China Healthcare Reform: the “Two Invoice System” Go back »

2017-09-05 | Beijing

China Healthcare Reform: the “Two Invoice System”

On 29th August, the European Chamber hold another seminar in its event series “China Healthcare Reform”, this time the topic was “Two-Invoice System” in the pharmaceutical and medical device distribution. “Two-Invoice System” is a direct English translation of the Chinese term liang piao zhi, a better translation would be “two-level distribution network”. The core of the regulation is that a manufacturer (importer) sells to a distributor, and the distributor sells directly to the hospital; a second distributor or local dealer is not permitted.

Ms Wu of Deloitte explained history and background of the “Two-Invoice System”, gave a summary of the status of implementation in the different provinces and gave examples how to outsource sales and service tasks under the new regulatory framework.

Mr. Ye of King&Wood Malessons focused on an often-neglected aspect of the “Two-Invoice System”: tax compliance. Compliance with the “Two-Invoice System” will be supervised by the taxation bureaus. In combination with the VAT reform, the “Two-Invoice System” poses a new challenge to finance departments of manufacturers. Internal procedures need to be updated accordingly.

So far, only three provinces, Shaanxi, Qinghai and Liaoning have promulgated regulations for the “Two-Invoice System” for disposable medical devices. However, in late 2016 there were about 170,000 class III medical device distributors operating in China, 120 distributors for each new registration certificate. It is likely that Chinese health authorities may use the “Two-Invoice System” to clean-up this extremely fragmented market. It is wise to be prepared.

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