A FaPiao (发票) is a tax receipt which you are supposed to be issued when any goods or services are purchased in China. Your company may need original fapiao to claim business-related expenses.
A very important record of expenses for many business people and expatriates in China is the FaPiao. It is more than a receipt confirming payment, but also an essential component of the system designed by the Chinese government to track tax payments and deter tax evasion.
A FaPiao is basically a kind of invoice given when a payment is made, serving as a legal receipt. However, these invoices are also used by the Chinese government to monitor tax paid on any transaction. It’s this latter function that makes them so important. FaPiao are printed, distributed, and administrated by tax authorities.
An official Fapiao is to be issued when any goods or services are purchased within Mainland China. Prices paid include business tax, therefore, the FaPiao issued confirms the tax component of that expense and that the tax has been submitted to the tax department.
From a Company tax audit perspective, an official FaPiao is required for tax deduction. Fapiaos are typically bought from the government (as in pre-paid taxes), therefore, the more FaPiao’s a business issues to customers, the sooner they need to replenish their supply and purchase more. This is why businesses may go out of their way to avoid issuing a Fapiao, and the business person, or expatriate may need to ask for their Fapiao multiple times.
APPEARANCE OF A FAPIAO:
A FaPiao is official in appearance, and contains two (2) red circular stamps. Some FaPiao’s are printed, some are issued in predetermined denominations, and others are issued directly by the tax department.
There is difference between a FaPiao and a receipt (收据 shōujù). Often a receipt looks deceptively like a FaPiao; the difference being that a FaPiao has its own very particular stamp, 发票专用章.
It is an oval-shaped red stamp that catchily says “Standard Invoice Stamp Nationwide” (全国统一发票监制章) in the upper line and “Supervised by State Administration of Taxation/Local Municipal Office of SAT” (国家/地方税务局监制) on the bottom line.
FaPiao have various forms. Printed FaPiao (机打发票), the most common, state the payer and the payee. To encourage people to ask for a FaPiao (so that the tax bureau doesn’t lose money). Another kind of FaPiao, a rarer one, is called a “ripped” FaPiao (手撕发票), which is pre-printed with fixed sums and is ripped off from its binding. No matter what they look like, make sure the fapiao has the SAT stamp.
Train and plane tickets are the exceptions. Train tickets are FaPiao themselves, no stamp needed. With flights, however, the flight ticket is useless; you need to ask for a paper called 行程单, literally “itinerary sheet”) from the airline office or your agency, which is also sanctioned by SAT as valid for reimbursement.
To promote the FaPiao system, there may also be a “scratch & win” (刮奖) section on the FaPiao in the top right corner.
NON-TAXABLE BENEFITS:
There are certain benefits in China that are not taxed as income provided the original FaPiao remains in China and is available to support the expense. In these instances, the benefit can be paid to the employee as a non-taxable and the Company can claim it as a business-related expense.
Non-taxable benefits include:
- Housing Rental Costs
- Education Costs
- Car Leasing
- Home Leave
- Medical Insurance
- Training
ISSUES WITH FAPIAOS:
Obtaining a FaPiao for each and every service/product purchased in China can be extremely difficult. Typically, the suppliers of services/products do not voluntarily issue a FaPiao and if they do, often there are errors, in particular when the FaPiao is issued directly to a Company and the Company’s name is spelled incorrectly.
Obtaining a FaPiao for a final (last month) lease payment may be a challenge because there may not be enough incentive for the landlord to make the payment at the tax office on rental funds previously received.
There are also different tax rates in China that would apply depending upon the type of service.
A frequent occurrence is the issuance of a FaPiao that does not match the true nature of the expense or the correct tax rate. For example, a landlord issuing a FaPiao from his business for a “service” instead of lease payments.
FaPiao, like any receipt, are easily lost. In instances where a refund may be required by the employee or Company, as in the reimbursement of tuition costs due to an early repatriation, the provider of the service would require the original FaPiao back. Locating the original FaPiao in Company records/ archives, depending upon the Company’s protocol for maintaining receipts and records, may be problematic.
As an example, below is a sample of the process required to obtain a FaPiao for a property rental in China:
- A lease is obtained in the amount of RMB 10,000 per month;
- 5% tax is included in the price;
- The expat (or Company) signs the lease;
- The landlord takes the lease to the tax office;
- RMB 500 in tax is paid by the landlord;
- Tax office issues FaPiao to the landlord in the name of the Company;
- Landlord gives FaPiao to the tenant expat; and
- The expat employee provides the FaPiao to the Company for reimbursement or confirmation of expense for tax purposes.
RECOMMENDATIONS:
Any corporate policy should specify why the FaPiao is crucial for audit and tax purposes. Since the Company must have the original FaPiao in order to claim the cost as a business-related expense it is important to make it mandatory that the employee submit the FaPiao for expense reimbursement otherwise the expense will be rejected. This rule applies for business travel, expatriates and domestic transfers within China.
In addition to the above, it is recommended that to ensure that any agreements, or contracts, contain a specific clause or requirement outlining when the FaPiao is to be issued to the employee.