In China, all business transactions are required by law to be recorded on an official invoice (or ‘fapiao’ 发票in Chinese). Contrary to other countries, fapiaos are more than just ordinary invoices. Fapiaos are distributed, and administrated by tax authorities, and taxpayers are required to purchase the fapiaos they need from the tax authorities according to their business scope. Fapiaos are physical paper invoices printed with a special printer by qualified employees of companies that have ‘General VAT taxpayer’ status (see FAQ ‘what is the distinction between General VAT payer and Small-scale VAT payer?).
Fapiaos clearly indicate the name and tax identification number of the individual or the business for which they were issued. Fapiaos can be sorted into two categories:
- Special VAT fapiao: the most commonly input VAT vouchers for input VAT deduction, issued by a general VAT taxpayer to another business;
- General VAT fapiao: for all other instances, including sales to small-scale taxpayers and consumers, VAT-covered transactions done by small-scale taxpayers, or sales of tax-free goods and services.
When an enterprise is incorporated, it needs to state what activities it intends to perform on its Business License, and keep its actual operations within this scope. The fapiao system is one means to enforce this requirement, as the enterprise cannot issue fapiao for activities outside its business scope.