Practical Insights | Complete Analysis of Fully Digitalized E-Invoice Red-Letter Reversal Rules, Process, and Precautions

As the promotion of fully digitalized e-invoices continues to increase, more and more taxpayers are beginning to use fully digitalized e-invoices. Today, we have compiled the relevant rules, operating procedures, and precautions for red-letter reversal of fully digitalized e-invoices. Let's take a look~

I. Red-ink reversal rules for fully digitalized e-invoices

(1) Red-offset rules between invoice types

1. Fully digitalized e-invoices can be reversed for fully digitalized e-invoices, fully digitalized paper invoices (paper invoices issued by the electronic invoice service platform), and tax control invoices.

2. Fully digitalized paper invoices can be red-flushed against fully digitalized paper invoices and tax-control invoices, but red-flushing against fully digitalized e-invoices is not allowed.

3. Tax-control invoices: only tax-control invoices can be red-flushed; fully digitalized e-invoices and fully digitalized paper invoices cannot be red-flushed.

(II) Rules for Confirmation of Red-Letter Invoice Information and Classified Handling Based on Invoice Recipient Circumstances

1. When the invoice recipient has not confirmed the purpose, the invoice issuer initiates the "Red-Letter Information Confirmation Form" through the e-invoice service platform and then issues the full amount of the red-letter fully digitalized e-invoice, without confirmation by the invoice recipient.

2. When the invoice recipient has already confirmed the use, either party to the purchase and sale may initiate a Red-Letter Information Confirmation Form on the electronic invoice service platform (when the invoice recipient is a non-pilot taxpayer, initiate and confirm it on the VAT Invoice Comprehensive Service Platform). After confirmation by the other party, a full or partial red-letter fully digitalized e-invoice may be issued. If the invoice recipient has already used the invoice for VAT filing and deduction, the VAT amount listed in the Confirmation Form shall temporarily be transferred out of the current period's input tax, and after obtaining the red-letter invoice issued by the invoicing party, it shall be used together with the Confirmation Form as an accounting voucher.

(3) Classification of situations where red fully digitalized e-invoices are not allowed to be issued

1. When a blue-letter invoice has been voided, fully red-flushed, determined to be an abnormal tax deduction voucher, or locked (a red-letter confirmation form or information table has been initiated but no red-letter invoice has been issued, and the red-letter confirmation form or information table has not been revoked), red-flushing is not allowed to be initiated;

2. When the VAT use of a blue-letter invoice is "pending tax refund," "tax refunded," "deducted (changed to refund)," "tax refund handled on behalf," or "not eligible for tax refund and not eligible for deduction," red-letter reversal may not be initiated;

3. When initiating a red-letter reversal, if the counterparty taxpayer is in a "non-normal" or "deregistered" status and cannot log into the system to perform relevant operations, the red-letter reversal is not allowed to be initiated.

II. Red-ink reversal process for fully digitalized e-invoices

(1) After the invoicing party issues a fully digitalized e-invoice, the receiving party has not confirmed its use or accounting entry.After the invoicing party fills out the "Red-Letter Invoice Information Confirmation Form" on the electronic invoice service platform, no confirmation from the invoice recipient is required, and a full-amount red-letter fully digitalized e-invoice is issued. The operating process is as follows.

Step 1:

Log in to the local Electronic Tax Bureau and click [Invoicing Business] - [Red Invoice Issuance] - [Red Information Confirmation Sheet Entry] in sequence.

Step 2:

Enter the query conditions and click the [Query] button to query the blue invoice information that needs to be reversed. In the query results, click "Select" to enter the [Enter Red Invoice Confirmation Information Page] and "Initiate Red Letter Information"; the blue invoice information to be reversed will be automatically populated into the page.

Step 3:

Select the fully digitalized e-invoice type and the reason for issuing a red-letter invoice, then click the [Submit] button.

Step 4:

(1) If the selected fully digitalized e-invoice type is "electronic invoice", the following prompt will pop up:

Click [Confirm], and the red-letter invoice is automatically issued.

(2) If the selected fully digitalized e-invoice type is "paper invoice of the same type as the original blue invoice", a message will indicate that the confirmation form was submitted successfully.

Because no confirmation from the other party is required, the invoicing party can directly click [Issue Red-Letter Invoice] to complete the red-letter invoice issuance operation.

(2) The invoice recipient has already confirmed the use or recorded it in the accounts.Either party of the purchase and sale may initiate the "Red-Letter Information Confirmation Form", and after confirmation by the other party, a full or partial red-letter fully digitalized e-invoice shall be issued. Taking the seller's application for the "Red-Letter Information Confirmation Form" as an example, the operation process is as follows.

Seller

Step 1:

Log in to the local Electronic Tax Bureau and click [Invoicing Business] - [Red Invoice Issuance] - [Red Information Confirmation Sheet Entry] in sequence.

Step 2:

Enter the query conditions and click the [Query] button to query the blue invoice information that needs to be reversed. In the query results, click "Select" to enter the [Enter Red Invoice Confirmation Information Page] and "Initiate Red Letter Information"; the blue invoice information to be reversed will be automatically populated into the page.

Step 3:

Select the fully digitalized e-invoice type and the reason for issuing a red-letter invoice, then click the [Submit] button. The system will then send the red-letter invoice information confirmation form to the other party and wait for their confirmation.

Purchaser

Step 1:

Log in to the local Electronic Tax Bureau and click [Invoicing Business] - [Red Invoice Issuance] - [Red Information Confirmation Sheet Processing] in sequence.

Step 2:

Enter the query conditions, click the [Query] button, select the red invoice information confirmation form to be processed, and click the [View] button to enter the page for information confirmation.

Step 3:

Click the [Confirm] button, and a prompt box pops up; click the [Confirm] button again to complete the processing of the red-letter invoice information confirmation form.

If the invoice type of the fully digitalized e-invoice selected by the initiating party is "electronic invoice", once the red-letter invoice confirmation form is confirmed, the invoice is automatically issued successfully, with no further action required by the counterparty.

If the invoice type of the fully digitalized e-invoice selected by the initiating party is "paper invoice of the same type as the original blue invoice", that is, when using a fully digitalized paper invoice to reverse a fully digitalized paper invoice, a red-letter invoice still needs to be issued manually.

Tips：

If the invoiced party is a non-pilot taxpayer (using the VAT Invoice Comprehensive Service Platform), the invoicing party fills out and uploads the Confirmation Form on the Electronic Invoice Service Platform, and after the invoiced party confirms it on the VAT Invoice Comprehensive Service Platform (path: [Invoice Management] — [Red-Letter Application Confirmation]), the invoicing party issues the red-letter fully digitalized e-invoice or red-letter paper invoice in full or in part.

III. Precautions

1. When a red-letter reversal is completed for a fully digitalized e-invoice issued in the current month, the electronic invoice service platform will synchronously increase its available invoice quota based on the reversed amount (except for sales discounts). However, for red-letter fully digitalized e-invoices issued across months, the electronic invoice service platform will not increase the remaining available quota for the current month.

2. When selecting the reason for issuing a red-letter invoice, it should be confirmed according to the actual conduct of your own business. When issuing a blue-letter invoice, if the commodity and service code is filled in only as goods or labor, the red-letter reversal reason cannot be checked as "service suspension"; if the commodity and service code is only services, the red-letter reversal reason cannot be checked as "sales return"; for blue-letter invoices involving both sales and services, when performing red-letter reversal, fill in according to the facts, and the red-letter reason is not controlled.

3. When performing a red-letter reversal on a blue-letter invoice that the buyer has already selected and recorded, after either the seller or the buyer initiates the red-letter invoice information confirmation process, the other party must confirm the process within 72 hours; after confirmation, the seller completes the issuance of the red-letter invoice. If confirmation is not made within the specified time, the process will be automatically voided. If a red-letter invoice still needs to be issued later, the invoice information confirmation process must be initiated again. For red-letter information confirmation forms that do not require confirmation by the other party, they will not be automatically revoked even after 72 hours.

4. If a taxpayer has deregistered its tax control equipment and archives and switched to the electronic invoice service platform for invoicing, and a previously issued tax control paper invoice needs to be reversed, because the electronic invoice service platform cannot operate the red-letter invoice information form initiated by the tax control equipment, even if the recipient has already deducted and selected it, the issuer must initiate a red-letter invoice information confirmation form on the electronic invoice service platform, and after the recipient confirms, issue the red-letter invoice.

5. Only after the buyer has selected or recorded the blue-letter invoice can the seller initiate a partial red-letter reversal; when the buyer has not selected or recorded it, only the seller can initiate a full red-letter reversal.

Source: Shanghai Tax official account

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