The New PRC Invoice Rules You Need to Know

26 June 2017

In an effort to combat invoice fraud in China, the State Council approved the amendments to the Procedures of the People’s Republic of China for the Management of Invoices in 2010 stipulating the regulatory requirements of tax invoices. A simple receipt will no longer suffice as a record for a purchase in a company’s accounting books, only official tax invoices are acceptable.

New rules on specific VAT invoices have been introduced supplemental to the current rules in an effort to further emphasise the importance of handling tax issues in full compliance with law. This set of new rules will come into effect on 1 July 2017 and includes the following:

1. Specification of Tax ID Code or Unified Social Credit Code
Specific information in full from the correct buyer is mandatory for the issuance of valid special VAT invoices. In addition to the information including Chinese company name, address, telephone number, bank name and account number, buyer’s Tax ID code or Unified Social Security Code are also required. Any invoices missing the above information will not be a valid tax payment receipt.

2. Specification of the Nature of Expenditure
In the light of combating the common grey practice of buyers intentionally inputting false purposes of expenditure on special VAT invoices, service providers are required by the new rules to specify the actual purpose of expenditure at the time of issuance.

3. Validity
Special VAT invoices that are issued after 1 July 2017 should be filed and verified within 360 days with the tax authorities. Taxpayers should retain both the special VAT invoices deductible and invoice copies for the purpose of such validation. The new rule does not apply to special VAT invoices issued prior to 1 July 2017.

4. The VAT Control System of The State’s Administration of Taxation (SAT)
Service providers will be obliged to connect and sync their service systems with the SAT’s VAT Control System to ensure coherent invoice data in both systems. Due amendments must be made in case of discrepancies of data between two systems.

Service providers are advised to stay abreast of the latest invoice rules to ensure compliance. Taxpayers are advised to educate their company employees on invoice practice to ensure smooth reimbursement of business costs.