Transformation of the E-Fapiao Program and What It Means for Businesses in China

There is a new type of fully digitalized electronic invoice that is called E-Fapiao. It’s a complete change to the standard value-added tax (VAT) e-fapiao and other paper fapiao invoices while still having the same legal scope and ramifications.

Fully digitized e-fapiao invoices were initially launched on 1 December 2021 as a pilot program in regions across China such as Guangdong, the Guangdong-Macao Intensive Cooperation Zone, Shanghai, Foshan, and Inner Mongolia, which can all now accept and issue these new digitized e-fapiao invoices.

A broader scope of taxpayers was also brought into the fold in 2022 as the fully digitalized e- fapiao was expanded so they could also accept and issue these digitalized invoices. These new programs offer an e-invoicing service platform that will give those involved 24/7 services online that are designed to not only deliver but also verify the fully digitalized e-fapiao at any time of the day or night without any charges. And all this means that you will no longer need to use other equipment such as tax control UBS disks, a tax UKey, or a golden tax USB disk.

This is the latest attempt by the Chinese government to usher in a digital upgrade concerning tax collection and tax management costs and administration. They initially tried to bring in these changes with their normal e-fapiao VAT invoices and the previous launch of the Golden Tax System Phase IV.

What Are Fully Digitalized E-Fapiao Invoices?

Fully digitalized e-fapiao invoices are new-wave electronic invoices that have the exact same legal ramifications as the current paper types without any sheets. There are no paper invoice copies, just like other electronic e-fapiao invoices for VAT. The standard paper e-fapiao invoices had a deduction copy, an account-keeping copy, and a stub copy.

However, these fully digitalized options will be much neater and streamlined. They will only list 17 content items that are listed below:

  1. Invoice number
  2. Issuance number
  3. Dynamic QR code
  4. Seller information
  5. Buyer Information
  6. Project name
  7. Unit
  8. Unit price
  9. Unit Amount
  10. Quantity
  11. Specification and model
  12. Tax rate/levy rate
  13. Tax Amount
  14. Tax total
  15. Ad Valorem and tax total (in both figures and words)
  16. Remarks
  17. Invoice

Alongside these content items, six types of fapiao will co-exist in China during these reforms. Please see them listed below:

  • Special VAT fapiao
  • General VAT fapiao
  • Special VAT e-fapiao
  • General VAT e-fapiao
  • Fully digitalized special VAY e-fapiao
  • Fully digitalized general VAT e-fapiao.

What are the New Fully Digitalized E-Fapiao Features?

These are new-style electronic invoices that have a handpicked selection of unique features that we will explain in greater detail below.

Streamlined Procedures for Obtaining and Issuing Fully Digitalized E-Fapiao Invoices

No Medium – Special tax control equipment (the medium) is now needed in advance by taxpayers who partake in the pilot program to issue fapiao. However, they are allowed to issue these new fully digitalized e-fapiao invoices. But this will be done via the national e-invoice service platform.

Automated Fapiao Assignment System – Taxpayers using the new pilot program do not need to get a fapiao via the standard tax bureaus application as before. They can now obtain them via the e-invoicing platform when they need to get a fully digitalized e-fapiao. They will be automatically assigned a fapiao number as and when the information is created and generated.

Managing the Total Fapiao Amount via the Credibility of Taxpayers – The initial maximum amount of invoices that are issued via the taxpayer is determined by the local tax authorities.

These are issues in a calendar month using dynamic adjustments that are based on the credit rating of the taxpayer, their risk level, the actual operating conditions, and some other factors. The upper limit of the total invoice amount that was issued on the pilot taxpayer’s invoice each month, not including VAT, is referred to as the maximum invoice amount. This is very different from the new fully digitalized e-fapiao because it’s not bound by lots of fapiao pieces or even the maximum of a single fapiao.

Once they start the business, the fully digitalized e-fapiao can be issued by the newly- established taxpayers and that will eliminate any conventional prepositive procedures.

Issuing, Delivering, and Verifying Fapiao Conveniently

Issuing Fapiao Via Diversified Channels – These fully digitalized e-fapiao can be issued via the pilot taxpayer by using the unified e-invoicing service platform. Plans are in the works to allow the issuing of e-fapiao by a mobile app or via a terminal to simplify the process further and so no special tax control equipment is required.

Convenient E-Invoicing Service Platform – The pilot taxpayer will be able to issue, deliver and verify fapiao by simply logging onto and using a single platform instead of going through the arduous process of using multiple platforms with several operations.

Fapiao Data that is More Widely Applicable – This new digital e-invoicing platform will make it easy for pilot taxpayers because it will automatically collect any invoice data that is needed for inquiry purposes, downloading, and even printing to make the pilot taxpayer’s life much easier.

Any fapiao information will be automatically sent once the fully digitalized e-fapiao has been issued. This will then be sent directly to the issuer’s and the receiver’s tax digital accounts so it can be downloaded or checked. Tracking the receiver’s invoice usage in real-time becomes easier for the issuer by using the tax digital account to find out whether or not the VAT has been deducted.

By utilizing the digitalized fapiao data, taxpayers can use it to automatically pre-fill the one integrated form for the tax declaration.

You Do Not Need Specific Digital Formats – In stark contrast to standard VAT e-fapiao that is formatted in OFD or PDF, the fully digitalized e-fapiao does not need any specific formatting type. So in effect, pilot taxpayers can deliver it through the e-invoicing service platform and their tax digital accounts. They can also be delivered via QR code, email, or other avenues. Delivery costs are massively reduced while also simplifying the whole process for taxpayers.

Access Tax Service Channels Are Unblocked – You will be able to incorporate more features interactively by utilizing the e-invoicing service platform. Some of those features will include objection submission functionality and smart consulting.

Alongside the aforementioned features, in the future, the platform will be able to support a number of things such as any direct connections with the ERP and any financial software that are currently in use by most enterprises for integrating the process of reimbursing invoices, filing, and entry.

Will Businesses Be Affected by the Fully Digitalized E-Fapiao Program?

Yes, they will be affected, but positively. They are expected to massively reduce the enterprises’ workload by increasing the efficiency of the accounting and financial staff when they issue fapiao over longer periods.

But this could have some short-term knock-on effects on businesses that could result in some challenges. These issues might be related to archiving and processing the fully digitalized e- fapiao concerning any corresponding financial procedures that might need to be altered and adjusted to work in cohesion with the new digitalized system.

It’s being suggested that companies might use this chance to adopt more innovative technologies that can help them to facilitate the management of e-fapiao, accounting, reimbursement management, tax, and even supply chain process management. This might be adopted step by step as the e-fapiao added value is directly linked to automating the relevant procedures.

Alternatively, businesses could be exposed to higher tax risks with the promotion of the Golden Tax System under the fully digitalized e-fapiao program because of the tax bureau’s ability to spot inconsistent tax-incompliance behavior that can be grossly enhanced by big data tech.

To counteract these potential issues, businesses are recommended to regularly check their tax health and status and to keep a keen eye on their internal controls. You can identify the weak points in your daily business operations by performing regular tax health checks that are conducted by the business itself or via a professional third party. By doing this, you can reduce the risk of triggering tax bureau investigations. Using independent third-party companies to perform these checks is advised because they are professional in regard to confidential and relevant matters that come into play when reviewing your operational and financial documents. If your budget allows, use a professional third-party company to perform these checks.

It’s extremely important that businesses get ready and prepared to implement a strategy for the new fully digitalized e-fapiao program to eliminate potential operational risks so you can really take advantage of the e-invoicing service platform and system.

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