VAT, GST and Sales Tax in Taiwan

Summary

Name of the tax Business tax (including value-added tax [VAT] and gross business receipts tax [GBRT])
Introduced 6/13/1931 revised December 2015
Trading bloc membership WTO, APEC, ECFA
Administered by Ministry of Finance (MOF)
Rates
VAT 5%, 0% and exempt
GBRT 0.1% to 25%
VAT number format 10001111 (eight digits)
Return periods Bimonthly
Thresholds
Registration None (a business entity that conducts business activities in Taiwan must register)
Recovery of VAT by non-established businesses No, with exceptions

Scope of the tax

Taiwan imposes business tax, which consists of VAT and GBRT.

Business tax applies to the following:

  • Sale of goods in Taiwan. A transaction involving goods is a transfer of ownership of goods to others for consideration. This is not limited to goods exchanged for money. The exchange of goods for other goods is also included.
  • Sale of services in Taiwan. A transaction involving services is the rendering of services to others or supplying goods for the use of others for consideration.
  • Import of goods into Taiwan by individuals or companies.

Taxable persons may be subject to both VAT and GBRT. For example, a bank may be subject to VAT on its rental sales and GBRT on its interest income.

Input tax is deductible only with respect to VAT.

Exempt supplies apply to both VAT and GBRT. Zero-rated sup­plies apply only to VAT.

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.

Who is liable

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 sale 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
  • 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 3% 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. Applying 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.

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. In principle, the imposition of business tax on the digital economy, is similar to the rules applied to the tradi­tional economy where the sales of goods or services in Taiwan shall apply the business tax. However, for the consumption of digital services where the purchaser is an individual and the annual sales exceed a threshold (yet to be determined), the non­resident entity is required to register for business tax and to file a business tax return accordingly.

Deregistration. In the case that there is any change in matters registered, or there is a merger, consolidation, ownership transfer, dissolution or cessation of business of a business entity, an appli­cation for amendment to registration or cancellation of registra­tion shall 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.

VAT and GBRT rates

The VAT rates are 5% (the standard rate) and 0%.

The following are the GBRT rates:

  • 1% for traders in the agricultural wholesale market and small businesses supplying agricultural products
  • 1% for small businesses and other business entities 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 non-core 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 zero-rated supplies

  • 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

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 businesspersons subject to GBRT

Option to tax for exempt supplies. Suppliers may opt to treat the above examples of exempt supplies of goods and services as tax­able.

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
  • 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.

Recovery of VAT by taxable persons

Deductibility of input VAT. Input VAT is deductible in the current and next filing periods. If a taxpayer reports the input VAT after the next filing period, the taxpayer must provide the reasons in an attachment to the tax return.

Nondeductible input tax. Input VAT is not deductible if supporting documents with respect to purchased goods or services are not obtained or maintained. In addition, input VAT is not deductible if it is incurred on purchases of the following:

  • Goods or services that are not used in the principal or ancillary business operations of the purchaser. However, input tax on purchases made for national defense construction, troop morale and contributions to the government is deductible.
  • Goods or services for social relations purposes.
  • Goods or services provided to individual employees.
  • Passenger cars for personal use.

Examples of items for which input tax is deductible (if related to a taxable business use)

  • Any input tax derived from the goods or services that are used in the principal or ancillary business operations of the pur­chaser shall be deductible, except for the above mentioned nondeductible input tax.

Capital goods. Input VAT on the acquisition of fixed assets is refundable to business entities.

Refunds. Overpaid VAT is refundable after verification by the relevant tax office if any of the following conditions are satisfied:

  • The overpaid amount of VAT results from zero-rated sales.
  • The overpaid amount of VAT results from the acquisition of fixed assets.
  • The overpaid amount of VAT results from the cancellation of registration through a merger or consolidation, transfer of own­ership, dissolution or cessation of business.
  • Other special circumstances approved by the MOF exist.

Partial exemption. When a business entity applying VAT engages on a concurrent basis in the business of tax-exempt goods or services or in the business applying GBRT, the business entity is prohibited from deducting a certain part of the input tax from the output tax. The nondeductible ratio is subject to be computed according to the prescribed formula.

Preregistration costs. Input VAT borne by the business entity prior to its completion of setting up, the input VAT may be deductible.

Recovery of VAT by non-established businesses

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.

Invoicing

VAT invoices and credit notes. Business entities selling goods or services must issue Government Uniform Invoices (GUIs) to purchasers.

GUIs are generally printed and sold by the government. However, qualified business entities can apply to print their own invoices. The MOF prescribes the forms, items to be recorded and the uses for the invoices.

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

Foreign-currency invoices. GUIs must be issued in New Taiwan (NT) dollars. The foreign currency can be noted as a remark on the GUIs.

Business tax returns and payments

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 annual return is not required. However, business entities would be required to re-calculate the nondeductible ratio on a yearly basis to adjust the reported nondeductible input VAT, if certain criteria are met.

Penalties

Penalties are imposed for failure to file or make correct payment and for filing after the prescribed deadline.

Returns and payment. A business entity that fails to file the sales amount or the detailed list of GUIs used within the prescribed time limit may be liable to the following penalties:

  • If the filing is past due for less than 30 days, a surcharge for late filing equal to 1% of the tax payable may be imposed for every two days overdue. The surcharge may not be less than TWD1,200 and not more than TWD12,000.
  • If the filing is past due in excess of 30 days, a surcharge for non-filing equal to 30% of the assessed tax payable may be imposed. The amount of this surcharge may not be less than TWD3,000 and not more than TWD30,000.
  • If there is no tax payable, the surcharge for late filing or non-filing shall be TWD1,200 and TWD3,000, respectively.

Tax evasion. A taxpayer may be subject to a fine for tax evasion ranging up to five times of the amount of tax evaded if any of the following circumstances exist:

  • A business is conducted without an application for business registration being filed.
  • The sales amount or detailed list of GUIs used is not submitted and the amount of business tax due is not paid within 30 days after the prescribed deadline.
  • The sales amount is not reported or is underreported.
  • The business is conducted after applying for deregistration or after suspension of business by the relevant collection authority.
  • The amount of input tax is falsely reported.
  • Business tax is not paid for purchase of services provided by foreign entities within 30 days after the prescribed deadline.
  • Tax is evaded in another manner.