Doing business in China is an attractive as well as a delicate endeavour. In fact, the differences in the political, legal and social systems influence all areas of business and force the players that serve this market to move carefully. In this respect, companies wanting to do business in china should definitely become familiar with the Golden Tax System (GTS).
The question is: What is the GTS actually about? And what are main challenges for your rollout to China? Read this Q&A with Tracy Zhou, CEO of Acloudear, the United VARs member for China and partner for global SAP implementation projects to China.
Q: What is the Golden Tax System all about?
A (Tracy Zhou): According to the law, businesses need to release a VAT invoice, called fapiao, for every transaction they make. The issuance of VAT invoices need to be executed through the Golden Tax System (GTS), which is the digitalized tax administration method for VAT that is enforced across China and directly owned by the government. Each of the invoices needs a unique number that can only be issued by the GTS.
Q: How was GTS developed?
A (Tracy Zhou): The system was developed from an initial pilot project that started in the 1990s and has now reached Phase III. Even though some companies still use a manual VAT invoicing method, which requires a lot of paperwork. This digital system is expected to be integrated throughout every company by the year 2020.
Q: How does it work?
A (Tracy Zhou): To put it simply, the GTS is made up of two terminals. One belongs to the tax authority and the other is located at the company. When a transaction occurs, the company issues an invoice to the buyer and, through the GTS, a copy of it is sent to the tax administration. The authorised officers make sure that the output and the input VAT invoices match. If the invoices match, they are correctly validated and then given a unique number. This system was designed to have anti-counterfeiting and controlling functions.
Q: How can SAP solutions be integrated in such system?
A (Tracy Zhou): With the SAP interface specifically created for the Golden Tax System, it is possible to send the required list of invoices directly to the GTS, without utilising a third party´s solutions; even if this was possible in the past. This functionality is not automatically set up and must be activated manually.
Q: Which are the main challenges?
A (Tracy Zhou): When rolling out an SAP solution, the challenges can vary; however, they are not impossible to overcome. There are four main problems companies can encounter during their operations:
1. Complex VAT system
One problem that can arise is coping with the complexity of the taxation system for VAT. There are different VAT rates that are based on the type industry and the size of the company, with 17% as the standard amount. However, companies have to submit not only one universal periodic report, but also additional ones when required by the different provinces and municipalities. Therefore, a suggestion would be to have a local legal expert that can follow the project and ensure its correct advancement.
2. No error accepted
Implementing the SAP Golden Tax functionality requires an outstanding level of accuracy and there are no margin for errors. In fact, once the system is implemented, its corrections can be time consuming and could attract the attention of the auditing authorities. Additionally, in the case that the company’s output and input invoices do not match, the reconciliation process could be too long; especially for companies that have high volumes. This is also the reason why a company’s main perquisite is to submit the exact VAT amount and, in order to avoid any extra work.
3. Local and global competition
As one should expect, there are bigger and smaller players that foresaw the potential of the GTS and are trying to secure themselves in a substantial market share. Moreover, before SAP introduced the Golden Tax functionality, the interface between the SAP solution and the companies’ terminal was taken care of by a local software company, which had already started a business relationship with the Chinese government during the first implementation of the GTS.
4. Continuous improvement
As already mentioned before, the Golden Tax System is a part of China’s national strategy that sustains the digitalisation, among other things, for the public administration. It has evolved systematically throughout the years and, consequently there could even be additional changes, which people should be prepared for.
When talking with Tracy Zhou, CEO of Acloudear about what the GTS means for foreign companies, she also stated: “With the golden tax system, foreign companies can gain an insight into if they are big enough to perform in the Chinese market, considering their compliance, and their financial taxation report. The whole overall extended requirement solution allows international companies to meet the requirements for global standards in management capability”. Zhou acknowledged that although the golden tax system can be difficult, it is not only the golden system for local requirements, but it is the requirements that national companies can come into external management requirement together. Additionally, as China is leaning towards a more automated integrated system, Tracy and Acloudear have been using SAP to make the process smoother: “During the recent years, we have become automatically integrated. This is where tax requirements and government policies link together with financial reporting. Business ByDesign is the best solution for those requirements.”
Doing Business in China
The Golden Tax System is just one of many legislations that make business in China challenging for foreign companies. Acloudear is one of leading IT consulting firms for Cloud Solutions, and a member of United VARs, the largest alliance of leading IT solution providers. Read more about United VARs.
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