If you’re an expat living in China, fapiao can be a complicated system to follow. Fapiao means “invoice” in English, but it is much more than just a simple invoice. The Fapiao system can be overwhelming for foreigners in China to understand, and this expat’s guide to fa piao in China will help.
In this Pacific Prime article, we explain what fapiao is, the types of fapiao, why it’s important for tax compliance in China, and how to obtain a fapiao. If you are an expat living in China, or you are considering relocating to China, Pacific Prime can help you in your journey.
What is Fa Piao?
Fa Piao (发票) is a type of legal receipt that serves as a “proof of purchase” of goods and services in China issued by the State Administration of Tax (SAT). In China, it is required by law to have your purchase of goods and services legally recorded on a fa piao.
There are two main purposes for the Fa Piao: proof of purchase and tax compliance. For individuals, a fa piao records a transaction was made and details the nature of it. For businesses, this document is crucial for tax regulations as it records sales and related tax payable on those sales.
Types of Fa Piao
There are two major types of fa piao – general value-added-tax (VAT) fa piao and special VAT fa piao. These fa piao are essential for businesses to manage their finances effectively and to comply with tax laws. They ensure proper tax is paid and transactions of goods and services are aptly recorded.
General VAT Fa Piao
The general VAT fa piao is used for general business transactions, and the common taxpayers of this are generally small-scale taxpayers and businesses with an annual revenue below RMB 5 million. This fa piao is not eligible for tax deductions, while the special VAT fa piao is.
Usually, businesses like small retailers, restaurants, or service providers, typically issue the general VAT fa piao for daily transactions. Retailers that sell the following are only allowed to issue general VAT fa piao:
- Cigarettes
- Alcohol
- Food
- Clothing
- Shoes
- Hats
- Makeup
- Other consumer goods
Special VAT Fa Piao
Special VAT fa piao is issued by VAT taxpayers or small businesses who have been granted by the SAT to issue them. This type of fa piao is used for tax deduction purposes, and it is the only fa piao that is allowed for claims or reimbursements.
Only VAT general taxpayers (which are usually large companies with annual sales above a specified threshold) can issue a special VAT fa piao. This particular document contains more details with respect to the merchant’s information (i.e., tax number, address, telephone number, bank account information).
When conducting business in China, it’s important to ask for a fa piao and make sure that you receive the correct type of fa piao to comply with tax requirements. Always have your fa piaos stored securely, as these are vital records for tax purposes.
Further reading: Do Businesses in China Need Insurance?
Importance of Fa Piao in Tax Compliance
It is crucial to understand the fa piao system in China in order to avoid legal issues and maintain tax compliance, especially if you are conducting business in the country. Here are some reasons why understanding the Fa Piao system in China is important in tax compliance:
Legal Importance
Tax authorities can assess the legality and compliance of a company based on fa piao. For businesses, fa piao can be used to obtain tax benefits in accordance with the tax law in China, and it can also be used for claim compensation from an insurance company if your company suffers a loss of goods.
Fa piao is one of the most important tools for national financial management in China, and the government heavily relies on this to manage tax sources and enforce tax collection. It’s important to be compliant with fa piao to avoid any legal issues.
Tax Deduction For Individuals
Individuals can have business expenses reimbursed as long as you have a fa piao to provide to your employer. To make sure you remain compliant, you should always request for a fa piao when conducting transactions.
Make sure to have all your fa piao organized and secured for tax filing and potential audits. You can accurately report your tax liabilities and claim due deductions if you have good fa piao management. This is imperative to avoid potential legal issues.
Tax Deduction For Businesses
For businesses, a fa piao acts as both a receipt and a tax invoice. Since businesses need to issue a fa piao to its customers, businesses have to keep track of their fa piaos by securing copies for filing purposes.
A few reasons why businesses need to be compliant of the fa piao system include:
- Documentation of transactions for auditing and accounting purposes
- Claim business expenses by submitting the fa piao as proof of expenditure
- Claim insurance or file for tax deductions
Penalties for Non-Compliance
If you do not comply with the fa piao system, you may face hefty fines or criminal charges depending on the severity of non-compliance. Non-compliance with fa piao regulations include not issuing or reporting a fa piao, or engaging in tax evasion.
It’s imperative that your fa piao is properly managed to avoid such consequences. The penalty for non-compliance can range between RMB 2,000 to RMB 50,000, and criminal charges may be filed against you or your company
Further reading: 10 Life Hacks for Expats Living in China
What Are E-Fa Piaos?
China has set a new initiative in digitizing the fa piao system for better efficiency and accuracy.Through this system, you can immediately issue and receive a fa piao through digital platforms, and streamline accounting processes with seamless integration with most digital accounting systems.
E-Fa Piaos vs. Traditional Paper Fa Piaos
While you can still use paper fa piaos to keep track of your transactions and file your taxes, e-fapiao is a more convenient and efficient option for better fa piao management. E-fa piaos has the same legal effect as paper fa piaos, which is why many merchants are switching to e-fa piaos.
The differences between the two fapiao arenot only in their form, but in how you file your taxes with them and the information you need to provide to merchants when obtaining a fa piao. Below is a quick summary on the differences between e-fa piaos and paper fa piaos.
| E-fa piaos | Paper fa piaos | |
| Format | Digital format where a link will be issued by the merchant to the consumer. | Paper format that includes two copies: the original for the consumer and a copy for the merchant. |
| Form used to submit for reimbursement | The e-fapiao can be printed or downloaded in PDF format. | Only an original paper fapiao is accepted (copies are not acceptable). |
| How to obtain the fapiao |
|
*If the fapiao is under a company name, the merchant will require you to provide the full company name and tax code information |
In general, e-fa piaos are more convenient if you prefer to organize your documents digitally. It reduces the risk of losing important fa piaos, especially since each fa piao counts when it’s time to file your taxes. Good fa piao management is crucial to avoid legal issues with your taxes in China.
Frequently Asked Questions
What is fa piao in English?
Fa Piao means “invoice” in English, and this refers to the official invoices issued by the Chinese government’s State of Administration of Tax (SAT). A fa piao is a legal receipt that acts as a proof of purchase and payment of taxes. The government also uses fa piaos to track taxable transactions.
What is the difference between a fapiao and an invoice?
Companies use invoices for payment requests, while a fapiao is a tax receipt used for tax deduction and financial documentation in China. Invoices are issued by any business, but a fa piao is issued within the official Chinese tax system. The fa piao system has counterfeiting measures that do not allow for fraudulent documentation.
What is an example of a fapiao?
You can get a fa piao by simply dining at a restaurant in China. After paying for your meal, you will receive a receipt, often printed on official paper, that will detail the amount spent, the items purchased and will include an official stamp. This certifies that the taxes on the transaction have been recorded by the government.
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Disclaimer: Pacific Prime solely represents, operates and manages locally regulated insurance products and services in the territory of PR China. Any references to Pacific Prime Global Company or Group, the international services, insurance products or otherwise stated written or verbally, is for introduction purposes about our overseas network only as each entity is fully independent.
