China: Covid-19 spurs digital e-invoicing

Recently, the daily operation and financial process of enterprises in some Chinese cities have been restricted in many aspects due to Zero-COVID control and measures. Among them, many companies are unable to timely issue VAT invoices for relevant business due to blocked invoicing machines in the offices and a lack of blank paper invoice at hand, which even leads to the inability to collect payments from customers and has a huge impact on the cash flow of the enterprises. For many enterprises the possibility of electronic invoices (e-invoice) would be the perfect solution.

The Chinese State Tax Authority has been implementing electronic VAT fapiao ("General E-Invoice") since 2015, which have been widely used among enterprises since then. Starting from 1 September 2020, the pilot of electronic VAT special fapiao ("Special E-Invoice") has been firstly launched in Ningbo, Shijiazhuang and Hangzhou, and then among newly established enterprises in 11 regions including Shanghai, and 25 regions including Beijing from 21 December 2020 and 21 January 2021 respectively. The scope of the invoice recipient is the whole country.

On 30 November 2021, the tax authority of Shanghai, Guangdong and Inner Mongolia successively issued announcements, specifying that since 1 December 2021, all digital electronic invoice ("all e-invoice") will be launched on a pilot basis relying on a nationally unified electronic invoice service platform.

Compared with paper invoices, the use of electronic invoices can save a lot of manpower and material resources, which not only can be applied directly through the network without delivering time, and are no longer restricted by equipment and paper medium in the process of issuance. And more importantly, e-invoices can be delivered to customers in a safer and faster way, which facilitates enterprises to collect payment in time. In the meanwhile, as invoice recipient, enterprises and employees can also obtain invoices through the network, which helps enterprises to effectively check invoices through online inspection platform and book the cost and expenses in a timely manner. In addition, with the help of an ERP and other management systems, electronic invoice data may directly be interfaced with the accounting system, and processes such as bookkeeping can be simultaneously completed while importing data.

At present, most enterprises can apply for general e-invoices directly on the online taxation platform, and after the approval , they can directly receive electronic invoices in the online platform and download them to the invoicing software.

The application for special e-invoices via online platform is only for new enterprises established after 21 December 2020 and for enterprises designated by the tax bureau as pilot enterprises. Since 23 May 2022, the pilot scope will be further expanded among part of taxpayers in Shanghai, who have already been using e-invoice service platform to issue invoices (“Invoice Issuer”) and who have been using tax digital account via e-invoice service platform (“Invoice User”). Invoice User in the pilot scope can claim VAT credit via e-invoices on the e-invoice service platform. The expanded pilot scope will still be determined by Shanghai municipal tax authority. Currently, the scope of pilot Invoice User is much wider than the scope of pilot Invoice Issuer. Tax authority so far does not accept unsolicited applications from enterprises that are not included in the designated pilot scope to issue special e-invoice. Therefore, it is understood that the majority of enterprises may not immediately apply for special e-invoices.

After the implementation of "all e-invoice", on the one hand, it can facilitate taxpayers to issue invoices and handle all matters related to invoices through the digital platform, thus reducing operation costs. On the other hand, the use of "all e-invoice" also provides more accessible data for taxation authorities to supervise the daily operation of enterprises, and enables the sharing of tax information of taxpayers among various departments and regions, so that tax authorities can conduct more accurate big data analysis. At the same time, "false issuance of VAT invoice" is still the focus of strict supervision by the tax authority in the next phase, and depending on the electronic invoices, it would be easier for the tax authorities to detect illegal acts and put forward higher requirements for taxpayers' daily compliance.

Under the current lockdown situation, the advantages of electronic invoices are undoubtedly obvious. Enterprises should take the initiative to communicate with the competent tax authorities on the possibility of application for electronic special VAT invoices and start preparation on the supporting documents as early as possible. Although there is little chance for the old enterprises outside the pilot to apply for special VAT e-invoice before the end of the lockdown, it will help them to follow the progress of local tax authorities in promoting all e-invoice or to be the first to realize all e-invoices after release. It is expected that the general demand for electronic invoices emerging from the epidemic lockdown will also prompt local tax authorities to speed up the implementation progress of all e-invoices, so that more enterprises can enjoy the convenience brought by electronic invoices and reduce the impact of unexpected events on business operations.