Invoice Types and Requirements in China

  1. Commercial Invoice
  2. Self-Billing Invoice
  3. Collective Invoice
  4. Proforma Invoice
  5. Interim Invoice
  6. Invoicing in China
  7. Types of Tax Invoices
  8. B2B Invoicing in China
  9. Frequently asked Questions – Invoicing in China
  10. The Golden Tax System

Commercial Invoice

China has become a commercial hub and following that it is having business transactions with a number of individuals from a number of countries. Due to the number of international transactions, the commercial invoice is very common for international trade and ocean freight shipping.

Primarily a commercial invoice is a legal document issued by a seller/exporter to the importer/buyer in an international transaction and serves as a contract and proof of sale between the buyer and seller. It normally details the price, value, and quantity of goods being exchanged. It should also include the trade or sale conditions agreed upon by both the buyer and seller of the transaction in question.

It also contains information relating to the transaction, that is, the invoice number, invoice date, order number, total sale amount, currency, and payment instructions. It is important that it should contain the address details of both the exporter and the importer.

Self-Billing Invoice

The Chinese government is very strict on issues of taxes and has been at the forefront to advocate for its citizens and people doing business with them to pay taxes. This has given rise to the self-billing invoices that are normally raised by a supplier for the customer so that payment can be effected.

This arrangement is made possible when both the customer and the supplier have registered for VAT. One merit of this invoice is that the customer is not kept waiting for an invoice from the supplier to be able to reconcile it with the timesheet of payment.

On the supplier’s side, it has merit too in that there is no need to produce an invoice as once the timesheets are approved, and then a customer is able to generate an invoice.  Self-billing is also considered advantageous as it is a time saver due to less administration for suppliers and customers, reduced costs, and less time spent on invoice management.

Collective Invoice

In China, it is important that the principle of proper accounting is adhered to, by ensuring that every transaction made by a business is proved by means of an invoice. Due to businesses having a number of transactions on a daily basis, multiple transactions can be billed using a collective invoice.

Primarily a collective invoice documents several goods or services provided to a customer or a number of customers over an agreed time. it has an advantage when a business provides regular services for a single customer over a long period of time and would like to settle the same periodically. It helps when a business is reviewing some of its loyal customers for purposes of rewarding them or marketing to the new products considering the products that they order regularly.

Proforma Invoice

The Chinese government requires that buyers should be presented with a bill of sale early enough for a shipment or a delivery of goods. The invoice will primarily describe the purchased items, as well as the shipping weight and the transportation charges. Most of the Pro-forma invoices in china are used for international transactions, especially for customs purposes on imports.

In China, a Pro-forma invoice differs from a simple price quotation because it is a binding agreement, even though the terms of sale are subject to change. Businesses in a number of industries use this type of invoice to meet their internal purchasing approval processes. The invoice has also been praised for streamlining the sales processes by eliminating additional back-and-forth after a sale goes through, as all terms would have been agreed on upfront.

Interim Invoice

China has been known to be very good in the building and construction industry and at times they take up very big projects from third world economies.

Some of the third world countries cannot raise the budgets for those projects hence they have got to pay the money in phases. This has made it possible for the Chinese business people to take up projects in any part of the globe, then execute the project in a timely manner as payments are made in phases.

This also applies to small projects being executed by small entrepreneurs who may not fund some projects of certain magnitudes. It gives the entrepreneurs an opportunity to bid for projects that their investments cannot handle and they depend on the money paid in phases to finish the project in good time.

Invoicing in China

China is keen not to lose tax money from businesses that may file incorrect tax information or evade tax payments completely. The local Chinese tax bureau can do so through a regulated invoicing system. Fapiao, which is the name given to the Chinese official invoice, is what all businesses in China use for their transactions.

Uses of Fapiao

  1. Act as evidence of purchase to both the seller and the buyer
  2. The government can use it to follow up on tax payment aa well as curb tax evasion
  3. Can be used when one needs to file for tax offsetting or rebates

Types of Tax Invoices

There are two types: The general VAT fapiao and the Special VAT fapiao. These fapiaos are used by the two company classifications in china namely; General Tax Payers (GTPs) and Small Tax Payers (STPs).

Companies operating as GTPs are allowed to use the Special VAT fapiaos to do tax deductions. This is however not possible with companies under STPs. As an alternative measure, they can ask the seller to use an ordinary VAT invoice. Moreover, STPs cannot issue Special VAT fapiao but the tax bureau can prepare one for the buyer, upon request by the STP.

GTPs have an advantage over STPs as they can issue Special VAT invoices. They can also purchase the software to use to generate the invoices.

B2B Invoicing in China

What constitutes a Special VAT Fapiao (invoice)?

A special VAT invoice contains the following copies of documents:

  • Accountability copy – an accounting copy retained by the supplier
  • Deduction copy – a copy of VAT deduction paid by the buyer.
  • Receipt copy – an accounting copy for the buyer.

Special VAT Fapiao (invoice) Requirements

The Special VAT invoice contains the following information:

  • Seller’s Name
  • Buyer’s name
  • Invoice date
  • Taxpayer’s tax registration Number
  • Transaction amount excluding Tax (VAT)
  • The tax rate,
  • Total amount

General VAT Fapiao (invoice) Requirements

You should include the following information in a General VAT invoice:

  • Seller’s Name
  • Buyer’s name
  • Invoice date
  • Product’s description, quantity, and the unit price
  • Total amount

Electronic Special VAT Invoicing (e-fapiao) adoption in China

Paper Invoicing still exists in China, however, since December 2020, e-invoicing has been adopted by 31 regions on a voluntary pilot basis.

What are the advantages of e-fapiao?

Compared to paper invoicing, e-fapiao eases the process of invoicing in terms of generating, delivery, and validation. It also eliminates the need to invest in invoicing printing resources. In that regard, it streamlines the B2B invoicing process.

Frequently asked Questions – Invoicing in China

Is a Commercial invoice compulsory in international transactions?

Yes, this is because it is a legal and mandatory requirement in most countries. It is among the documentations needed to carry out international cross-border shipping.

How many copies of Commercial invoices are required when shipping?

The standard practice is to create two invoice copies when shipping products. However, this varies from one shipping company to another, especially when shipping multiple packages.

For instance, UPS requires its customers to create 3 copies of a commercial invoice, while BanSar only requires customers to create two copies of commercial invoices.

What is the difference between a commercial invoice and a tax invoice?

A commercial invoice contains the description of goods and services, the prices, and the terms of sale. On the other hand, a tax invoice includes tax payable on the goods and services, in addition to the description of services and goods. You use a tax invoice to determine how much tax you need to pay on each product.

Can I cancel a pro forma invoice when importing from China?

No, you cannot cancel a pro forma invoice, because it does not have any impact on accounting. Instead, you can change its values to 00.00, to reverse the shipment. In that regard, while you cannot cancel pro forma, you can update its status.

The Golden Tax System

The Golden Tax System is a centralized invoice system that is in control of the fapiao distribution. Its role is to monitor businesses to ensure they use the required invoice system. The State Taxation Administration (STA) of China maintains a record of all fapiaos that have been used for transactions in the country.

Businesses are given fapiao invoices depending on their scope. The Golden Tax System validates data for each company to ensure everything is correct. When the data is seen to be correct, the company can still use fapiao. Incorrect data will see the company invoice system blocked hence cannot issue fapiao invoices.

In an attempt to curb counterfeit fapiao invoices, China made it mandatory for all companies to issue authentic fapiao specifically for every product sold or service delivered. Buyers can scan a QR code then enter their tax details in selected platforms such as WeChat, upon which the buyer receives the fapiao directly to their email address.
The same fapiao is also sent to the accounting system of the selling company. Transactions are faster, safer and no fake invoices anymore.