Global Tax Alert | 7 October 2016

Taiwan’s Executive Yuan releases draft amendments for business tax imposition on cross-border e-commerce transactions

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Executive summary

On 22 September 2016, Taiwan’s Executive Yuan released the draft amendments to the Value-added and Non-value-added Business Tax Act, requiring foreign e-commerce operators providing services to Taiwanese individual purchasers to register with Taiwan’s tax authority and pay business tax in Taiwan.1

Detailed discussion

General rules

Under the amendments, foreign enterprises, institutions, groups, or organizations providing e-commerce services to Taiwanese individuals without a fixed place of business in Taiwan will generally be subject to business tax. Under the current system, when foreign e-commerce operators provide services to Taiwanese purchasers, the Taiwanese purchasers are responsible to pay the business tax through reverse charges. However, in a situation where the purchasers are individuals, the existing tax system does not have procedures to enforce individual purchasers to make a voluntary tax payment, causing difficulties for the tax authority to collect the business tax. To solve the issue, the draft amendments require the foreign e-commerce operators to register with Taiwan’s tax authority and file a return.

Registration requirements

The registration and business tax return filing obligations are required if total e-commerce sales exceed a certain threshold.2 A registrant will be assigned a taxpayer ID number which should be used when filing bimonthly business tax returns. Failure to comply with the filing requirements may result in penalties of up to five times of the amount of tax due and loss of a license to operate.

Timing of registration

An application for a tax registration must be submitted prior to commencement of operations. Failure to comply with this requirement may result in a penalty ranging from NTD3,000 to NTD 30,000 (US$100 – US$1,000).

Elimination 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 business tax. To eliminate the unfair advantage foreign e-commerce operators have over their Taiwanese local operators, the tax exemption threshold will be removed.

Implications

The details of the amendments are still under review; however, once the amendments become effective, foreign e-commerce operators would be subject to registration and return filing requirements. Since their operating costs will likely increase, it is recommended that foreign e-commerce operators consult their tax advisors how to prepare for the changes.

Endnotes

1. See EY International Tax Alert, Taiwan announces plan to tax cross-border e-commerce transactions, dated 15 August 2016.

2. The amount is yet to be determined by the Taiwan’s Ministry of Finance.

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
  • 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. 03256-161Gbl