2019 Worldwide VAT, GST and Sales Tax Guide - Taiwan

Taxable persons. The following persons are considered taxable persons for business tax purposes:

• Business entities that supply goods or services.
• Consignees or holders of imported goods.
• Purchasers of services supplied by foreign entities that have no fixed place of business in Taiwan. However, if a business entity purchasing services is solely engaged in the operation of goods or services that are subject to VAT in Taiwan, the business entity is not subject to business tax on its purchases of services supplied by a foreign entity.
• Foreign entities with no fixed place of business in Taiwan reach the threshold of annual sales of digital services to individual buyers in Taiwan (B2C supply of digital services).

Non-established businesses. Business tax also applies to the following taxable supplies made by nonresidents:

• Taxable sales of goods in which non-established businesses consign goods to Taiwanese entities, that sell the consigned goods on behalf of the foreign non-established businesses. A consignment agreement shall be in place in order to carry out the consignment of goods
• Taxable sales of services by foreign entities that have no fixed place of business in Taiwan to Taiwanese entities described in the third bullet in Taxable persons
• Taxable sales of digital services by foreign entities with no fixed place of business in Taiwan to Taiwanese individual buyers

The business tax rate is 2% for the purchase of core business-related services from foreign financial institutions that do not have a fixed place of business in Taiwan. For purchases of other services, the business tax rate is the standard rate of 5%.

However, public and private schools at any level or educational or research institutions that purchased services provided by foreign enterprises, institutions, groups or organizations that have no fixed place of business within the territory of Taiwan, for educational, research or experimental purposes are not required to pay business tax.

Representative offices. A representative office of a foreign enterprise is prohibited from engaging in revenue generation activities but may engage in certain limited activities, such as liaison and procurement services for its head office. Reimbursements from the head office to the representative office are not taxable.

Registration procedures. Applications for business tax registration shall be filed after the completion of company registration but before commencement of operation in Taiwan. In principle, the business tax registration process is done automatically by a local tax administration office of the national tax authority as soon as it receives the approved and filed basic information related to the company’s registration, from the competent authority in charge of company registration. The company may need to submit additional documents if formally requested by a local tax administration office of the national tax authority.

Foreign enterprises, institutions, groups, or organizations, without a fixed place of establishment, providing e-commerce services to Taiwanese individuals are now required to register with Taiwan’s tax authority. Foreign e-commerce operators will be assigned a taxpayer ID number that 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 (USD16,000). 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.

Late-registration penalties. Late business tax registrations are subject to the greater of the following penalties:

• Penalty of not less than TWD3,000 and not more than TWD30,000, which may be imposed repeatedly if the registration is not filed within the period prescribed by the tax authority
• Penalty of up to five times the amount of tax evaded

Group registration. Not applicable. Each company shall have its own VAT registration number. Two or more companies or other corporate bodies cannot register as one entity with one VAT registration number.

Reverse charge. A nonresident entity is not allowed to register the VAT number and collect VAT in Taiwan, except for the foreign entities that meet the third bullet in Taxable persons. In this regard, for the importation of goods, the VAT will be borne by the importer, generally the domestic purchaser. For the importation of services where the purchaser is a purely value-added business tax entity and the purchased services are used solely in conducting business in taxable goods or services, such services are exempted from the business tax.

Digital economy. On 24 April 2017, the Taiwan Ministry of Finance released amendments to the value-added and non-value-added Business Tax Act. Under the amendments, foreign suppliers selling e-commerce services to Taiwanese individual purchasers (B2C) and that have annual sales that exceed TWD480,000 must register for business (meaning business purpose, as foreign suppliers are required to register this) and pay VAT directly or indirectly through appointment of a tax-filing agent. The effective date for the amendments is 1 May 2017.

Deregistration. If there is any change to the details of a registered business, or if there is a merger, consolidation, ownership transfer, dissolution or cessation of a business entity, an application for amendment to registration or cancellation of registration must be filed with the competent tax authority within 15 days after the occurrence of such an event. An application by a business entity, for amendment to registration or cancellation of registration, may only take effect upon the payment in full of taxes, or upon the provision of security, provided, however, that this requirement shall not apply in the case of application for amendment due to merger, consolidation, increase of capital or a change in business address or scope of business.

Exemption from registration. Business entities engaged solely in the business of the sale of exempt goods or services, as provided in the list below and government entities of all levels may be exempted from applying for taxation registration.

The following goods or services may be exempted from applying for taxation registration:

• The water supplied to farmland for irrigation
• The medical services, medicine, ward lodging and meals provided by hospitals, clinics and sanitariums
• The social welfare services provided by social welfare organizations or institutions or labor organizations, duly established with permission of the competent authority, and social welfare services consigned by the government
• The education services offered by schools, kindergartens, and other educational and cultural institutions, including cultural services offered under government’s consignment
• The goods or services sold by student-run shops of vocational schools that do not serve outsiders
• The proceeds from goods sold in tenders, charity sales and charity shows held by charity and relief institutions organized according to the law, provided that the total proceeds are solely used by said institutions after deducting the necessary expenditures for the tenders, charity sales and charity shows
• The goods or services sold by employee welfare organizations of government bodies, state enterprises and social organizations that are organized and operated under relevant laws and are not open to the public
• The goods or services sold by prison workshops and their finished goods stores
• Services rendered by post and telecommunication offices in accordance with the law; and business consigned under government mandate
• The service of consigned sale of stamp tax tickets and postage stamps
• The goods or services sold by peddlers or hawkers
• Feed and unprocessed raw agricultural, forestry, fishing and livestock products, and by-products; the agricultural, forestry, fishing and livestock products, and by-products of farmers’ and fishermen’s harvests sold by farmers and fishermen
• The fish caught and sold by fishermen
• The research services supplied by scientific or technological institutions that are established under the approval of the government
• The government at all levels

Voluntary registration. The VAT law in Taiwan does not contain any provision for voluntary VAT registration.

The following are the rules for the timing of VAT liabilities:

• Goods: at the earlier of the delivery of goods or payment of the proceeds
• Services: in general, on payment of the remuneration or when service is delivered
• Continuous supplies of services: in general, on payment of the remuneration
• For imported goods: on customs declaration

In general, liability for GBRT arises on receipt of payments.

Imported goods. The holder of imported goods is liable to pay the 5% VAT at customs.

Deposits and prepayments. The VAT law in Taiwan does not contain any provision for deposits and prepayment.

Goods sent on approval for sale or return. The tax is due when the goods are sold. If the goods are returned to the seller, the seller should obtain the qualified documents (e.g., certificate of sales/purchases returns or allowances on merchandise sold) to reverse the entry and adjust the amount of tax payable.

Leased assets. The VAT law in Taiwan does not contain any provision specifically related to leased assets.

Reverse-charge services. Except for digital services for business-to-consumer (B2C) transactions, the reverse-charge mechanism applies to services and goods rendered by a foreign entity that does not have a fixed place of business in Taiwan.

The purchaser of such services shall, prior to the 15th day of the period following the period in which the payment is made, compute and pay the tax due on the supply.

In addition, VAT on such goods shall be levied by Customs at the time of importation.

Continuous supplies. The VAT law in Taiwan does not contain any provision specifically related to continuous supplies.

Effective from 1 July 2010, a foreign non-established entity may qualify for a refund of VAT incurred on the purchases of goods and services with respect to its participation in an exhibition or its engagement in “temporary commercial events” in Taiwan if the following conditions are met:

• The input VAT reaches a minimum of TWD5,000 in a year.
• Reciprocal treatment is given by the other foreign jurisdiction under the same circumstances.

For purposes of the above rule, “temporary commercial events” refer to activities including traveling, training, inspection, market research, procurement, organizing or attending international conferences, tender invitations, information exchanges, marketing seminars and other business activities approved by the MOF that are relevant to the core or ancillary business operations of the companies.

Business tax returns. Business tax returns must be filed for two-month periods by the 15th day following the end of the period. It is possible to apply for monthly VAT filings if a business entity is eligible for zero-rated VAT. Business tax returns must be accompanied with all relevant documentation, and excess output VAT must be paid to the tax authorities before the returns are filed. Receipts of payments made must be filed with the returns.

Special schemes. Not applicable.

Electronic filing and archiving. Electronic filing is optional for the taxpayer. It has been widely adopted by most business entities.

Annual returns. Additional filing of an annual return is not required. However, business entities would be required to recalculate the nondeductible ratio on a yearly basis to adjust the reported nondeductible input VAT, if certain criteria are met.