What is "reverse invoicing"? How to issue invoices?

What is "reverse invoicing"? To which situations does it apply? What matters need attention? Let's learn together!

01 What is "reverse invoicing"? Is it a new invoicing method?

Under general circumstances, the seller (payee) issues an invoice to the buyer (payer), which is the common "forward invoicing"; so-called "reverse invoicing" means the invoicing process is the reverse of the conventional process, with the buyer (payer) issuing an invoice to the seller (payee).

"Reverse invoicing" is not a new thing. Article 18 of the Measures of the People's Republic of China for the Administration of Invoices stipulates that when units and individuals selling goods, providing services, or engaging in other business activities collect payments from external business operations, the payee shall issue an invoice to the payer; under special circumstances, the payer issues an invoice to the payee.

Here, “the payer issues an invoice to the payee” is “reverse invoicing.”

02 What reverse invoicing scenarios are currently permitted?

1. When a purchasing unit buys self-produced agricultural products from individual agricultural producers, the enterprise may issue an agricultural product purchase invoice on its own.

2. Registered automobile sales enterprises that purchase used cars from natural persons are allowed to issue reverse used car sales unified invoices and use them to handle transfer registration procedures.

3. When State Grid Corporation of China purchases electricity products from power generation users of distributed photovoltaic power generation projects, enterprises affiliated with State Grid are allowed to issue ordinary invoices directly to the power generation users.

4. When a withholding agent pays an individual, the payer may issue an invoice to the payee.

5. The Notice of the State Council on Issuing the Action Plan for Promoting Large-Scale Equipment Renewals and Consumer Goods Trade-Ins (Guo Fa [2024] No. 7) points out the promotion of the practice of "reverse invoicing" by resource recycling enterprises to natural persons selling scrapped products.

03 Why implement "reverse invoicing"？

In the above situations, the sellers are all "natural persons." Because many natural persons are unwilling to spend effort going to the tax authorities to handle invoice issuance for individuals, purchasing enterprises often find it difficult to obtain compliant VAT invoices. When an enterprise cannot obtain a natural person sales invoice as a pre-tax deduction voucher, it will inevitably increase the enterprise's tax cost, which is unfavorable to the enterprise's development.

04 What matters need attention in "reverse invoicing"?

1. Eligible purchasing enterprises need to promptly register by category with the competent tax authority and submit an application to the tax department, and may conduct "reverse invoicing" only after approval.

2. Before conducting "reverse invoicing," the purchaser should fully communicate with the seller, clarify the rights and responsibilities of both parties, ensure the seller agrees that the purchaser issues the invoice, understand the specific requirements and process for invoicing, correctly fill in the invoice content, select the correct invoice type, etc., and ensure each invoice meets the requirements of the tax authorities.

3. The legality and authenticity of transactions must be ensured.

4. When issuing invoices, attention should be paid to retaining true and accurate transaction information, contract filing materials, etc.

5. Strengthen whole-process procurement management, including signing written procurement agreements, completely preserving natural person identity information, using bank transfers, avoiding cash transactions, and ensuring that every "reverse invoice" issued is traceable.

Because in typical industries involving reverse invoicing, sellers are mostly scattered natural persons with small business scale, they need to apply to the tax authority for invoice issuance on their behalf, and sellers may not fully cooperate with buyers in obtaining invoices, making it difficult to obtain invoices in the procurement stage and restricting the development of related industries to a certain extent.

The reverse invoicing method can effectively solve the buyer's invoice needs and avoid relevant taxpayers bearing additional tax losses due to inability to obtain invoices, but reverse invoicing is also a double-edged sword; precisely because the buyer can issue and deduct, issue and offset on its own, it can easily trigger the problem of fraudulent invoicing.

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Kailing Technology provides solutions for sales management systems, procurement management systems, output invoicing systems, input invoice collection systems, imaging management systems, financial posting systems, electronic accounting archives, fully digitalized e-invoice and Leqi interfaces and other businesses according to enterprise needs, professionally and efficiently helping enterprises transform and upgrade their business-finance-tax digital management.

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