As May approaches, tax filing season begins. If you’ve recently started a business, terms like Business Income Tax and Business Tax may seem confusing. Filing taxes correctly is crucial for compliance and financial health. This guide explains what Business Income Tax is, how to file it, and how it differs from Business Tax.
Business Income Tax vs. Business Tax
Many new entrepreneurs confuse Business Income Tax with Business Tax. Business Tax is a consumption tax collected from consumers when they purchase goods or services. Businesses function as intermediaries, collecting taxes from customers and transferring them to the government. The general Business Tax rate is 5% in Taiwan. Businesses usually add this tax to the sales price, meaning the actual tax is paid by consumers, not the business itself.
On the other hand, Business Income Tax is levied on a company’s net income. This tax applies to all profit-seeking enterprises operating in Taiwan. If a company’s headquarters is in Taiwan, it must pay taxes on both domestic and foreign income. Conversely, if a company is based outside Taiwan but earns income from Taiwan, it is still required to pay Business Income Tax.
What Is Business Income Tax?
Business Income Tax, officially called “Profit-Seeking Enterprise Income Tax,” applies to businesses generating profit. The filing period is from May 1st to May 31st each year. All profit-seeking enterprises operating in Taiwan are subject to this tax. The amount payable depends on the company’s net earnings after deducting expenses and losses.
The current Business Income Tax rates in Taiwan are:
- 0% for companies with taxable income below NT$120,000
- 20% for companies with taxable income exceeding NT$120,000
For businesses distributing earnings to shareholders, an additional 5% Undistributed Earnings Tax may apply if the earnings are not allocated by the following year.
Three Ways to File Business Income Tax
The government provides three tax filing methods based on company size and revenue.
1. Simplified Filing (Expanded Paper-based Review)
This method is for small and medium-sized enterprises (SMEs) with annual revenue below NT$30 million. Instead of detailed financial reports, taxable income is estimated using a fixed profit ratio:
(Annual Net Operating Revenue + Annual Non-operating Income) × Applicable Profit Ratio
For businesses with incomplete accounting records, this method can simplify tax filing and reduce the risk of audits. However, it may result in higher tax payments compared to actual profits. Businesses should evaluate whether using this method is beneficial.
2. General Filing (Audit-based Filing)
For companies with annual revenue exceeding NT$30 million, taxable income is calculated as:
Total Revenue – (Total Costs + Expenses + Losses)
This method allows for accurate taxation based on actual business performance. If a company incurs a loss for the year, no tax is due. However, companies must maintain detailed financial records, and incorrect filings may lead to penalties or audits by the tax bureau.
3. Certified Filing (Tax Certification)
For large enterprises with revenue over NT$100 million, this method provides additional tax benefits. While the calculation is like General Filing, the key advantage is the ability to offset profits and losses across different years, which can help reduce tax liabilities. However, companies must engage a certified public accountant (CPA) for verification, which adds extra costs.
How to Check Your Tax Filing Status
After submitting your Business Income Tax return, you can verify the status online:
- Visit the Ministry of Finance’s Tax Portal and select “Online Services.”
- Click “Online Application Status Inquiry” and enter your email and case number.
The system will display your tax filing progress, including whether the return has been successfully received, reviewed, or if further action is required.
Common Mistakes to Avoid When Filing Business Income Tax
Many businesses make errors when filing taxes, leading to penalties or audits. Here are some common mistakes to avoid:
- Incorrect Classification of Expenses
Certain business expenses are deductible, but personal expenses cannot be included. Ensure that only legitimate business expenses such as rent, salaries, and office supplies are claimed. - Failure to Report All Income
Some businesses mistakenly omit revenue from secondary income sources, such as investment returns. All revenue sources should be declared to avoid legal consequences. - Missing the Tax Filing Deadline
Late filings result in penalties and additional interest charges. Mark your calendar and file taxes before May 31st to avoid fines. - Lack of Proper Documentation
Maintaining organized financial records is crucial. The tax authorities may request receipts and invoices to verify reported income and expenses.
Tax Filing Tips for Entrepreneurs
Filing Business Income Tax correctly can help businesses avoid penalties and optimize tax planning. Here are some essential tips:
- Keep Accurate Financial Records – Well-organized bookkeeping ensures correct tax calculations and minimizes errors.
- Understand Deductible Expenses – Costs such as rent, salaries, and operational expenses can be deducted to reduce taxable income.
- Use the Right Filing Method – Choosing between Simplified, General, or Certified Filing depends on company size and financial structure.
- Seek Professional Advice – Consulting a CPA or tax professional can help optimize your tax strategy.
Conclusion
Understanding Business Income Tax is crucial for entrepreneurs to stay compliant with tax regulations and manage finances effectively. Choosing the right tax filing method can help companies reduce administrative burdens and optimize tax payments. By keeping accurate records, avoiding common mistakes, and filing taxes on time, businesses can ensure smooth operations and focus on growth.
