About business tax
In Taiwan, the sale of goods or services, as well as the importation of goods, is subject to value-added or non-value-added business tax. Its fundamental nature is that of a “consumption tax,” meaning the concept of “the consumer pays the tax,” and not the common misconception that the company bears the tax burden. The business tax is also classified into different categories— “taxable,” “zero-rated,” and “exempt”—depending on the content and nature of the goods or services being sold.
What does zero rate mean in business tax?
The business tax rate applicable to the sale of goods or services is zero. Since the output tax amount is zero, if there is an excess tax amount, it can be refunded within the limits set for tax refunds after being verified by the competent tax authority.
The business tax rate is zero for sale of the following goods or services:
- 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.
Documents required for the zero rate
Businesses applying the zero rate must possess the following documents:
- For goods exported, except for those reported to customs for export that do not require attached proof documents, a photocopy of the international parcel receipt issued by a postal authority.
- For labor related to exports or labor provided domestically but used overseas, if foreign exchange is obtained through settlement or deposited in a government-designated bank, a foreign exchange certificate issued by the government-designated foreign exchange bank is required.
- For sales made by duty-free shops to transit or departing travelers, an electronic media-stored sales slip approved by the regulatory customs containing the passport or travel document numbers of the transit or departing travelers is required. However, for duty-free shops located within the controlled areas of international airports or ports, the sales slip may omit the passport or travel document numbers.
- For sales of goods to the duty-free zone, enterprises within science parks, or bonded factories or warehouses under customs management, a certificate of deemed export issued by customs or a uniform invoice from respective business, factory, or warehouse is required.
Is the sale of services to foreign companies always eligible for the zero business tax rate?
According to Taiwan Business Tax Act, services related to exports or services provided domestically but used abroad are eligible for the zero tax rate. The definition of “services related to exports” is relatively clear. However, in practice, there are often differences in interpretation between businesses and tax authorities regarding “services provided domestically but used abroad.” When domestic businesses sell services to foreign companies and receive foreign exchange income from the buyers, they often believe that they meet the criteria for “services provided domestically but used abroad” and thus can apply the zero tax rate. However, tax authorities tend to assess the actual benefit location of the service, reviewing each case’s specific circumstances and supporting documents to determine whether the service was indeed used abroad. It is not sufficient to merely prove that the service buyer is located abroad and provide foreign exchange receipts.
If a business applies the zero tax rate when filing but the tax authority, upon reviewing the case and the supporting documents, concludes that the service was not used abroad and should be taxed at the 5% business tax rate, this may result in underpayment of business tax. In addition to paying the tax difference, penalties may also be imposed.
Conclusion
Companies should exercise caution when applying the zero tax rate to “services provided domestically but used abroad.” They should first evaluate whether their specific case and supporting documents comply with the relevant tax regulations and published guidelines. For unclear cases, businesses can request a ruling from the tax authority or apply the 5% business tax rate initially and then submit supporting documents for the zero tax rate to request confirmation and a refund from the tax authority, thereby safeguarding your rights.
