Filing your Profit-Seeking Enterprise Income Tax in Taiwan involves more than just crunching numbers. To ensure compliance and optimize your tax liability, it’s essential to understand what expenses and losses can legally be deducted — and, more importantly, what can’t. Misreporting deductions can lead to penalties, audits, or rejected filings.
This article walks you through key types of expenses and losses that cannot be deducted under Taiwan’s tax regulations, common mistakes businesses make, and practical strategies to stay on the right side of the law.
Non-Deductible Expenses and Losses: Know the Limits
While many business-related costs may seem deductible at first glance, Taiwan’s Income Tax Act and related guidelines place clear restrictions on certain types of spending:
1. Conditionally Deductible Expenses
Some costs can be deducted, but only if specific conditions are met:
- Interest payments
- Employee pensions
- Donations
- Entertainment expenses
- Bad debt losses
- Depreciation and amortization
- Travel, meals, and staff welfare
Each of these requires proper documentation and must directly relate to your business operations. For instance, donations are deductible only when given to qualified organizations. Entertainment and travel expenses must be reasonable and properly recorded, with clear business purposes stated. If these expenses appear excessive or unrelated to daily operations, they may be disallowed by tax authorities.
2. Explicitly Non-Deductible Items
According to Article 38 of the Income Tax Act and Article 42-1 of its Enforcement Rules, the following cannot be deducted:
- Household or personal expenses
- Fines and penalties (e.g., traffic tickets)
- Losses not related to core or subsidiary business activities
So, if you’re trying to deduct your home’s utility bills, or a fine from a labor inspection, these will be disallowed. It’s important to separate private spending from business finances — a common issue especially for sole proprietors and family-run companies.
3. Unrealized Losses
Under the “Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax” (Article 63), unrealized losses — such as investment declines that haven’t been sold or inventory markdowns without verification — generally cannot be claimed. However, exceptions apply:
- Inventory devaluation losses may be allowed if properly assessed and supported by inventory records and market data.
- Short-term investment losses can be deductible, but only if they are realized or based on credible valuation methods confirmed by accountants or financial reports.
3. Improper or Missing Documentation
Receipts or proof of payment are critical. Per Article 67 of the same regulations:
- If there are no original receipts, or if the receipt lacks required information, the expense is non-deductible.
- The only exception is when the business can provide other valid evidence (such as contracts, bank statements, or third-party confirmations) and the expense is verified by the tax office. For example, if an overseas supplier fails to provide a proper invoice, a signed contract and remittance record might still be acceptable.
Common Mistakes That Lead to Deductions Being Rejected
Many businesses, especially small and medium-sized enterprises (SMEs), lose out on valid deductions or run into trouble because of these common issues:
- Failing to report certain losses on time, such as inventory damage or natural disaster losses
- Using invalid or personal receipts to justify business expenses
- Recording unrealized investment losses as actual expenses
- Over-reporting entertainment or travel costs without a clear business reason
Not keeping backup copies of receipts or supporting documents, especially for older transactions
These mistakes not only risk deduction rejections but may also trigger tax audits and create additional administrative burdens.
Best Practices to Stay Compliant and Avoid Penalties
To make sure your tax return is safe from red flags:
- Maintain complete and valid receipts for all expenses
—Aways request government-compliant invoices (統一發票) in Taiwan. Keep digital backups in case of audit.
- Separate personal and business spending
—Avoid paying business costs from personal accounts, or vice versa.
- Stay updated on tax law changes
—Taiwan’s Ministry of Finance regularly updates relevant tax rules. Make sure your team knows them.
- File special losses (like inventory write-offs or disaster losses) promptly
—These often require pre-approval or timely reports to the tax authority.
- Consult with a certified accountant or tax advisor
—Especially if you’re unsure about classifying an expense or loss.
Conclusion: Know the Rules to Protect Your Business
Properly deducting expenses in your business tax filing is not just a matter of saving money — it’s also about protecting your company from audits, fines, and compliance risks. By understanding what can and can’t be deducted, documenting everything clearly, and following Taiwan’s tax laws closely, you’ll ensure smoother filing and better financial control.
Whether you’re a small startup or a large enterprise, a clear grasp of deductible vs. non-deductible expenses gives you a solid foundation for long-term success and peace of mind.
