Nationwide introduction of electronic invoicing in China

published on 8 May 2024 | reading time approx. 3 minutes

As of December 2023, the Tibet Autonomous Region has become the latest region to participate in the pilot program for fully digitalised e-invoicing. It marks the completion of the nationwide implementation of the program within two years, enabling businesses across all provinces to issue fully digitalised electronic invoices (“E-Invoices”) through the tax authority’s e-invoicing platform. This milestone provides an opportunity to reflect on the progress of e-invoicing in China and to highlight the unique features of the system.

Development of the E-Invoice in China »
Current status of the pilot program and features »
Advantages of the E-Invoice and outlook »
Our assessment »

Development of the E-Invoice in China

Before the implementation of E-Invoicing, invoices in China, commonly referred to as fapiaos, were generated using specialised software and a dot-matrix printer on preprinted forms. These preprints are exclusively obtainable from the tax authorities, the related printer is available for purchase from manufacturers approved by the government.

All invoices are pre-registered with the tax authorities using consecutive numbers and are set with a specific maximum amount. When the invoice is issued, the software only allows certain fields to be filled in. As the software is connected to the tax authority, the information on the issued invoices is available to the tax authorities. Finally, the company affixed an invoice stamp with the company name and tax number to the printouts for verification.

For both paper invoices and E-Invoices, a distinction is made between two types of invoices: (1) general VAT invoices and (2) special VAT invoices. Both serve as legal receipts and tax invoices for business transactions. However, only the special VAT invoice allows customers to deduct input VAT. General VAT invoices cannot be used to deduct input VAT and can only be considered as a business expense to be deducted from taxable income.

The first phase of the invoicing reform commenced in 2015 with the introduction of the general VAT E-Invoice as an electronic version of the general VAT invoice, which is not eligible for input tax credit. The introduction has been a resounding success, particularly in sectors where numerous transactions occur on a daily basis, such as catering and retail. The convenience of general VAT E-Invoices has led to the vast majority of B2C transactions being carried out using general VAT E-Invoices.

The second phase was initiated in December 2021 with the pilot program for fully digitalised e-invoicing. This enabled selected companies in Shanghai, Guangdong, and Inner Mongolia to issue and accept special VAT E-Invoices, which are eligible for input tax credit. The program was gradually extended to more provinces in 2022 and 2023, until it was made available nationwide on 24 November 2023 with the announcement of the Tibet Autonomous Region Tax Bureau of the State Administration of Taxation to join the fully digitised electronic invoicing pilot program.

Current status of the pilot program and features

Under the fully digitalised e-invoicing pilot program, companies have the option to issue invoices online 24/7 via a platform provided by the tax authorities. Once issued, the invoices will be delivered via the platform, allowing the recipient to verify the invoices online. After verification, the input VAT is credited and in a second step automatically transferred to the company’s VAT return.

Apart from access to the platform, no special equipment is required. The appearance and fillable fields of the special VAT E-Invoice are basically still derived from the previous paper invoice. Among other things, there are fields for seller and buyer information, invoiced item, specifications, unit, quantity, unit price, net amount, tax rate, tax amount, total amount, and remarks.

Invoice type	Special VAT (paper) invoice	Special VAT E-Invoice
Medium	Paper: 3 copies (invoice, tax copy, accounting copy)	Digitalised: only one electronic file; different formats available
Issuance	Manual self-printing with special tax equipment; fields with auto-completion Affixed with special invoice seal for verification	Manual online self-issuance; fields with auto-completion Electronic authentication features

According to the latest publication of State Taxation Administration (STA) No. 56/2024 issued on January 15, 2024, it has been clarified that the responsibility of constructing and managing the E-Invoicing platform lies with the tax authorities. This involves providing digitalised services for issuing, delivering, and verifying invoices while ensuring data security. Eventually the tax authority is authorized to extract, review, and copy invoice data.

Advantages of the E-Invoice and outlook

The introduction of general VAT e-invoice has enabled customers to issue invoices independently by scanning a QR code on the receipt, thereby eliminating the need for companies to actively issue invoices. Customers can then conveniently save the invoice as a PDF on their device.

The special VAT E-Invoice further expands these options in the B2B sector by offering online delivery and verification via the tax authorities’ platform. With the verification of the invoice, the input tax is credited and transferred to the VAT return. Issued and received invoices are stored and archived through the tax authorities’ platform. The requirement for companies to issue and mail paper invoices is therefore eliminated.

Further, it is possible to download the data from incoming and outgoing invoices in a structured format and import it into an accounting program. Many major ERP providers offer automatic interfaces that can be directly connected to the tax authority’s invoicing platform. This allows for the automatic posting of outgoing and incoming invoices, along with subsequent account assignment, which not only reduces the time required to enter the invoices but also minimises the risk of manual entry errors.

From the tax authorities’ perspective, the pilot program aims to improve tax compliance through the automatic analysis of data from the online platform, e.g. by comparing data between different tax periods. The reform thus addresses problems associated with tax underpayment and tax fraud while also improving the efficiency of the tax authorities.

Our assessment

The e-invoicing reform in China offers significant opportunities for companies to automate their invoicing and accounting processes, for example by transferring data from the tax authorities’ platform to the accounting software. It is expected that a significant proportion of monthly invoices will no longer need to be entered manually. In addition, the digitalisation of invoicing opens up further opportunities for paperless and automated processes, such as travel expense accounting based solely on E-Invoices. By saving costs and time, the invoicing reform will therefore make a significant contribution to improving efficiency in many areas of business administration.

If you have any inquiries about e-invoicing in China or accounting automation, please do not hesitate to contact us.