Understanding China’s confusing tax invoice system
Have you ever had this experience? You’re out in the marketplace looking for a new printer or a piece of furniture. When it comes to negotiating a price, you are asked, “Do you need a 发票 (fa piao ‘tax invoice/official receipt’) or not?” If you do, the asking price is going to be higher. In other words, if you want an official receipt so you can, for instance, claim a deduction on your purchase, then you need to take care of what would normally be the seller’s tax liability on the sale.
Turn the scenario around for a moment: You are a small business owner in China. Your customer does not require an official receipt. Do you print one up anyway? Or do you take the opportunity to keep the sale off the official books?
In short, the fa piao system is the way the Chinese government keeps track of the tax paid on any transaction. All businesses are required by law to provide a fa piao upon the customer’s request, at the point of sale. However, companies are only allowed to buy a limited number of fa piao forms depending on the scope and size of their business. And did you know that there are actually different kinds of these official invoices, including General Invoices and Special VAT Invoices?
It can all seem so obscure and confusing.
I recently came across two very clear, concise and helpful posts on the subject from China Briefing. They cleared up a lot of things for me and I would encourage you to read them. Here are the links: