Many smaller business falling into the category of so-called small-scale taxpayers will from now on be able to issue Special VAT Invoices (also known as Special VAT Fapiaos). Special VAT Fapiaos are the only receipts officially recognized for tax deduction purposes.
On August 13, 2019, the State Administration of Taxation (SAT) issued a notice to simplify tax procedures on several matters. In this notice, the SAT announced that from now on all small-scale taxpayers, regardless of their industry, can issue Special VAT Invoices by themselves. Before, many small-scale businesses had to ask the tax bureau to issue it on the businesses behalf.
Importance of Fapiao receipts
Chinese business transactions, the accounting and tax system heavily rely on the so-called Fapiao, the official receipt printed on a standardized form issued by the State Administration of Taxation. There are two different types of Fapiao, the general Fapiao and the Special VAT Fapiao. Only the Special VAT Invoice allows the buyer to deduct the input tax from future tax duties.
More information about Fapiaos of both types can be found in our articles on accounting in China and about regulation concerning Fapiao issued in 2017. More recently, so-called e-Fapiao have been gaining importance, as explained in our video here.
Background: distinction between small-scale and general taxpayer
Under the prevalent VAT laws and regulations, VAT taxpayers are categorized into general taxpayer and small-scale taxpayer. This categorization is based on the accounting standards, and on the business scale of the companies. A company with an annual turnover of more than RMB 5 million is treated by the tax authority as a normal taxpayer. In the past, all industrial and commercial enterprises with an annual turnover of less than 500,000 RMB or, under certain conditions, up to 800,000 RMB, were considered small-scale Taxpayers. In May 2018, this figure was increased to RMB 5 million.
Originally, a small-scale taxpayer was not allowed to issue Special VAT Invoice and is not in the crediting system. After the VAT reform in 2016, qualified small-scale VAT taxpayer were allowed to issue Special VAT invoices, but could only do so by asking the tax bureau to issue it on its behalf. This caused a lot of administrative work for both the business and the tax bureaus. Especially for small business transactions, this was not economically wise for businesses.
In the past: Self-issuance limited to certain industries
Starting from August 1, 2016, the SAT allowed small-scale taxpayers in the hotel and lodging business to issue Special VAT invoices, but limited this to taxpayers in 91 cities nationwide. Additionally, only those with monthly sales over RMB 30,000 or quarterly RMB 90,000 were allowed to issue the invoice by themselves.
Over time, more and more industries were included in the loop, such as attesting and consulting business, construction business, industrial and information transmission business, software and information technology business by the end of 2018. In March 2019, the list of industries was again extended to include leasing businesses, commercial service businesses, scientific research and development businesses, lifestyle service businesses, repair and other service businesses.
Now with this new notice, small-scale taxpayers in all industries will be able to issue Special VAT invoice by themselves. This will help small-scale taxpayers save business costs. This step is also welcomed by general taxpayers, who can now more easily obtain a Special VAT Invoice from business partners classified as small-scale taxpayer and use it towards an input tax deduction.
If you want to know more about the practical questions or issues in this area, feel free to contact us.
About the author:
Senior Tax Manager
Elizabeth has over 15 years of working experience in China’s legal, tax and business field. Prior to joining Ecovis, she worked within the Big Four accounting firms’ tax and business advisory departments. She advises companies on various China tax and legal related matters, including dealing with taxes and other government authorities. Her expertise covers tax compliance, restructuring, M&A, tax due diligence, liquidation and deregistration related tax matters as well as tax planning for companies and individual expatriates. Elizabeth started her professional career as a legal consultant in a prestigious IP firm, working on foreign direct investment (FDI) and intellectual property (IP) projects.
About ECOVIS Beijing
Ecovis Beijing is the trusted tax and legal advisor to several embassies and official institutions in China. We are specialized in advising mid-sized international companies and focused on tax and legal advisory, accounting and auditing. We frequently publish articles on new regulations and recent developments in China and Germany on our website.
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