In general, both VAT and GBRT liabilities are based on the sales amount, which includes all of the consideration received from sales of goods and services and expense reimbursements.
Effective use and enjoyment. To avoid instances of non-taxation or double taxation, jurisdictions can apply “use and enjoyment” rules that allow a service that is “used and enjoyed” in the jurisdiction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a non-established supplier of the service may be required to register for VAT in every jurisdiction where it has customers that are not taxable persons.
In Taiwan, while the use and enjoyment rules are not codified in the VAT law, except for foreign e-commerce operators, similar concepts are applied for sales of services. Specifically, a sale of service in Taiwan refers to the service that is supplied or utilized in Taiwan. In practice, if the ultimate service recipient or ultimate beneficial owner of such service is located in Taiwan, such sale of service is subject to VAT.
Transfer of a going concern. Normally the sale of the assets of a VAT-registered or VAT-registrable business will be subject to VAT at the appropriate rate. However, a transfer of a business as a going concern (TOGC) may be outside the scope of the tax under certain conditions. A TOGC is the sale of a business or part of a business capable of separate operation including assets. Where the sale meets the conditions, the supply is treated as outside the scope of VAT. In Taiwan, a TOGC is treated as outside the scope of VAT where a company conducts a spin-off or an acquisition of assets or shares pursuant to the Business Mergers and Acquisitions Act, with the shares entitled with voting rights as consideration to pay the company while such shares are at a value not less than 65% of the total consideration, or a company is carrying on the merger/consolidation according to the Business Mergers and Acquisitions Act. Then such commodities or labor service transferred is deemed as not falling within the scope of imposition of VAT.
Transactions between related parties. In Taiwan, there are no specific rules that indicate the value for VAT purposes for transactions between related parties. Generally, an arm’s-length principle on transactions between related parties is regulated under Taiwan Transfer Pricing Guidelines. According to VAT rules, in principle, the transaction value should be based on the fair market value.
C. Who is liable
The following persons are considered taxable persons for business tax purposes:
• Taxable persons that supply goods or services.
• Consignees or holders of imported goods.
• Purchasers of services supplied by non-established businesses that have no fixed place of business in Taiwan. However, if a taxable person purchasing services is solely engaged in the operation of goods or services that are subject to VAT in Taiwan (i.e., a fully taxable business and is entitled to fully recover input tax), the taxable person is not subject to business tax on its purchases of services supplied by a non-established business.
• Foreign taxable persons with no fixed place of business in Taiwan, that meet the threshold of annual sales of digital services to individual buyers in Taiwan (business-to-consumer (B2C) supply of digital services).
Exemption from registration. Taxable persons engaged solely in the business of the sale of exempt goods or services (as outlined 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 and small businesses. The VAT law in Taiwan does not contain any provision for voluntary registration, nor special VAT registration rules for small businesses.
Group registration. Group VAT registration is not allowed in Taiwan.
Fixed establishment. The Enforcement Rules of VAT and the GBRT Act provide the VAT concept of fixed establishment by a definition of “fixed place of business.” The term “fixed place of business” means a fixed place for operating business of selling goods or services, including head office, administrative office, branch, limited partnership branch, business office, factory, maintenance shop, workshop, machine shop, warehouse, mining field, construction site, show room, liaison office, operating office, service station, operating division, branch store, sales outlet, auction house and other similar places.
Non-established businesses. A “non-established business” is a business that does not have a fixed place of business in Taiwan. A non-established business must register for VAT only if it sells cross-border electronic services to Taiwan domestic individuals and its annual sales exceeds NTD480,000. This kind of non-established business is called a “foreign e-commerce operator” (FECO). FECOs can only register for VAT via the eTax portal, which is an electronic platform established by the Ministry of Finance, and either by itself or by an appointed tax agent (see the subsections Digital economy and Registration procedures below for further details). 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.
Changes to VAT registration details. If there is any change to the details of a taxable person, such as name of company, address, type of business, legal representative, etc., an application for an amendment to registration must be filed with the competent tax authority within 15 days after the occurrence of such an event. An application by a taxable person for amendment to registration may only take effect upon the payment in full of taxes or upon the provision of security provided. However, 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.
D. Rates
The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero-rate.
The VAT rates are:
• Standard rate: 5%
• Zero-rate: 0%
The standard rate of VAT applies to all supplies of goods or services unless a specific measure provides for the zero-rate or an exemption. Exempt supplies apply to both VAT and GBRT. Zerorated supplies apply only to VAT.
The following are the GBRT rates:
• 0.1% for traders in the agricultural wholesale market and small businesses supplying agricultural products
• 1% for small businesses and other taxable persons that are excluded by the MOF from reporting their transactions
• 1% for reinsurance premiums of insurance enterprises (5% for operations other than authorized core businesses)
• 2% or 5% on the sale of services by local financial institutions (for banking and insurance companies: generally, 5%, except for certain transaction types; for the other financial institutions: 2% on their core business revenue and 5% on their noncore business revenue)
• 2% or 5% on the purchase of services from foreign financial institutions
• 15% for nightclubs or restaurants providing entertainment
• 25% for saloons or tearooms, coffee shops and bars offering companionship (in nightclubs, customers can ask wait staff to sit aside, serve drinks, chat and sing karaoke)
Examples of goods and services taxable at 0%
• Export of goods
• Services related to exports
• Services rendered in Taiwan but used outside Taiwan
• Sales of goods or services to taxable persons in bonded areas for the buyers’ operations
The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.
Examples of exempt supplies of goods and services
• Certain essential and unprocessed foods
• Sale of lands
• Certain bonds and securities
• Sales of fixed assets that are not regularly traded by certain taxable persons subject to GBRT Option to tax for exempt supplies. Taxable persons may opt to treat the above examples of exempt supplies of goods and services as taxable. A taxable person can apply to the Ministry of Finance to opt to treat an exempt supply as taxable. An application should be filled out with the Sales Analysis Table attached.
E. Time of supply
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.
Deposits and prepayments. There are no special time of supply rules in Taiwan for deposits and prepayments. As such, the general time of supply rules apply (as outlined above).
Continuous supplies of services. There are no special time of supply rules in Taiwan for supplies of continuous supplies of services. As such, the general time of supply rules apply (as outlined above).
Goods sent on approval for sale or return. For supplies of 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.
Reverse-charge services. Except for digital services for B2C transactions, the reverse-charge mechanism applies to services rendered by a non-established business that does not have a fixed place of business in Taiwan. However, if a taxable person purchasing services is solely engaged in the operation of goods or services that are subject to VAT in Taiwan (i.e., a fully taxable business and is entitled to fully recover input tax), the taxable person is not subject to business tax on its purchases of services supplied by a non-established business.
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.
Leased assets. There are no special time of supply rules in Taiwan for supplies of leased assets. As such, the general time of supply rules apply (as outlined above).
Imported goods. For the supply of imported goods, the time of supply is the holder of imported goods is liable to pay the 5% VAT at customs, i.e., at the time of importation.
F. Recovery of VAT by taxable persons
Input tax is deductible only with respect to VAT and not recoverable for GBRT.
Input tax is deductible in the current and next filing periods. If a taxable person reports the input tax after the next filing period, the taxable person must provide the reasons in an attachment to the tax return.
The time limit for a taxable person to reclaim input tax in Taiwan is 10 years.
Nondeductible input tax. Input tax is not deductible if supporting documents with respect to purchased goods or services are not obtained or maintained.
Examples of items for which input tax is nondeductible
• Goods or services that are not used in the principal or ancillary business operations of the purchaser. However, input tax on purchases made for Taiwan defense construction, troop morale and contributions to the government is deductible
• Goods or services for social relations purposes
access the official e-invoice platform) using the electronic certification or signature obtained via the e-invoice service platform or a value-added service center.
Simplified VAT invoices. Simplified VAT invoicing is not allowed in Taiwan. As such, full VAT invoices are required.
Self-billing. Self-billing is allowed in Taiwan. It is only allowed for goods that are produced, imported or purchased by a taxable person, and are used by the taxable person itself or supplied for no consideration. These scenarios are only where the taxable person can issue GUIs to themselves in their own name.
Proof of exports. The following are examples of documentation that may be used to substantiate exports:
• Goods exported: a copy of the international parcel receipt issued by the postal service, except for goods exported through customs that are exempt from such documentation requirement
• For services rendered with respect to exports or services rendered in Taiwan but used outside of Taiwan: a copy of the foreign currency receipt
• For goods sold to entities located in bonded areas: document issued by customs proving that such sale is an export or a copy of the GUI certified by the bonded purchaser
A taxable person applying for a zero-business tax rate on goods or services, for services relating to export or services provided in Taiwan but used overseas must submit the following evidence:
• If the foreign exchange obtained has been settled for sale to or deposited into a bank designated by the Taiwan government, the documentary evidence of the foreign exchange sale or deposit issued by the designated foreign exchange bank.
• If the foreign exchange obtained has not been sold and settled or deposited into a bank designated by the Taiwan government, a photocopy of the original receipt of the foreign exchange with the amount specified therein.
Foreign currency invoices. GUIs must be issued in the domestic currency, the New Taiwan dollar (TWD), with the exception of non-established e-commerce businesses. The foreign currency can be noted as a remark on the GUIs and there is no need to convert the sales amount in foreign currency to TWD on the GUIs.
Supplies to nontaxable persons. A GUI is generally required for all sales of goods and/or services. However, there are special invoicing rules for non-established businesses providing e-commerce services to Taiwanese individuals (B2C).
The foreign e-commerce operators (FECOs) are required to issue eGUIs aforesaid. The tax authority announced that there will be no penalties (up to TWD1 million) imposed for FECOs not issuing cloud GUIs from 1 January 2019 to 31 December 2019. However, there may be penalties for not issuing eGUIs for the period on or after 2020. See the Penalties for errors subsection below for further details.
When issuing eGUIs, foreign e-commerce operators can use the business’ native language. The transaction date on the eGUI should be recorded in AD (i.e., Anno Domini, e.g., 1 January 2018). This is different for Taiwanese taxable persons, as they list the transaction date in local description method (i.e., 1 January 2018 would be listed as 1 January 107, which is the description method for the Taiwanese year) on the GUI. The unit price, the price and the total amount can be listed using the currency native to the business, but the business should indicate the currency used.
Records. In Taiwan, examples of what records must be held for VAT purposes includes following:
• Any original transaction receipt, such as GUIs and commercial invoices, issued to the customers or itself and received from the suppliers
• Debit and credit notes
• General ledger
• General journal
• When the business is in merchandising sector, an inventory account book is required
• When the business is in manufacturing sector, a raw material account book, a work-in-process account book, a finished good account book and daily production report are required
• When the business is in construction sector, a construction-in-progress account book and construction daily report are required
• When the business is in the service sector, the service volume record, e.g., the traveler registered book, the daily list of carriage, is required
In Taiwan, the VAT books and records can be held outside of the jurisdiction. However, if the tax authority asks the taxable person to provide the records, it must provide the records in a timely and integral manner. Therefore, the tax authority would recommend holding the records at the place of business. Meanwhile, certain taxable persons can hold the records electronically after receiving approval from the tax authorities.
Record retention period. All the accounting documents, except for those that must be permanently preserved or those related to unsettled accounting transactions, must be kept for at least five years after the completion of annual closing procedures.
There is no clear definition on “permanently preserved documents” in Taiwan. In practice, the accounting documentation that the taxable person must preserve permanently is based on the taxable person’s own business considerations.
All the accounting books, except for those related to unsettled accounting transactions, must be kept for at least 10 years after the completion of annual closing procedures.
Electronic archiving. Electronic archiving is allowed in Taiwan. A taxable person is allowed to maintain its accounting documents, accounting books and financial statements of taxable persons digitally. All abovementioned accounting records can be held electronically or stored via a data storage medium. The record retention period for accounting records via electronic archiving shall be the same as traditional paper archiving as described above. Pre-approval from the tax authority is required for certain industries.
I. Returns and payment
Periodic returns. VAT 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 taxable person is eligible for zero-rated VAT. VAT returns must be accompanied with all relevant documentation, and excess output tax must be paid to the tax authorities before the returns are filed.
Periodic payments. VAT taxable persons must declare and pay VAT by the 15th day following the end of the period, the same as the return deadline. Taxable persons can submit payment via deposit accounts, credit cards or in person at financial institutions and convenient stores. Payments must be made in TWD.
Electronic filing. Electronic filing is allowed in Taiwan, but not mandatory. However, it has been widely adopted by most taxable persons. Electronic filing is completed via software released by the Ministry of Finance. The software validates the input and output tax and subsequently generates the VAT return. The VAT return is then submitted to the Ministry of Finance via the same software.
Payments on account. Payments on account are not required in Taiwan.
Special schemes. Small businesses. If a taxable person is qualified as the definition of “small business,” the VAT of the taxable person shall be assessed by the tax authority every three months and the VAT return is not required to be submitted to the tax authority.
• The amount of input tax is falsely reported.
• Business tax is not paid for the purchase of services provided by foreign entities within 30 days after the prescribed deadline.
• Tax is evaded in another manner.
Generally, a taxable person who evades tax payments by fraud or other unrighteous means shall be sentenced to imprisonment for no more than five years and is imposed with a fine of no more than TWD10 million. Moreover, if the amount of the evaded tax payments is greater than TWD50 million, the sentence to imprisonment is aggravated for not less than one year but no more than seven years and is imposed with a fine of more than TWD10 million but not more than TWD100 million. Additionally, a person who assists or instigates another person to evade tax payments shall be sentenced to imprisonment for no more than three years and is imposed with a fine of no more than TWD1 million. Whereas a tax official, an attorney, a certified public accountant or any other authorized agent commits an offense by assisting or instigating the taxable person to evade tax payments by fraud or other unrighteous means, the penalty to be imposed on the above enumerated persons shall be increased by up to one half.
Personal liability for company officers. Where a legal representative of a taxable person evades VAT with illegal strategies or by fraud, this representative could be sentenced to imprisonment for no more than five years, detention or in lieu thereof or in addition thereto, be imposed with a fine of no more than TWD60,000.
Statute of limitations. The Taiwan statute of limitations is five years. However, this can be extended to seven years in cases of fraud, failing to file the returns within the prescribed time frame or tax evasion.