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Fapiao and Tax Deduction for Freelancers

Posted by: Fabia Meinhold
Category: Tax and Regulations
Fapiao and Tax Deduction for Freelancers

Are you hiring a freelancer in China or working as a freelancer for a Chinese company? Then you should know how fapiao and tax deduction work in this specific situation. Some special rules apply to freelancers who provide taxable services to Chinese companies, which can be tricky for both parties.

Take a look at one of our previous articles: Income Tax Brackets in China for Employees, Self-employees and Corporate

Why can freelancers not directly issue fapiaos? How can they indirectly provide fapiaos to their clients? Are fapiaos really necessary for the client company’s tax deduction? Read this article to find out!

Why can freelancers not directly issue fapiaos?

Whenever Chinese companies have expenses, they usually ask the seller or service provider for a fapiao. This enables them to withhold taxes on these payments.

What are fapiaos?

Fapiao translates directly to “invoice”. However, fapiaos are a little more complex than simple invoices and different types are available.  What many may not realize is that a fapiao is both a legal receipt and a tax invoice. They are printed, distributed and administered by the State Administration of Tax (SAT).

You should also be aware that there are two different types of fapiao.

  • General fapiao: issued in regular circumstances, where special VAT fapiao does not apply, by a business of any size. A regular fapiao can be issued in the event of sales of goods, tax-free services, or VAT registered operations.
  • Special VAT fapiao: issued by taxpayers to consumers when selling goods or providing taxable services. Bookkeepers issue special VAT fapiao to their customer for services rendered. Note, that a special VAT fapiao may not be used for the sales of tax-free commodities. Another important feature – special VAT fapiao can be used for tax deduction, whereas general fapiao cannot.

For more details about the Chinese fapiao-system, read this article: Chinese Fapiao – What Is It and Why Does It Matter?

Why are freelancers not allowed to issue fapiaos like any other service provider?

Fapiaos can only be issued by companies legally registered in China and are printed on special printers that are connected to the Chinese tax bureau. As freelancers are not registered businesses, they are not eligible to get fapiaos from the SAT. Therefore, they cannot directly issue fapiaos to their clients for the services they provide.

Which type of fapiao concerns freelancers?

Freelancers usually provide taxable services to Chinese companies and should therefore refer to the second category of fapiao. When the client requests a fapiao from the freelancer, he is talking about the special VAT fapiao that he wants to use for tax deduction purposes.

How can freelancers indirectly provide fapiaos to their clients?

Freelancers in China cannot directly issue fapiaos, but there are other ways for them to provide fapiaos to their client companies.

  1. The local tax bureau

Freelancers can go to the local tax bureau that will be able to issue a fapiao for them. All they need to bring is their personal ID and the related service contract. This option is probably not a long-term solution for freelancers, as they would have to go to the tax bureau to get a fapiao each time a new service agreement is established.

  1. Invoicing companies

Some companies are now providing invoicing services for freelancers, companies without a local entity in China, and representative offices in China. They can legally issue the fapiao to the freelancer’s client companies.

Does the client company really need a fapiao from the freelancer for tax deduction?

The good news: Fapiaos for freelancer services are not necessary as long as the taxes withheld and the monthly fee amount to less than ¥100,000. This also means that the amount is not subject to VAT in China. In this case, the service invoice and the service agreement are enough to apply tax deduction.

However, if the taxes withheld and the monthly fee are higher than ¥100,000, the amount is subject to VAT and the freelancer has to provide a fapiao.

Let’s take an example

A freelancer (China tax resident) provides a service to a company for ¥10,000 (gross). As this fee is lower than ¥100,000, the amount is exempt from VAT. He simply has to provide his client with the service invoice and the service agreement for tax deduction purposes. No fapiao is necessary.

The taxes to withhold are then calculated as follows:
¥10,000 * 0.2 * 0.8 = ¥1,600.
Here, 0.2 corresponds to the standard 20% deduction, and 0.8 to the applicable tax rate of 20%.
Therefore, the freelancer will get paid ¥8,400 net.

Key Takeaways

Freelancers in China are not legally established businesses and are thus not eligible to get fapiaos from the SAT. Nonetheless, they can obtain fapiaos upon request for each individual service agreement at the local tax bureau or pay invoicing companies who can deliver fapiaos to the clients on their behalf.

However, obtaining fapiaos from freelancers is not always required for tax deduction. As long as the taxes withheld and the monthly fee are below ¥100,000, the amount is exempt from VAT and a simple service invoice as well as the service agreement are enough for the client company to deduct taxes.

Do you need help with taxes and accounting in China? Get in touch with our team for a consultation.

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Author: Fabia Meinhold

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2 Comments

  • Eric Tan

    I am a foreigner and stationed overseas and owns an office in Beijing which is rented to a Chinese entity.
    Lately, there is a regulation that we need to bring our original ID to the local tax office in order for them to open fapiao to us for our office rental income. I don’t really see the logic of why they need our original ID when they are receiving the money. No one in their right mind would like to pay other people’s taxes. Please advise how do I resolve the issue of having to fly to China on a monthly basis just for them to issue us fapiaos. Any way out for me?

    • Hi Eric, thank you for your comments. Such fapiao may be required by the Chinese entity for its bookkeeping purpose. Even in different locations of Beijing, the tax bureau may have different requirements on the list of documents to be provided by the landlord. In addition, we also recommend that the landlord should check the contents of the leasing agreement in order to make sure that he/she is supposed to take the tax burden on the leasing activity. We can represent you and check with different tax bureaus in order to simplify these procedures for you. Please email [email protected] to help you solve this issue.