In May 2016, value-added tax (‘VAT’) was reformed and expanded to several key sectors. Including real estate and construction financial services and insurance and lifestyle services. The reforms serve to unify all sectors within a disruptive VAT system, providing incentives to distribute the tax burden down the VAT chain. In practice, VAT unification stands to decrease the payable VAT and improve cash flow for registered taxpayers.

VAT is offset by a special VAT invoice, which acts as VAT credit to offset input VAT from output VAT. Below is a simplified version of the VAT chain.

From 21 January 2021, electronic special VAT invoice (‘VAT e-invoice’) was expanded to 25 regions in China, Beijing, Shanxi, Inner Mongolia, Liaoning, Jilin, Heilongjiang, Fujian, Jiangxi, Shandong, Henan, Hubei, Hunan, Guangxi, Hainan, Guizhou, Yunnan, Tiber, Shaanxi, Gansu, Qinghai, Ningxia, Xinjiang, Dalian, Xiamen and Qingdao. Previously, the VAT e-invoice was piloted from 21 December 2020 in the regions including Tianjin, Hebei, Shanghai, Jiangsu, Zhejiang, Anhui, Guangdong, Chongqing, Sichuan, Ningbo and Shenzhen.

The special VAT invoice reform paves greater precision and efficiency in financial management and accounting. Predominantly, the VAT e-invoice can be issued by applying via the electronic tax bureau and verified by the National VAT Invoice Verification Platform (“NVIVP”). As a result, the accountancy team can decrease trips to the tax bureau and paperwork, as well as recover damaged or lost paper special VAT invoice through the NVIVP. Equally, individuals and companies may utilise the NVIVP to verify a special VAT invoice, thus reducing the risk of false special VAT invoices.

At Horizons, we have worked with clients registered as general taxpayers in implementing the VAT e-invoice efficiently into the accountancy team. Specifically, amending internal controls for the finance and accountancy team to optimise the VAT e-invoice, saving time and costs.

If you have concerns related to VAT, please contact Horizons at talktous@horizons-advisory to schedule a consultation session. From RMB 1,500 per session, Horizons can provide insight, expertise and the right solutions for you.