Global Tax Alert | 22 March 2017

Taiwan issues new tax guidelines on cross-border e-commerce transactions

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Executive summary

On 8 March 2017, the Taiwan Ministry of Finance released draft amendments (the Draft Amendments) to the Value-added and Non-value-added Business Tax Act (VAT Act to conform to the partial amendments to the VAT Act1 enacted on 28 December 2016) (the 2016 Amendments). Under the Draft Amendments, foreign suppliers selling e-commerce services to Taiwanese individual purchasers must register for business and pay VAT directly or indirectly through appointment of a tax-filing agent.

Detailed discussion

General rules

Under the 2016 Amendments, VAT will generally be imposed on foreign enterprises, institutions, groups, or organizations (foreign e-commerce operators - FECOs) without a fixed place of business in Taiwan, who provide e-commerce services to Taiwanese individuals. The FECO must register with Taiwan’s tax authority and file its VAT returns.

The term “e-commerce” has been further defined as services provided via the internet or other electronic methods, with or without the download or storage onto computers or mobile devices.

Registration requirements

The FECO will be assigned a taxpayer ID number which should be used when filing bimonthly VAT returns.

The registration and VAT return filing obligations are required if the annual e-commerce sales revenue exceeds NTD480,000 (US$16,000). If the sales revenues are in currencies other than NTD, the amount should be converted to NTD at a buying exchange rate announced by the Bank of Taiwan on the last date of the bimonthly VAT filing.

Due to difficulties in setting up a required VAT invoicing system to issue an invoice pursuant to the Government Uniformed Invoice requirements, FECOs are not required to issue such invoice during the period from 1 May 2017 to 31 December 2018 until the compatible system is set up to issue the required invoice.

The FECO would be allowed an input tax credit if substantiated by supporting documentation, including the total sales revenue and invoices submitted to the tax authority.

Timing of registration and applicable penalties

An application for tax registration must be submitted prior to commencement of the FECO’s operation, if accumulated total sales revenue in a given bimonthly VAT return period is estimated to exceed the registration threshold of NTD480,000.

Failure to comply with this requirement may result in a penalty ranging from NTD3,000 to NTD30,000 (US$100 - US$1,000). In addition, the FECO may also be subject to the penalty of NTD3,000 to NTD30,000, if the appointed tax agent fails to file the tax return and pay the taxes on behalf of the FECO.

Failure to comply with the filing requirements will result in penalties of up to five times of the amount of tax due and loss of a license to operate.

Repeal of transaction based tax-exemption threshold

Under the current law, when a transaction amount is below a certain threshold, the service purchased is exempt from VAT. To eliminate the unfair advantage that FECOs have over their Taiwanese local operators, the tax exemption threshold will be repealed.

Implications

Details of the current draft amendments are still subject to final review, including invoice issuance, applicability of input tax credit to FECOs and potential exposure to income tax ramifications. However, since registration and return filing requirements for the FECOs are definitive and will become effective once the Draft Amendments are finalized, FECOs should consult with their tax advisors regarding the necessary steps to comply with these new VAT rules.

Endnote

1. See EY Global Tax Alert, Taiwan’s Executive Yuan releases draft amendments for business tax imposition on cross-border e-commerce transactions, dated 7 October 2016.

For additional information with respect to this Alert, please contact the following:

Ernst & Young (Taiwan), Taipei
  • Sophie Chou
    +886 2 2757 8888 ext. 88872
    sophie.chou@tw.ey.com
  • Chien-Hua Yang
    +886 2 2757 8888 ext. 88875
    chienhua.yang@tw.ey.com
  • Anna Tsai
    +886 2 2757 8888 ext. 88873
    anna.tsai@tw.ey.com
  • Vivian Wu
    +886 2 2757 8888 ext. 67206
    vivian.wu@tw.ey.com
Ernst & Young LLP, Asia Pacific Business Group, New York
  • Chris Finnerty
    +1 212 773 7479
    chris.finnerty@ey.com
  • Kaz Parsch
    +1 212 773 7201
    kazuyo.parsch@ey.com
  • Bee-Khun Yap
    +1 212 773 1816
    bee-khun.yap@ey.com
Ernst & Young LLP, Asia Pacific Business Group, Houston
  • Trang Martin
    +1 713 751 5775
    trang.martin@ey.com

EYG no. 01352-171Gbl