18 March 2015
Definition of Invoice
An invoice refers to a proof of payment in a transaction involving the sale of goods, provision of labour service, or other business activities. It is also a document supporting that a payment and receipt has taken place, an official document for financial payment and receipt, a primary document in accounting, and an important tool in auditing for taxation purpose.
An invoice is different to a financial receipt. Financial receipt refers to a proof of payment issued by state organs, public service units, social bodies, supervisory departments with administrative and management functions, and other organisations appointed by the government, to units or individuals after receiving administrative or public service fees and collecting government funds from them in the course of performing government functions in accordance with the provisions of laws, regulations and legally binding administrative rules. Such receipt is an official document for financial payment and receipt, a primary document in accounting, and an important base on which financial and auditing departments conduct inspection and supervision. Finance departments at all levels are the responsible organs managing financial receipts.
Invoices are generally in triplicate, namely the stub copy, invoice copy and accounts copy. Value-added tax (VAT) invoices have one more copy, which is the deduction copy.
Application for Purchase of Invoice
(a) First-time Application for Purchase of Invoice by Taxpayer
(i) Application by taxpayer
After units and individuals completing tax registration according to law have collected their tax registration certificate, they may apply to the supervisory tax department for the purchase of invoices by presenting the following documents and materials:
(ii) Acceptance and verification by tax department
After the tax department has examined and verified the documents and materials submitted by the taxpayer, it will confirm the type and quantity of invoices to be purchased and sell the invoices to the taxpayer. In the case where the documents and materials submitted by the taxpayer do not meet requirements, the tax department should notify the taxpayer to re-submit the right papers.
(b) Further Purchase of Invoice by Taxpayer
There are generally two systems for further purchase of invoice after going through application for first-time purchase: the “examining the old and supplying the new” system and the bulk supply system.
(i) Examining the old and supplying the new
Under the “examining the old and supplying the new” system, units and individuals can purchase new invoices after they have submitted to the tax department for inspection the stub copies of the invoices issued. This system applies to the supply of all fixed-amount invoices. After the launch of the online report system, fixed-amount invoices can be examined and cancelled online direct and the stub copies are not required to be submitted to the tax department. In order to shorten the time needed by taxpayers to issue invoices and ensure that tax is collected on time and in full amount, for invoices supplied under the “examining the old and supplying the new” system, taxpayers are required to have their old invoices examined or submitted for cancellation within one year as from the day the invoices are purchased.
Examining the old invoices should provide invoice purchase book, stub copy of invoices purchased (for fixed-amount invoice), the accounts copy of the final invoices issued, the final accounts copy of the issued invoices, all copies of cancelled invoices and the evidence for issuing negative balance invoices (for network invoices), user card for information of issued invoice, all copies of cancelled invoices and the evidence for issuing negative balance invoices.
For purchase of invoice, the following documents and materials are required:
(ii) Bulk supply
Under the “bulk supply” system, when units and individuals purchase invoices, the tax department would set a reasonable quantity of invoices to be purchased within a certain period (generally six months to one year) based on the scale of their business and the actual volume of use. The main recipients of “bulk supply” are taxpayers printing their own invoices (e.g. telecommunications departments issuing telephone bills).
(iii) Acceptance and verification by tax department
After the tax department has examined and verified correct the documents and materials submitted by the taxpayer, it will sell the invoices to the taxpayer at the confirmed type and quantity. In the case where the documents and materials submitted by the taxpayer do not meet requirements, the tax department should notify the taxpayer to re-submit the right papers.
Examination and Cancellation of Invoice
(a) Examination of Old Invoice
(i) Application by taxpayer
Units and individuals obtaining invoices using the “examining the old and supplying the new” method must examine and cancel their invoices on a monthly basis.
(ii) Acceptance and verification by tax department
The tax department will verify the invoices and materials submitted by the taxpayer, as well as record the amount set out in the invoices and the usage of invoices. For invoices requiring physical examination and cancellation, the responsible officer will stamp a special seal for invoice examination and cancellation bearing his name and the date on the stub copy of the invoices which have been examined and cancelled before the taxpayer can purchase new invoices. In the case where the invoices and materials submitted by the taxpayer do not meet requirements, the tax department should notify the taxpayer to re-submit the right papers.
(b) Cancellation of Invoice
(i) Application by taxpayer
Under the following circumstances, the invoices of a taxpayer must be submitted for cancellation:
Invoices purchased by units and individuals which have not been used for a year counting from the date of purchase must be submitted for cancellation. In the event any units or individuals undergoing merger, joint operation, branching, relocation, closure or tax deregistration and have to proceed with change of tax registration details or tax deregistration, they should apply to the tax department for cancellation of the invoices already printed and purchased. In the event the tax department decides to alter or replace the design of the invoices or change the invoice verification seal, the units or individuals concerned must submit their unused invoices to the tax department for cancellation within the timeframe set by the tax department. In the event any units or individuals have committed serious acts of violation of tax management and invoice management and the tax department deems it necessary to have their invoices cancelled, the tax department will retrieve the invoices for cancellation. The stub copies of used invoices which have expired their retention period stipulated in the Measures for the Administration of Invoices may be submitted for cancellation upon verification by the supervisory tax department. Invoices which have been damaged by mould, water, fire or rat bites beyond use should be submitted for cancellation.
(ii) Acceptance and verification by tax department
The tax department will verify the invoices and materials submitted by the taxpayer and record the particulars on the submission and cancellation of the invoices. Two tax officers will be responsible for cutting the corner of the invoices for cancellation purpose and supervising the cancellation process. In the case where the invoices and materials submitted by the taxpayer do not meet requirements, the tax department should notify the taxpayer to re-submit the right papers.
(c) Units and individuals who need to use invoices temporarily may apply directly to the tax authorities to purchase invoices by presenting written certificate of the goods bought or sold, the provision of rendering of service and engaging in any other business operation as well as identity certificate of applicant. If taxes should be paid under any tax law or administrative regulation, the tax authorities shall collect taxes before issuing invoices. If necessary, the tax authorities may commission other entities to issue invoices on their behalf pursuant to the relevant provisions of the supervisory tax department under the State Council. It is prohibited to issue invoices on a commission basis in violation of law.
(d) Units or individuals who temporarily carry on business activities outside their own provinces, autonomous regions or municipalities shall, by presenting the certificates issued by the tax authorities of their original residence, apply for the purchase of invoices to the local tax authorities of the business activity. Tax authorities of the provinces, autonomous regions or municipalities shall stipulate measures for purchase of invoices by units or individuals who temporarily carry on business activities crossing cities and counties within the provinces, autonomous regions or municipalities directly.
(e) Tax authorities may require units and individuals from other provinces, autonomous regions or municipalities, who apply for the purchase of invoices for temporary business activities in the areas under their own jurisdiction, to provide a guarantor or a security deposit of not exceeding Rmb10,000 based on the face value and quantity of the invoices to be purchased and to hand in the invoices for cancellation by a deadline. For those who hand in invoices on time for cancellation, their guarantors shall be refunded; for those who fail to hand in the invoices for cancellation on time, legal liability is assumed by the guarantor or satisfied with the security deposit. Tax authorities shall issue receipts upon receiving security deposits.
Application for Self-printed Invoice by Enterprises
(a) Application by Taxpayers
Taxpayers subject to the following conditions may apply for permission to print invoices bearing the name of their unit (the "self-printed invoice"):
Have a fixed place of business;
A valid business licence or a valid certificate issued by the relevant departments, and tax registration has been processed;
Financial and invoice management system is sound, able to strictly enforce the provisions of tax laws and invoice management;
Unified invoice design cannot meet the needs of taxpayers, or a large quantity of the invoices is required (generally refers to the use of more than 1,000 or 100,000 copies of a single type of invoice a year. Specific provisions of the localities shall prevail).
For computer generated invoice, the invoice issuing software must meet the following conditions:
(1) Capable of generating accurate and complete records for issuing data which are not alterable;
(2) Capable of copying and reporting, upon request, detailed information and summary information of issuing the invoice to the supervisory tax authorities in a file format meeting the requirements of the tax authorities;
(3) The software has been declared to the supervisory tax authorities for record filing.
(b) Acceptance and Verification by Tax Department
Application to invoice purchase window counter of tax authorities for internal verification. Taxpayers pay an invoice fee upon approval from the city authorities. After completing the invoice printing, taxpayers may obtain Self-printed Invoice Withdrawal Certificate and fee receipt from the invoice purchase window counter by presenting documents for acceptance, invoice purchase book and fee remittance form. Invoice may be withdrawn from the printer by presenting the Self-printed Invoice Withdrawal Certificate.
Article 41 of the Detailed Rules for Implementation of the Measures of the People's Republic of China on Administration of Invoices provides that: units and individuals using invoices shall take good care of the invoices and keep them in good condition. In case of loss of invoices, report shall be made in writing to the tax authorities on the day the invoice is found to be missing, and a declaration shall be published for annulment in the media specified by the local tax authorities. In declaring the loss of invoice to the tax authorities, materials provided shall generally include Invoice Loss and Damage Report, Invoice Loss/Damage Report Form, the original layout of the media declaration for cancellation of the lost invoice, and invoice or copy of the invoice.
The loss of invoices already issued should be handled according to the following procedures:
When a unit or individual loses an invoice already issued and the payee has not given the invoice copy to the payer, it should, by presenting a written confirmation issued by the payer certifying that the invoice copy has not been received, apply to the tax department for re-issue of the invoice by furnishing the tax payment proof in connection with the invoice and a written statement. If a payer loses an invoice, it can enter the amount into its books by using a photocopy of the payee’s accounts copy or a photocopy of the tax department’s stub copy verified by the tax department as legal proof. To verify a lost invoice, the tax department has to write down the words “same as original” and stamp an official seal on the photocopy of the invoice.
When an invoice issuer loses an issued invoice copy, it should re-issue an invoice and give it to the receiver for entering into its books. On the re-issued invoice, the name of the receiver of the lost invoice, the invoice code and number, amount, and invoice issuing unit must be put down in the remarks column.
When an invoice receiver loses an issued invoice copy, the invoice issuer should furnish it with a photocopy of the original stub copy or accounts copy on which is marked the words “This document is furnished by my unit and it is the same as the original” and stamped with its official seal. This document should also be verified by the supervisory tax department of the issuer, marked with the words “same as original” and stamped with the special seal of the tax department. It is then handed by the invoice issuer to the invoice receiver as legal proof for book-keeping. For lost invoices with only the invoice copy left, the invoice issuer should provide as legal proof for book-keeping a written proof containing such information as the name of the invoice receiver, the unit quantity of the goods or services purchased, the unit price, specifications, amount, invoice code and number, as well as the words “same as invoice data” and the special seal of the tax department.
Safekeeping of Invoices
(a) An enterprise or individual that issues invoices should set up an invoice register recording the usage of invoices and report to the supervisory tax department on such usage on a regular basis.
(b) When an enterprise or individual applies for changes or cancellation of tax registration, the invoices and invoice books should also be changed or cancelled at the same time.
(c) An enterprise or individual should take good care of its invoices and keep them in good condition pursuant to the rules of the tax department.
(d) Stub copies of issued invoices and invoice registers should be retained for five years after which time they should be destroyed upon checking by the tax department.
(e) The use of computer-printed invoice shall be subject to the approval of the supervisory tax departments. Production of computer-printed invoices is conducted under the exclusive supervision of taxation authorities. Stub copies shall be bound in one volume in a sequential manner.
(f) No unit or individual can lend, transfer or issue invoices on behalf of others, or tear off the invoice book without the approval of the tax departments, or expand the scope of application of special invoices at their own discretion. Fraudulent buying and selling of invoices, seal for supervising the manufacture of invoice and special anti-falsified products for invoices are prohibited.
(g) Without approval, no unit or individual shall carry, mail or transport blank invoices to other areas outside the prescribed usage area. No blank invoice shall be carried, mailed or transported outside the territory of China.
(h) Units and individuals using invoices shall take good care of the invoices and keep them in good condition. In case of loss of invoices, report should be made in writing to the tax departments on the day the invoice is found to be missing and a public announcement for annulment shall be published in accordance with local regulations.
Accepting Tax Inspection
In administering invoices, tax authorities shall have the power to conduct the following inspections: examining the printing, purchasing, issuing, acquisition and safekeeping of invoices; selecting invoices for examination and verification; consulting and duplicating certificates and materials related to the invoices; inquiring all parties concerned of questions and circumstances related to the invoices; and taking notes, tape-recording, video-recording, taking photographs or making copies with respect to the relevant circumstances and materials of a case when investigating and dealing with invoice cases.
Units and individuals printing and using invoices must accept inspection by tax authorities pursuant to law, report the situation accurately and provide relevant data, and may not refuse or conceal anything. Tax officials shall present their tax inspection identification at the time of inspection.
When the tax authorities must move the issued invoices for examination and verification, they shall issue invoice exchange certificates to the units and individuals to be inspected. The invoice exchange certificates and the invoices to be examined are equally authentic. The units and individuals whose invoices have been moved for examination and verification may not refuse to accept said certificates. Blank invoices having no problems shall be returned promptly.
In the course of examining tax payments, should the tax authorities have any doubt about invoices or receipts relevant to the payment of tax obtained outside China by units or individuals, they may ask them to provide certificates of confirmation provided by foreign notaries or registered public accountants. Only after examination and approval by the tax authorities may these invoices or receipts be used as the basis for bookkeeping.
In the course of examining invoices, where there needs to be an examination of the stubs with the contents filled on the invoices, tax authorities may send out a form for checking the filling out of invoices to the units in possession of the invoices or stubs, and the units concerned shall complete the form accurately and return them promptly.