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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 11/1/2012

Taiwan: VAT essentials 

Essential information regarding VAT as it applies in Taiwan.


Scope and Rates

What supplies are liable to VAT?


Business tax is imposed on the sale of goods and services within Taiwan, as well as importation of goods into Taiwan. There are two systems of business tax: GBRT – used by financial institutions, special vendors of beverages and food, and small businesses VAT – used by the remaining taxpayers


With certain exceptions, the general rule is that input tax credit is allowed under the VAT system but not the GBRT system. Unless specifically exempt, a seller is generally required to issue a Government Uniform Invoice to the buyer on all taxable sales.


Taxpayers of business tax shall be as follows:


  • business entities that sell goods or services
  • consignees or holders of imported goods
  • purchasers of services provided by foreign enterprises, institutions, groups, or organizations that have no fixed place of business within the territory of Taiwan; however, in the case of foreign international transport enterprises that have no fixed place of business within the territory of the R.O.C but have agents in the R.O.C, the taxpayers are the agents.
  • If the agricultural or fishery fuel oil referred to in Article 8, paragraph 1, subparagraph 27 or 28 herein loses tax-exempt status due to a transfer or to a change in the purpose of use, the taxpayer is the transferring party or the party that changes the purpose of use; however, in the event that the transferring party or the party that changes the purpose of use is unknown, the taxpayer is the holder of the goods.

What is the standard rate of VAT?


  • GBRT: 2 percent for core business revenue; 1 percent for reinsurance premiums of insurance enterprises, 5 percent for non-core business revenue
  • VAT : 5 percent

Are there any reduced rates, zero rates, or exemptions?


A zero rate for VAT applies to the following transactions:


  • exported goods
  • services relating to export or services provided in Taiwan but used in a foreign country
  • goods sold to outbound or transit passengers by duty-free shops established under applicable law
  • goods or services sold to a bonded zone business entity for its operational use
  • international transportation; however, foreign transport enterprises engaging in international transport within the territory of Taiwan shall qualify for the zero tax rate only if reciprocal treatment, or exemption from similar taxes, is given to international transport enterprises of Taiwan by the foreign country in which the foreign enterprise is incorporated
  • vessels and aircraft used in international transportation and deep sea fishing boats
  • sales of goods and maintenance services to vessels and aircraft used for international transportation and deep sea fishing boats
  • goods sold by a bonded zone business entity to a taxable zone business entity and exported directly without being transported to the taxable zone
  • goods sold by a bonded zone business entity to a taxable zone business entity for export and placed in a bonded warehouse or logistics center administered by an enterprise inside a free trade zone or by customs.

Examples of transactions that are exempt from VAT include:


  • sale of land
  • water supplied to farmland for irrigation
  • medical services, medicine, ward lodging and meals provided by hospitals, clinics and sanitariums
  • the education services offered by schools, kindergartens, and other educational and cultural institutions including cultural services offered under government's consignment
  • publication which are textbooks authorized by education authorities for use at various levels of schools and important specialized academic writings awarded by the government according to the law issued by the publishing industry
  • the goods or services sold by student-run shops of vocational schools which do not serve outsiders
  • newspapers, magazines, newsletters, advertisements, television and broadcasting programs produced and sold by legally registered newspaper and magazine publishers, news agencies, and television and broadcasting stations, excluding the advertisements sold by newspaper publishers and advertisements broadcasted by television stations
  • the goods or services sold to their members by cooperatives managed in accordance with the law; and business consigned by government to said cooperatives.

What are the other local indirect taxes beside VAT?


Other indirect taxes include:


  • Commodity tax
  • tobacco and liquor tax
  • amusement tax
  • special goods and services tax (Luxury tax)
  • customs duty.

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Registration

Who is required to register for Taiwanese VAT?


The head office of a business entity and its branches with fixed places of business shall each file an application for business registration individually with the competent tax authority before commencement of business. The term "fixed place of business" as used in the VAT Act refers to a fixed place for selling goods or providing services, including head office, administrative office, 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.


Are there penalties for not registering or late registration?


A business entity failing to apply for a business registration in accordance with the prescribed provision, in addition to being ordered to comply with the requirements within a specified time limit, shall be punished with an administrative fine of no less than NT$3,000 and no more than NT$30,000. In case of a failure in compliance with the requirements within the specified time limit, the business entity may be punished repeatedly according to the relevant laws and regulations. When the entity fails to register or late registration but it is investigated by the tax authority in case of there is under-paid business tax, a fine up to five times of under-paid business tax would be imposed.


Is voluntary VAT registration possible for an overseas company?


No. An overseas company without a fixed place of business in Taiwan cannot apply for business tax registration in Taiwan. Their fixed place of business in Taiwan will be required to file for business registration before commencement of business.


Are there any simplifications that could avoid the need for an overseas company to register for VAT?


N/A.


Does an overseas company need to appoint a fiscal representative?


No, Taiwan business tax law does not require an overseas company to appoint a fiscal representative. However, depending on the business activities to be performed, according to other relevant Taiwan laws, it is required for an overseas company to establish a fixed place of business or appoint a business agent in Taiwan before commencing the business activities.

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VAT grouping

Is VAT grouping possible?


A business entity which engages in VAT-taxable activities only may apply for approval from the Ministry of Finance to combine the sales of goods or services of the head office and all branches, and file a consolidated tax return and report the tax payable or overpaid to the local collection authority-in-charge of the head office.


Can an overseas company be included in a VAT group?


No, please refer to the discussion in prior sections.

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Returns

How frequently are VAT returns submitted?


Generally, the VAT return is required to be filed bi-monthly. A company eligible for zero rate VAT may apply to file a monthly VAT return.


Are there any other returns that need to be submitted?


No. The following documents must be submitted along with VAT return:


  • a GUI (Government Uniform Invoice) listing
  • copies of GUI, receipts and other documents related to deductible purchase
  • zero rate sales report
  • other related supporting documents.

If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


Exchange rate at the transaction date is used to record sales and VAT amount invoiced in foreign currency.

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VAT recovery

Can a business recover VAT if it is not registered?


No, an entity not VAT-registered in Taiwan cannot claim VAT refund. One exception is that VAT may be refundable if it relates to a foreign company participating in exhibitions or conducting temporary business activities such as market investigation, training, procurement, etc. in Taiwan provided that certain conditions can be met.


In addition, foreign individuals may apply for VAT refund on goods purchased for NTD 3,000 or more. The goods must be bought from the same store in the same day, and should be brought outside of Taiwan within 30 days upon the individuals’ departure.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


Yes, as replied in previous question above if certain conditions are met.


Are there any items that businesses cannot recover VAT on?


In any of the following events, a business entity may not deduct the input tax against the output tax:


  • where the supporting documents, as set out in Article 33 herein, for purchased goods or services are not obtained or kept in the manner as prescribed under the laws and regulations.
  • the goods or services purchased are not for the use of principal and ancillary business operation. However, this requirement does not apply to purchases made for the support of national defense, provision of morale services to the troops, or contribution to the government
  • goods or services for social relations purposes
  • goods or services rewarded to individual employees
  • passenger cars for personal use.

Business entities engaging solely in the business of tax-exempt goods or services may not apply for refund of the input tax.


A business entity is prohibited from deducting a certain part of the input tax from the output tax because it engages on a concurrent basis in the business of tax-exempt goods or services. The ratio and calculation method related to the non-deductible amount shall be prescribed by the Ministry of Finance.

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International Supplies of Goods and Services

How are exports of goods and services treated?


Goods


An export of goods can apply zero rate sales.


Services


Services related to exports or services supplied within the territory of Taiwan but used outside of Taiwan can apply zero rate sales.


How are goods dealt with on importation?


The amount of business tax payable on imported goods shall be levied by Customs. With respect to the collection procedures and administrative relief of business tax, the provisions of the Customs Act and the Customs Smuggling Prevention Act shall apply mutatis mutandis.


How are services which are brought in from abroad treated for VAT purposes?


The business tax on services supplied by a foreign entity without a fixed place of business in Taiwan should be accounted for by the buyer. The buyer should report such purchase and calculate the related business tax on its business tax return. However, where the buyer is a business entity which engages in VAT-taxable activities only and where the purchased services are used solely in the conduct of business in taxable goods or services, no tax shall be owed; where the purchaser is partly engaged in business involving exempt goods or services under Article 8, paragraph 1, the proportion payable shall be determined based on the rules prescribed by the Ministry of Finance.


One exception is that for services to be used for education, research, or experiment supplied by a foreign entity without a fixed place of business in Taiwan to a school or educational or research institution, such business tax is exempt. This exception takes effect on 23 November 2011 and also applies to cases open as of that date.

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Invoices

Is a business required to issue tax invoices?


Yes. The business entity selling goods or services must issue GUIs to the buyer. There are some exemptions to this such as sales related to export of goods provided certain conditions are met and documentation is obtained. The GUI must be printed and sold by the government, or companies must be authorized to print their own GUI upon approval by the Ministry of Finance.


What do businesses have to show on a tax invoice?


Local invoice is named Government Uniform Invoice (“GUI”) and it is required to apply with local tax authority in hand-written form. Type of GUIs include triplicate uniform invoices, duplicate uniform invoices, special uniform invoices, cash register uniform invoices, and computerized uniform invoices. The GUI must contain the following particulars:


  • buyer’s registered name
  • business Administration Number (hereinafter BAN) of the buyer
  • the transaction date
  • description of transaction (products sold or services provided)
  • quantity
  • unit price
  • item subtotal
  • selling amount
  • tax category, tax amount
  • grand total of the transaction

Can businesses issue invoices electronically?


Yes, e-tax invoices or computerized GUI can be issued if a prior approval is obtained from local tax authority.


Is it possible to operate self-billing?


When a company turns its inventory for self-use, transfers the inventory to others without consideration, or uses its own inventory to reward its employees, if the input VAT of the inventory is already reported, the transactions is considered “deemed sales” and the company should issue a GUI to itself.


Can a business issue VAT invoices denominated in a foreign currency?


No, the GUI should be denominated in new Taiwanese dollar (NTD). There is currently no VAT regulations addressing the exchange rate to convert foreign currency transactions, but a newsletter dated 24 August 2004 issued by the Ministry of Finance provides rules about the exchange rate for export sales:


  • sale of goods: ­
    • goods exported with customs declaration: the exchange rate announced by customs on the date of declaration ­
    • goods exported through the post office or a courier: the exchange rate announced by the bank the seller deals with on the date indicated on the post office or courier's receipt
  • supply of export related service, or service provided in Taiwan but used outside of Taiwan: the exchange rate announced by the bank the seller deals with on the date of reception of the payment for the services rendered.

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Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?


Yes. If a sale of business qualifies as a transfer of business as a going concern in accordance with Business Mergers and Acquisitions Act, no VAT would be due on the transaction.

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Options to Tax

Are there any options to tax transactions?


N/A.

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Head Office and Branch transactions

How are transactions between head office and branch treated?


Transactions between the head office established in Taiwan and its branch(es) in Taiwan are non-supplies as they are regarded as one entity for Taiwan VAT purposes. However, the transactions between the head office overseas and its Taiwan branches, the invoices may be required.

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Bad Debt

Are businesses able to claim relief for bad debts?


No, the business entities are not allowed to claim VAT relief for bad debt written off.

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


No, there is no specific anti-avoidance related provision under VAT law. However, in any of the following circumstances, the collection authority-in-charge may assess the sales amount and tax payable of a business entity and levy the delinquent tax based on the data obtained from investigation:


  • where the sales amount has not been reported more than 30 days beyond the prescribed time limit
  • where accounting records have not been kept, where an entry has not been made in accounting records within the deadline prescribed by regulation and there has been a failure to make such entry after notification, where accounting records have been lost, where audit by the tax authority-in-charge is refused, or where false statements have been made in accounting records
  • where business operations have been commenced prior to appropriate registration, or where business has been continued after suspension of registration, and sales amount has not been reported in accordance with regulation
  • where the sales amount has not been reported or has been under-reported
  • where there has been a failure to issue uniform invoices or where the sales amount shown on uniform invoices has been understated
  • where uniform invoices have not been used, although required by regulation.

Where the sales amount reported by the business entity is found to be unusual, the collection authority-in-charge may, by referring to the circumstances of similar business and other information, determine the sales amount or tax payable and levy the delinquent tax.

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Penalty Regime

What is the penalty and interest regime like?


A taxpayer, failing to pay any tax or surcharge for belated filing or non-filing within the specified time limit, shall be subject to a 1 percent surcharge on late payment for every two days in arrears, starting from the day immediately following the date the time limit expires. The surcharge should be no more than 15 percent. If the payment is not made thirty days after the time limit, the competent tax authority may, in addition to referring the case to the court for compulsory execution, suspend its business.


Any amount of the aforementioned tax or surcharges shall be subject to interest charges calculated on a daily basis at the local bank's prevailing rate for one-year term time deposit. The period of time, during which interest shall be charged, shall start from the date immediately following the date the time limit for late payment expires, to the date the taxpayer makes payment, or to the date the compulsory collection is executed by the court.

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Tax authorities

Tax audits


How often do tax audits take place?


Generally, the local tax office is likely to initiate a tax audit in the following timing and situations:


  • about half a month after each bi-monthly VAT filing period: where the buyer of goods or services reported input VAT while the seller did not report output VAT
  • on a case by case basis:
    • ­ where a company has significant accumulated input VAT
    • where the tax authority conducted an income tax audit which impacted VAT.

Are there audits done electronically in your country (e-audit)? If so, what system is in use?


The Taiwanese tax authority uses certain in-house software to undertake data analysis to identify targets for tax audits; however, the tax audit itself generally doesn’t include the use of e-audit approaches.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


Yes. Where current laws are unclear about how taxes should apply to a specific situation or where the company would like to obtain a confirmation on a specific tax treatment, the company may apply for a ruling with the tax authority. This can be done under the company’s name or anonymously.


Are rulings and decisions issued by the tax authorities publicly available in your country?


Yes, on the Taxation and Tariff Committee, Ministry of Finance’s database: http://www.ttc.gov.tw/qp.asp?ctNode=97&CtUnit=40&BaseDSD=31


For newly issued rulings, please visit the Taxation Agency, Ministry of Finance’s database: http://www.ttc.gov.tw/qp.asp?ctNode=97&CtUnit=40&BaseDSD=31&qType=New

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


N/A.


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


No.

 

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