Taiwan: Taiwan Imposes VAT On Cross-Border E-Commerce Sales Of Digital Services And Goods

Last Updated: 1 August 2018
Article by Nicholas V. Chen and Kaian Yu

Beginning May 1, 2017, foreign businesses selling digital content and services to consumers in Taiwan must register as tax entities, issue government invoices, and timely report and pay VAT.

EXECUTIVE SUMMARY

On December 28, 2016, President Tsai Ing-Wen signed and promulgated into law a set of amendments to the Value-Added and Non-Value-Added Business Tax Act ("Business Tax Act"), which will require foreign enterprises without a fixed place of business in Taiwan selling services electronically to Taiwan consumers to register as a taxpaying entity and pay Value-Added Tax ("VAT") on sales. The scope of the amendment is broad, and will cover not only services such as travel booking and ride-sharing, but also digital goods such as music, movies, books, mobile apps, and online games. Foreign enterprises that must apply for tax registration and comply with the law are those with over NTD $480,000 in annual sales. Changes will take effect on May 1, 2017, after which businesses that fail to register or collect and pay VAT may be fined cumulatively until they comply. The current VAT rate applicable to most products and services sold in Taiwan is 5%.

The amendments are aimed at leveling the playing field between domestic and foreign e-commerce companies, as well as providers of digital content and applications, which had previously been exempt from the obligation to collect and pay VAT. While the new law appears to present some practical enforcement difficulties, foreign e-commerce firms can expect more efforts by Taiwan authorities in the future to protect domestic competitiveness.

BACKGROUND

Generally, all goods and services sold in or imported into Taiwan are subject to a VAT of 5% under the Business Tax Act. VAT is generally collected and paid by the seller on behalf of the purchaser at the time of sale, although buyers of services provided by foreign businesses without a fixed place of business in Taiwan are in principle obligated to voluntarily pay VAT to the tax authority. A seller's VAT obligation is tracked by Government Uniform Invoices ("GUI") that must be issued to the purchaser at the time of the sale. Under the law before it was amended, sales of services below NTD $3,000 by foreign enterprises without a fixed place of business in Taiwan were exempt from VAT.

Relationship to the Income Tax

Taiwan profit-seeking enterprise income tax is only imposed on businesses with a fixed place of business in Taiwan. Therefore, foreign e-commerce firms without a business need to physically operate in Taiwan are not subject to Taiwan income tax. This has not changed from prior law. Generally, Taiwan taxes the income of enterprises organized in any form operating through a fixed place of business at 17% for amounts at or above NTD $120,001, with an additional 10% profit retention tax on earnings that have not been distributed by the end of the following year. Profit-seeking enterprises residing in Taiwan (currently those formed or headquartered in Taiwan) are taxed on their worldwide income, subject to a credit for foreign income taxes paid, while non-resident enterprises (e.g., branches of foreign companies) are taxed only on their Taiwan-source income.

THE E-COMMERCE AMENDMENTS

The recent amendments to the Business Tax Act adds foreign enterprises with no fixed place of business within Taiwan selling electronic services to Taiwan individuals to the definition of Business Entities ("BE") under the Act. BEs are required to register with tax authorities, calculate the amount of business tax due on sales, file a return, pay taxes, or appoint a Taiwan tax-filing agent to handle such obligations. In contrast to other types of foreign businesses with no Taiwan presence, the business engaged in e-commerce, not the purchaser, is the party with the legal obligation to pay tax.

Definition of "Electronic Services"

"Electronic services" is not defined in the law and has not been clarified by regulation, but the Taxation Administration's press releases make clear that digital content and applications such as music and games, which might otherwise be thought of as goods, are squarely intended to be covered by the amendment. Providers of services such as online travel booking and mobile ride-sharing are all the more so within the coverage of the amendment; indeed, many such companies were invited to comment on the amendment during its drafting.

Threshold for Tax Registration

Foreign businesses with e-commerce sales of services above an annual threshold of NTD $480,000 must either register as a taxpayer and file tax returns bimonthly, or appoint a Taiwan agent to carry out their tax obligations, if they do not have a fixed place of business in Taiwan. It is not clear how the tax authorities will audit businesses to determine whether they meet the threshold, but past practice suggests payment processing records of credit card companies may be used for this purpose. Registration must be done prior to commencement of business operations.

Government Uniform Invoices

Businesses that register as a VAT-tax entity will receive a GUI number. All VAT-tax entities must issue GUIs to purchasers at the time of sale, which bear control numbers issued by the government. During the transition period between May 1, 2017 and December 31, 2017, while the government formulates implementation of the law change, overseas e-commerce businesses may self-report taxes due, and will not be required to issue GUIs.

Sales of Services Through Traditional Means or Sales to Legal Entities; Sales of Goods

For foreign businesses with no fixed place of business in Taiwan selling services to Taiwan other than through electronic channels, or to buyers other than individuals, the law remains the same – i.e., the obligation to compute and pay VAT is on the purchaser. However, services purchased by a business entity solely to conduct business in taxable goods or services are tax-exempt. The obligation to pay VAT on the purchase of goods from abroad remains on the importer, regardless of whether the transaction was conducted electronically or not.

ENFORCEMENT

Penalties for Noncompliance

A business entity that fails to register as a VAT-tax entity as required will be fined between NTD $3,000 and 30,000 and given a specified period of time for compliance. Businesses that fail to comply within the allotted time may be fined consecutively for each violation. Furthermore, a business entity that conducts business without registering for VAT may be pursued for taxes owed and fined up to five times the tax due, as well as ordered to suspend business. Those which continue to conduct business after suspension may be fined again. Other fines apply to enforce the timely payment of tax, accurate reporting of sales, the issuance of GUIs and their accuracy, and tax evasion generally. Taiwan agents appointed by foreign e-commerce businesses to be responsible for reporting and paying taxes under the new amendment are also made subject to penalties for non-compliance.

Enforcement Difficulties

It is unclear how the new tax obligation will be enforced against foreign companies without a business need for a permanent establishment in Taiwan, given that tax authorities have finite resources to pursue non-compliant taxpayers, and that courts of one country are generally reluctant to enforce the revenue laws of another. It is also unclear how businesses or the government can accurately determine when sales have been made to persons in Taiwan, as some users will likely attempt to circumvent efforts to collect VAT by using sites directed at other territories, location-disguising services, etc. Nevertheless, businesses that flaunt their tax obligations may be short-sighted in limiting their future potential to expand in Taiwan, as accumulated taxes and penalties cannot be expected to go away.

ACTION REQUIRED

Given the Business Tax Act amendment, foreign companies with no fixed place of business in Taiwan selling digital services to Taiwan individuals should do the following:

  • Restructure Transactions. A detailed review of a business's transaction structure should be done by Pamir to identify any opportunities to avoid VAT and withholding obligations. Where desirable, we may recommend that transactions be restructured so that the all or part of the sale of services is outside the scope of the law.
  • Comply or Appoint an Agent. To the extent transactions cannot be restructured, businesses must register with tax authorities, incorporate tax calculation and collection into their purchase workflows, implement electronic or paper GUI issuance and compliance in their platforms, comply with record-keeping requirements, and timely file returns and pay taxes due. Alternatively, businesses may appoint a Taiwan agent to comply with registration, filing, and payment obligations, but must still implement tax collection, invoicing, and record-keeping procedures to comply with the law. Pamir can help businesses navigate this foreign terrain.

Where a business need for a fixed place of business or agent in Taiwan exists, tax registration and other requirements would be the responsibility of the branch or agent. Income tax and other obligations would follow from having a permanent establishment in Taiwan. Finally, while it is unclear how tax authorities will overcome practical difficulties in enforcing the new tax obligation against foreign companies without a business need to be physically present in Taiwan, tax evasion is illegal and can entail criminal sanctions and reputational costs. Complete non-compliance is only possible for small businesses that intend to remain small.

Tax laws and regulations are complex, frequently changing, and their application depends on the facts of individual cases. No representation is made as to the accuracy or completeness of this document, or its relevance to your particular circumstances. The content of this document is not a substitute for competent legal advice. Please consult qualified tax counsel before taking any action or decision that may affect your rights or responsibilities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions