Following lockdown and the difficulties caused by the disruption of normal working conditions, Shanghai will further carry out the pilot program of fully digital electronic invoices from May 23^rd, 2022, for certain taxpayers and taxpayers who use the e-invoice service platform who shall be qualified as the pilot taxpayers (please read our previous article for more info: China Accelerates VAT E-Invoices Implementation Process).

1. The pilot taxpayers are divided into taxpayers who issue e-invoices through the electronic invoice service platform and taxpayers who use the tax digital account through the electronic invoice service platform.

The recipients of invoices issued through the electronic invoice service platform are taxpayers within the jurisdiction of the Shanghai Municipal Taxation Bureau.

Taxpayers who do not handle their taxation matters online or do not have the relevant online conditions in accordance with the relevant regulations will not be included in the scope of the pilot program for the time being.

2. The legal effect and basic purpose of the fully digitized electronic invoices are the same as the existing paper invoices.

3. The invoice number of Shanghai's fully digitized electronic invoices shall be 20 digits, of which: the 1^st and 2^nd digits represent the last two digits of the Gregorian calendar year, the 3^rd and 4^th digits represent the Shanghai administrative division code, and the 5^th digit represents the fully digitized electronic invoice. For invoice issuing channel and other information, the 6^th to 20^th digits represents the sequence code and other relevant information.

4. Newly established pilot taxpayers who do not use the VAT invoice management system to issue invoices should issue fully digital electronic invoices, special paper VAT invoices and value-added tax invoices through the electronic invoice service platform.

5. After the pilot taxpayers pass the real-name verification, they can issue invoices through the electronic invoice service platform without using special equipment for tax control, and there is no need to perform old invoice verification operations. Among them, the fully digitized electronic invoice does not require the approval of the invoice type and the receipt of the invoice.

6. The tax authorities shall implement the total amount quota management for the invoices issued by the pilot taxpayers. The total amount issued refers to the upper limit of the total amount (excluding value-added tax) issued by pilot taxpayers within a month.

The electronic invoice service platform automatically adjusts the total amount issued by the pilot taxpayers every month.

For pilot taxpayers with a low level of tax risk, when the amount of the invoice issued in the month reaches a certain percentage of the total amount issued for the first time, the electronic invoice service platform will automatically  temporarily increase the total amount issued (on one occasion).

For pilot taxpayers applying for an adjustment of the total amount issued due to changes in actual business conditions, if the competent tax authority does not find any abnormality after reviewing in accordance with laws and regulations, they may manually adjust the total amount issued for the taxpayer.

7. The tax digital account of the electronic invoice service platform of the pilot taxpayer will automatically collect invoice data for the pilot taxpayer to inquire, check, download, print and confirm the use of invoices, and provide tax policy inquiries, issuance of total amount adjustment applications, invoice risk reminder and other functions.

8. Pilot taxpayers can automatically deliver fully digital electronic invoices through the tax digital account of the electronic invoice service platform, or deliver fully digital electronic invoices by themselves through email, QR code, etc.

9. From May 23^rd, 2022, pilot taxpayers should use the functions of invoice use confirmation, risk reminder, and information download through the tax digital account of the electronic invoice service platform, and no longer use the abovementioned functions through the comprehensive VAT invoice service platform.

Non-pilot taxpayers can still use the relevant invoice functions through the VAT invoice comprehensive service platform.

10. Pilot taxpayers can confirm the use of the VAT deduction vouchers for agricultural products that meet the regulations through the tax digital account of the electronic invoice service platform and calculate the input tax for deduction.

11. Pilot taxpayers can mark the invoice entry logo through the tax digital account of the electronic invoice service platform. If a taxpayer uses a fully digital electronic invoice for reimbursement and records it in the account, it shall be implemented in accordance with the relevant regulations of the finance and archives departments.

Pilot taxpayers who have errors in invoicing, returned sales, suspension of services, or sales discounts, etc., may issue electronic invoices with fully digital red letters or paper invoices with red letters through the electronic invoice service platform. A “red-letter invoice” is an invoice that shows the negative sales number.

12. The electronic invoice service platform does not currently support the issuance of fully digital electronic invoices for specific businesses such as motor vehicles (including used cars) and tolls.

If you would like to know more about the most recent tax and financial developments in China, or about the developments mentioned above and how to access the electronic invoice issuance process, please feel free to book a meeting with us at info@phcadvisory.com.