China: Redefine the Invoice – learned from the banknote

As mentioned in my last post, the reform of the tax-sharing system created two taxation organizations in 1994. Inspired by the fiscalization experiences in Italy and Greece, the finance ministry began to adopt fiscalizaiton in China to fight against the increasing tax fraud behaviors. There were a lot of taxpayers provided the handwritten invoice with fake amount and virtual business activity to reduce taxes, Also, more and more taxpayers started to collect or buy the VAT invoice as VAT input to deduct the VAT output. While the Sales Tax invoice can be collected for raising business costs to reduce the income tax. In conclusion, people already treated invoices as money!!

Before rolling out the fiscalization system, the government started a special solution for controlling the invoice itself. Why can’t they adopt the anti-counterfeiting technology used in the banknote since the invoices had been treated as money? So they published a new regulation of the invoices standard, which included the following mandatory requirements:

  1. All of the invoices should be printed on the legal paper notes, which was called the blank invoice without sales information.
  2. The blank invoice can be only applied from the tax authority, which was the same as the banknote issued by the central bank
  3.  A unique serial number must be pre-printed on each blank invoice, to indicate the unique ID of each transaction. Just like the serial number on the banknote.
  4. Every taxpayer must issue legal invoices by printing the sales data on the blank invoices using authorized fiscal devices.
  5. The taxpayers should apply for invoice serial numbers from the tax authority by means of a range of sequential IDs with start No. and end No. For instance: 1~100, 200~300. which was also called the invoice IDs ranges. After that, they had to get the corresponding blank paper invoices with pre-printed Invoice ID on them.
  6. The taxpayer must print the matched Invoice ID on the blank invoice by fiscal devices. So there will be a process for importing the applied invoice ID ranges to the fiscal device, which was completed by the secure elements such as the smart cards, or other HSMs. The applied invoice ID ranges will be downloaded to the secure element for importing in the fiscal devices
  7. Each fiscal device must generate a checksum based on the key features in the sales information, which includes the buyer’s TIN, seller’s TIN, invoice ID, issuing time, the total amount and the authorized SN for this fiscal device. The checksum was called fiscal code like the IKOF of fiscal invoice used in Montenegro. It must be printed at the bottom of each invoice for verification and tamper-proof
  8. To maximum the tax control performance, the government set a lot of limitations on the invoices issuing process, such as the blank invoices holding quantity, single invoice quota, the maximum credit amount. All these tax control limitations must be downloaded to the taxpayers’ smart cards for the fiscal device initialization

Based on the rules of the invoices, the two taxation organizations began to design diverse blank invoice layouts according to the taxpayer’s sector and turnover scale

For the VIMS (VAT Invoice Management System), there were two mainstream VAT invoices called: VAT special Invoice and VAT common invoice. The VAT special invoice was the traditional VAT invoice that can be used for VAT input deduction. It was only applied to VAT taxpayers whose annual turnover reaches 1,800,000 RMB with a VAT tax rate of 17%. The taxpayers with annual turnover below the limitation were called small-scale taxpayers. They can only issued the VAT common invoice with a low tax rate at 3% or 1%. Moreover, the VAT common Invoices can’t be used for VAT input deduction because of the low rate financial incentive. The sectors that werew eligible to issue VAT invoices include manufacture, agriculture, repair service and wholesales.


For the STIMS(Sales Tax Invoice Management System), the taxpayer can only apply for Sales Tax blank invoices from the local tax authority. If your business belonged to one of the sectors like restaurant, hotel, entertainment and retailer, you needed to issue sales tax invoice without any deduction.


It was more flexible for issuing sales tax invoices as each local tax authority can customize its own STIMS and invoice layouts under the basic invoice rule. So, There are a lot of localized STIMSs that appeared among the provinces in China, even for some special sectors. You would get kinds of paper invoices issued by these STIMSs, some were printed on roll invoices, some were printed on plain invoices.

The large demand for fiscalization in the market encouraged a set of fiscal solution providers.You might get three fiscal smart cards/ Ukeys for three localized STIMS. Some new technologies were introduced by the fiscal solutions providers during this period for competing. It was the best of times for the fiscalization in China as the huge demands drove the technology innovation year by year!


If you are a group owner who had businesses that belong to both VMS and STIMSs among provinces, you needed to comply with the fiscalizaiton rules designed by different organizations. This means that you need not only purchase the fiscal devices for VAT and Sales invoice issuance, but also handle the complex tax return work for different tax authorities. It was also the worst time for taxpayers to handle the invoicing work, right?

Based on the redefined invoice standard, a lot of solutions were developed by these fiscal service providers. we plan to talk about them in our next post. Keep following for updates!



Hengwei Fiscal Solution is working on providing the best solutions for taxpayers all over the world. please access our website for more news and solutions that you’re interested. Now we are looking for local partners in Fiji, Samoa and Serbia as sales proxies. Don’t hesitate to contact us!!!


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China: The Reform of Tax-Sharing System—-The Start Point of the Two Fiscalizaiton Systems in China

When it comes to the fiscalization evolution history in China, you may be confused between two fisalization systems: the VAT Invoice Management System and the Sales Tax Invoice Management System.  The sales tax invoices existed for a long time during 1994~2018, and great accelerate the new technology application in Chinese fiscalizaiton. Why are there two systems that existed? and What types of invoices are used in them? Let’s dive into the start point of fiscalizaiton in China since 1994! you will get the answer!

“Here begins our tale. The empire, long divided, must unite; long united, must divide. Thus it has ever been.”

As everyone knows that China started a great economic revolution in 1979. With the correct political decision of president Deng Xiaoping, Chinese people were ready to join the international business market, which also indicated a huge revolution of the taxation system in China.  Before 1979, almost all of the goods and services were provided by planning, there is no free business allowed in the market, which is called the “planning economic period”. So, the main revenue of the government was created by the profits and taxes of many state own enterprises.  The organization of the state tax authority in China was the centralized mode, which means all of the local authorities’ taxation must comply with the central regulation, and they should submit all their local revenue to the central authority, then planed the financial budget based on the budegts from the central authority. Basically, the local authority didn’t have too much freedom to manage their revenue and budget. Also, there was no fiscalizaion concept at that time as individual free business was prohibited.

With the economic development after 1979, the household contract responsibility system appeared. It allowed the farmer to manage their agricultural production on their own initiatives. The system enables farmers to use land through long-term contracts and keep the produce after paying taxes. It raised productivity and increased agricultural output, both of which were preconditions for nurturing the economic takeoff, and comprehensive industrialization and urbanization.  Inspired by the household contract responsibility system, many local authorities asked for more freedom on taxation, which would greatly stimulate the local revenue and economy.  After a long-time debate, the central authority agreed to share the revenue with local authorities. which means they can keep a lot of local revenue for public facilities, Healthy, Education, and improvement of doing business environment.

The new solution greatly improved the initiatives of local authorities and created a large increase in revenue at the beginning. But the central authority found its revenue was decreased year by year, even can’t afford the output for many large state-owned projects. Also, some rich local authorities became more and more out of control as the tax fraud and erosion behaviors were widely spread in the local authority. In order to keep more revenue locally, many local authorities used diverse methods to decrease revenue that belongs to the central authority.

To prevent the great revenue decrease, the central authority started a huge taxation revolution in 1994 that re-defined the revenue distribution between the central and local authorities. The new act separated the revenue by the central part, local part,and share part. The central part included Excise Tax, while the local part contains Sales tax.  The Value Added Tax belonged to the sharing part(central 75%, local 25%).  The State tax authority established vertical local offices in each province for the VAT and excise revenue, and the previous local authorities were only responsible for the sales tax revenue.

The reform of the tax-sharing system helped the central authority greatly increase the revenue for public budgets on education, healthy and other sectors, which also enhanced the central power on many administrative activities. But it also created two fiscalization systems called VIMS (VAT Invoice Management System)and STIMS(Sale Tax Invoice Management System), which made the Chinese fiscalizaiton become almost the most complex system in the world. there are so many concepts, regulations and solutions that appeared after this tax reform. we’re gonna introduce them in the next post.

Hengwei Fiscal Solution is working on providing the best solutions for taxpayers all over the world. please access our website for more news and solutions that you’re interested. Now we are looking for local partners in Fiji, Samoa and Serbia as sales proxies. Don’t hesitate to contact us!!!


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Serbia: Is the new fiscalization system adopted in Serbia a modern E-Invoicing model?

Serbia: Is the new fiscalization system adopted in Serbia a modern E-Invoicing model?

The Serbia tax authority adopted a new fiscalization system in May 2021, which means that almost 250,000 traditional FCR (Fiscal Cash Register) users have to replace or adjust their existing billing system to comply with the new regulation.  Can all the taxpayers complete the transition before the deadline of November 1, 2021? Are the fiscal service providers ready for the new model?

Don’t worry too much about that! The good news is that The Minister of Finance of the Republic of Serbia, Siniša Mali, announced that the transitional period for adjusting to the new fiscalization model, which will last until April 30, 2022, begins on November 1, 2021. While the Ministry of Finance has allocated 6 billion dinars from the budget for the subvention program intended to cover the costs of implementing the new fiscalization model.

Besides the above deadline and budget from the Ministry of Finance, let take a look at the new fiscalizaiton system in detail.  Is it a modern E-invoicing model that can greatly reduce the costs of billing fiscal receipts and improve auditing efficiency?

Two critical concepts of modern e-invoicing mode are Clearance and Post-audit.

The post-audit model is also called “e-reporting” which is widely used in Euro, Africa and Asia.  In the post-audit model, the seller can issue an invoice to a client directly without any online audit process, but the tax authority enforces the use of fiscal modules to register the transaction data for tax amount auditing, invoice ID assignment, and data integrity verification in case of tax fraud behaviors. There are many fiscal modules used in the market such as the fiscal cash register, electronic signature device and fiscal printers.

Although the network is not necessary for the post-audit model, it is mandatory to upload the fiscalized receipts data in the fiscal module to the tax authority when the network is accessible. In one word, post-audit model means “Invoicing first, Uploading later”

The post-audit model

The clearance model is becoming popular in recent years with the development of information and communication technology. In the clearance model, the seller needs to upload his transaction data to the tax authority first for online auditing before billing operations. while buyers can’t receive any type of invoices (electrical or paper) unless the tax authority responds with a successful auditing response to the seller.  which means that the tax authority replaces all these fiscal modules by online invoice signing API through the high-speed internet connection.

The clearance means “Uploading first, Invoicing later”.  the clearance model was also called e-invoicing in LAC (Latin America and the Caribbean) for B2B scenarios had been adopted since 2004 and is extended in B2C scenarios now.

The Clearance Model of E-Invoicing

The Clearance Model

The new fiscalizaiton system in Serbia is such a modern E-invoicing model that contains both the clearance and post-audit models. we can see from the technical guidance that there are two types fiscal solutions exist in the new system: V-PFR(clearance) and L-PFR(post-audit)

V-PFR is an online invoice signing platform provided by Serbia tax authority to support the clearance e-invoicing model.

L-PFR are hardware/software modules that use their own fiscal invoice processor and which enables the issuance of fiscal invoices even in the event of temporary or permanent interruption of the Internet connection; all the signed invoices will be uploaded to the tax authority near real-time basis

Which should I choose?V-PFR or L-PFR?

It is hard to say which one is better for different users. Maybe you are considering the business interruption by the network failure in V-PFR solution, or the costs of new devices that comply with L-PFR solutions, even both of the two solutions can’t meet your requirements (supermarket with centralized backend Office system).  Let’s make a simple comparison of V-PFR and L-PFR from different aspects

comparison between V-PFR & L-PFR

For different end-users, there are many recommend scenarios lists as follows

Although the V-PFR is free, the government still recommends every premise to have at least one L-PFR in case of non-compliance tax fraud caused by internet issue in V-PFR scenarios

What is the most cost-effective fiscal solution for my business?

Maybe you are a traditional ECR user that doesn’t want to spend too much on the POS terminal cost and license fee of POS software, Or a supermarket owner that wants to find a “server to server” fiscal solutions that can be integrated with your BOS system for centralized high volume invoicing. please skip to our official website: for more information. we will give you the best solutions that can easily help you manage the fiscalizaiton transition in Serbia