As a foreign business owner operating in or trading with China, understanding the local invoicing system is crucial for compliance and financial health. Unlike in many Western countries where invoices are primarily commercial documents, in China, the Fapiao (發票) is a legal and fiscal document controlled by the State Taxation Administration (STA).
One of the most common points of confusion is the distinction between the two main types of VAT invoices and how they affect your bottom line. If you are dealing with a client who is a General Taxpayer (一般納稅人) , you might be wondering: Can I issue them a Regular VAT invoice? And if so, how does the tax work?
Here is a breakdown of what you need to know.
1. The Two Faces of VAT: Special vs. Regular
China’s VAT system categorizes invoices into two primary types. The key difference is not the tax rate, but the eligibility for VAT tax deduction.
Feature
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Special VAT Fapiao (增值稅專用發票)
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Rugular VAT Fapiao (增值稅普通發票)
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Purpose
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Used primarily for VAT deduction
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Used for general transactions, expense tracking, and non-VAT deductible items
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Recipient
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Can only be issued to (and used by) VAT General Taxpayers
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Can be issued to anyone: individuals, small-scale taxpayers, or general taxpayers
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Tax Function
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Allows the buyer to claim Input VAT Credit (deducting the tax they paid from the tax they owe)
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No VAT deduction allowed for the buyer. It is treated as a cost
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2. Can I Issue a Regular Fapiao to a General VAT Taxpayer Client?
Yes, absolutely. However, there is a strategic consideration: If you issue a General Fapiao instead of a Special Fapiao, your client cannot use it to claim a tax deduction. This makes your product or service more expensive for them in terms of net cash flow.
For example, if your product costs ￥10,600 (including 6% VAT), a regular Fapiao forces your client to record the full ￥10,600 as an expense. A Special Fapiao allows them to record ￥10,000 as an expense and claim the ￥600 as a tax credit to offset against their own sales tax liability.
3. When would a General VAT Taxpayer issue a Regular Fapiao?
There are specific scenarios where a Special Fapiao cannot be issued, including:
1) Sales to Non-general VAT taxpayers or individuals (consumers).
2) A company that is a general VAT taxpayer but does not require a Special VAT Fapiao.
3) Sales of tax-exempt items.
4) Certain transactions deemed non-deductible by the STA (e.g., certain entertainment or personal consumption goods).
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Focus on Tax& Accoounting
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