Q&A on Taxpayers' Issuance of Invoices in Compliance with Regulations (Part 1)

Criteria

Positive List of Issuing Compliant Invoices

Negative List of Issuing Non-compliant Invoices

Whether the invoice issuer and recipient are compliant

The invoice issuer and recipient shall have been duly registered with the market regulatory authority and other relevant authorities in accordance with applicable laws, and shall maintain a tax registration status in good standing. They shall possess fixed business premises (owned or leased) or well-defined online business presence. Besides, they shall employ enough personnel to match the scale of their production and business operations, and declare individual income tax and pay social security contributions as required.

2. Both the invoice issuer and recipient shall be equipped with business premises, personnel, equipment, energy consumption, and other relevant resources that are commensurate with the scale of invoices issued and received. Taxpayers engaged in the trade of bulk commodities or sensitive goods shall, in principle, have physical operations, including warehousing and transportation.

3. The invoice issuer shall be the same as the seller and payee, and the invoice recipient shall be the same as the buyer and payer.

4. The taxpayer shall declare and pay all taxes and fees in full and on time and maintain an actual tax burden that falls within a reasonable range.

5. The taxpayer shall maintain stringent fund management practices. All business funds shall be settled through corporate bank accounts, and the flow of funds shall, in all cases, be consistent with the parties to the contract and the invoice issuer.

6. Invoices shall be issued by tax operators who have passed real-name verification, and the invoicing personnel shall be the person who actually runs the business.

7. The information of "Six Key Personnel" (legal representative, financial officer, tax handler, invoice receiver, invoice issuer, and investor) shall be true and valid. They shall have full capacity for civil conduct, and their age and identity shall be commensurate with the industry and scale of business operations.

1. The taxpayer who steals, fraudulently uses, or purchases the identity information of others to register business entities falsely.

2. The practice of registering multiple business entities at the same address, or registering shell companies in bulk with no substantive business activities, or issuing invoices in a non-compliant manner.

3. "Four-zero" enterprises, which refer to enterprises without offices, social security registrations, water or electricity consumption, or fixed assets, or enterprises that, while having basic conditions such as office premises and utility consumption, fail to match the amount and scale of invoices they issue.

4. The taxpayer who declares all taxes and fees on time, but the tax base appears to be obviously understated, and the actual tax burden is materially lower than the normal level.

5. There exist acts of identity misalignment in invoice issuance. For instance, the invoice issuer is not the actual business operator such as issuing invoices for someone else without proper authorization, using another business's name to issue invoices, or using borrowed or fake identities.

6. Business entities that issue invoices in significant amounts, exhibit abnormal tax burdens, employ very few staff, and lack external documentation (e.g., goods receipt and dispatch, transport, warehousing, inspection, acceptance) that correspond to their business activities, and those engaged in financing-based trading or fictitious transactions.

7. The enterprise has sales but no purchases, shows inverted input-output ratios, or has severe discrepancies between the categories of goods purchased and sold, or it obtains large numbers of invoices from taxpayers classified as invoice risk taxpayers, including those that are abnormal, suspected of fictitious invoicing, determined to have issued fictitious invoices, have absconded or become uncontactable, or have been deregistered, and is unable to prove the genuineness of the underlying transactions.

8. The taxpayer extensively utilizes personal accounts, WeChat, Alipay, or cash as means of collecting payments and fails to declare the corresponding income for tax purposes, or after making a payment, he/she arranges for the funds to be routed back through personal accounts or affiliated accounts.

9. Issuing invoices without tax operators who have passed real-name verification, or using borrowed or stolen identification information to pass the identity authentication required for invoicing.

10. "Six Key Personnel" refer to individuals who fall under any of the following conditions: (a) they lack or have limited civil capacities; (b) in terms of age, they are obviously incompatible with the normal course of business operations, absent any justifiable grounds; or (c) they serve in entities classified as high-risk, such as those under tax risk monitoring, delinquent status, confirmed issuance of fraudulent invoices, or absconded/untraceable enterprises.

11.When applying for or issuing invoices on behalf of clients, tax-related intermediary agencies and their staff act in the capacity of the clients' tax operators instead of as their own tax service providers, or otherwise engage in business transactions without presenting their true identities. Using invoice data beyond the Clients' authorization, or misusing services to seek improper gains. Tax-related intermediary agencies and their staff who are listed as (severely) credit-breaching entities in respect of tax service provision fail to attend the on-site processing of invoice application and issuance at the tax authority jointly with the clients.

Whether the production and business operations are compliant

8. The issuance or acquisition of invoices can be supported by complete documentation, including contracts, performance records, and payment receipts, to demonstrate a full business transaction. Special industries also require a permit from the competent authority for invoicing.

9. In principle, the "four-flow consistency" shall be taken as a fundamental compliance criterion.

10. Transactions shall have reasonable business purposes, reflect actual dealings, use fair market pricing, and follow industry norms. For trading enterprises, the commodity descriptions on input invoices shall, in principle, align with those on output invoices.

11. Business operations shall be commercially logical. The taxpayer's profitability indicators, including gross profit" class=p align=justify> 

12. Fraudulent invoicing activities include: (a) issuing fictitious invoices to others or to oneself that are not supported by actual business transactions; (b) procuring fictitious invoices from others for one's own benefit; and (c) facilitating the issuance of fictitious invoices between others.

Issuing invoices on behalf of others, or causing invoices to be issued on behalf of others, without authorization to have invoices issued for others.

14. Despite the existence of actual business activities, the information stated on the invoice, including the purchaser, supplier, goods description, amount, and quantity, is inconsistent with the actual transaction details.

15. Issuing invoices that are inconsistent with actual business transactions by means of contract splitting, the insertion of artificial intermediary steps, or the use of dual agreements, or issuing false invoices to external entities via surplus invoices.

16. Taxpayers in a specific industry issue industry-specific invoices without having secured the necessary business permit from the competent regulatory authority for that industry.

17. Inconsistencies among the "Four Flows", mismatches between input and output invoices, significant discrepancies between operational indicators (such as business premises, personnel, and energy consumption) and the invoicing scale, and a lack of substantive business support, including genuine procurement, warehousing, and transportation.

18. Reciprocal or circular invoice issuance between related parties in the absence of a rational commercial purpose; zero-margin or loss-making transactions without reasonable foundations; paper-only circular transactions through creating fictitious transaction layers, etc.

19. Entities, which have sustained losses over an extended period without insolvency, lack a reasonable business rationale, or have heavily depended on external funding sources—such as government subsidies and bank loans—to sustain operations, issue invoices (amounts and transaction categories) significantly inconsistent with the actual business operations.

20. The taxpayer has taken advantage of preferential tax policies for small-scale taxpayers and the deemed profit assessment for individual businesses to obtain invoices issued by others, artificially inflating costs and expenses, thus evading tax liabilities.

21. Multiple individual businesses that are subject to the fixed-amount taxation regime, established or controlled by the same legal representative, issue invoices with similar transaction descriptions, keep each invoice amount at or just below the tax threshold, and have highly concentrated invoice recipients.

Whether invoice information elements are compliant

12. Selecting accurate invoice types, and using proper special and ordinary VAT invoices in accordance with the nature of transactions. Issuing VAT-exempt invoices and non-VAT invoices in accordance with related rules.

13. All invoice items shall be fully and accurately completed, with the buyer's information, commodity descriptions, quantities, amounts, tax rates, tax amounts, and remarks boxes all consistent with the actual business transaction and the applicable tax classification code. No alteration, erroneous entry, or omission shall be permitted.

14. In the event of a sales return, incorrect invoicing, a sales allowance, or the discontinuation of taxable services, the taxpayer shall issue a red-letter invoice in line with the prescribed procedures, with all required supporting documents and procedural steps properly completed.

22. Failure to select the appropriate invoice type as required by the invoice management regulations.

23. Information on the invoices that are non-compliant with actual business transactions is caused by missing, erroneous, or falsified invoice fields, incorrectly applied tax rates, issuing invoices with falsified commodity/service names, or a remarks box that fails to comply with applicable regulatory requirements.

24. Information on the invoices has been altered or counterfeited through the use of technical methods.

25. Issuing red-letter invoices (credit notes) without justifiable grounds, or in collusion with the invoice recipient with malicious intent to reverse the original invoice.

Whether the time limit of invoice issuance is compliant

15. Invoices shall be issued at the time when revenue from business transactions is recognized, and shall not be issued either before or after such recognition.

16. Upon a merger, demerger, or deregistration, the taxpayer shall carry out statutory tax liquidation, settle all invoicing obligations, and pay taxes due in full.

26. The taxpayer fails to issue invoices within the statutory time limits, and manipulates revenue and tax liabilities through early or late invoice issuance. After the completion of a transaction, he/she refuses to complete invoice issuance, or issues an invoice that is materially misaligned with the progress of the underlying business operations.

27. Concentrated invoice issuance occurs immediately before or after a change of the legal representative, or immediately before deregistration.

28. The taxpayer remains operational inactivities for an extended period to avoid detection by tax risk monitoring systems, and then, at a selected point in time, issues a large volume of invoices in a concentrated manner before absconding.