax System
Through the EDICOM Global e-Invoicing platform, companies can generate, transmit, receive, and archive diverse e-Fapiao invoices, encompassing both general and special types, in compliance with the stipulations of the Chinese government. The entire workflow is automated and seamlessly integrated with their Enterprise Resource Planning (ERP) systems.
EDICOM integrates with the ERP systems to transmit information to the national platform and obtain the validated file containing all the components applied by the State Taxation Administration (STA) for legal validity. These components, including validation confirmation, Key ID, and QR Code, are reintegrated into the issuer's ERP system. Furthermore, EDICOM can concurrently send the e-Fapiao electronic invoice to the recipient through the designated channel, presenting options in both PDF and OFD (XML + PDF) formats.
The continuous improvement of our technologies, facilitated by more than 500 engineers at EDICOM, ensures swift adaptation to any modifications mandated by the China Tax Bureau. The solution offered by the EDICOM International e-Invoicing Platform enables businesses to smoothly navigate the transition to the new electronic invoicing system across more than 80+ countries.
