Issuing Special VAT Invoices

Since the implementation of a VAT reform pilot program in 2016, certain small-scale taxpayers can issue special VAT invoices. Find out the requirements and if this pertains to your business

The special value-added tax invoice, also called special VAT fapiao, is an essential document used to offset input VAT from output VAT, thereby relieving the taxpayer from VAT payment liabilities.

A company must obtain VAT general taxpayer status in order to be able to issue special VAT invoices. However, to ensure the smooth implementation of the VAT reform and facilitate the use of invoices
by taxpayers, the State Administration of Taxation (SAT) launched a pilot program on August 1, 2016. (Note: The SAT was renamed the State Taxation Administration in 2019.)

This initially allowed small-scale taxpayers in the hotel industry in 91 cities (showing a monthly revenue over 30,000 RMB or quarterly revenue over 90,000 RMB to issue special VAT invoices by themselves.

The pilot program was then expanded, several times, to cover a wider area, include more industries and is now subject to lower threshold requirements:
On November 4, 2016, the pilot program was expanded to the hotel industry
nationwide.
On March 1, 2017, the authentication and consulting industry was added into the pilot scheme.
On June 1, 2017, the construction industry was added into the pilot scheme.
On February 1, 2018, this pilot program was expanded to the industrial sector as well as the information transmission, software, and information technology services sector.
On March 1, 2019, the pilot program was further expanded to the leasing and business services industry, the scientific research and technical services industry, and the residential service, repair and
other service industries. Further, the revenue requirement for eligible small-scale taxpayers was removed.
● On February 1, 2020, small-scale taxpayers (excluding other individuals) in all sectors can use the invoice management system to issue special VAT invoices to their customers, according to the Circular about Implementing the Second Batch of Tax & Fee Facilitation Measures released by SAT in August 2019, and the SAT Announcement [2019] No.33.

Besides the above-mentioned cases, small- scale taxpayers who had switched their status from the general taxpayer status could continue to issue special VAT invoices by themselves so long as the special VAT invoice was approved before the switch date.

Small-scale taxpayers making use of the program should pay attention to the obligations and risks associated with the greater convenience. The special VAT invoice is subject to stricter monitoring and has higher legal liabilities considering it can be used for tax deduction purposes.

Small-scale taxpayers who want to implement this program are suggested to:

● Build up a qualified internal finance team by fully studying the VAT policies and the invoice management rules, or get proper training from third-party professional firms. ● Establish a proper invoice management system to prevent incompliance risks.
● Pay attention to the accuracy of tax declaration and payment, and file relevant tax amounts in a timely manner.

Considering the small-scale taxpayer usually maintains a comparatively small headcount, outsourcing this process to a third-party professional firm might be a more cost- efficient and safer choice.

This article was first published by China Briefing, which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in ChinaHong KongVietnamSingaporeIndia, and Russia. Readers may write info@dezshira.com for more support.