What documents should be obtained to claim the imported VAT and book the cost?
Importing goods into Taiwan requires proper documentation to ensure compliance with regulations and to claim the imported VAT and book the cost, there are specific documents that must be obtained when purchasing or importing goods from abroad.
When a Taiwan company purchases or imports goods from abroad, it shall obtain:
- the invoices of foreign companies,
- the import declaration issued by Taiwan Customs Administration, and
- proof and payment.
Without these documents, the tax authority will not recognize the cost of imported goods.
There are two common scenarios when importing goods into Taiwan, each with its own set of procedures for obtaining the necessary documentation.
Case 1: Ship via FedEx
If a foreign supplier ships small packages to a company in Taiwan via FedEx, the supplier will declare and prepay the tariff and VAT for the company under simplified declaration procedures. Upon payment, the company should receive a tariff declaration certificate (海關進口快遞貨物稅費繳納證明) issued by the Customs Administration.
Case 2: Ship via a forwarder or a logistics company
If a company uses a forwarder or logistics company to import goods, the forwarder will declare the tariff and VAT for the company under normal declaration procedures. The company will then receive the import declaration form (進口報單).
Customs levies 5% VAT to the importer
All imported goods are subject to VAT; secondly, since foreign sellers do not pay 5% VAT with the Taiwan government, the Taiwan government is unable to collect VAT through the foreign sellers, and therefore the Taiwan Customs collects VAT on behalf of the foreign sellers. In other words, the importer declares the price of the goods to the Customs Department at the time of importation and pays VAT to the Customs Department. The amount of input tax (VAT) paid to Customs can be offset against the output VAT generated from the sales in the future.
How to calculate the cost of imported goods?
Importing goods can be a complex process that involves various taxes and fees. To help our clients better understand the cost structure of imported products, we provide a formula for calculating the import tax, anti-dumping tax, VAT, and cost of the product. However, we advise you to confirm the import tax rates with your forwarder, as different products and goods from different countries may have varying import tax rates. For instance, textile-based products such as socks and towels may attract anti-dumping duties when imported from certain countries.
| Item | Formula |
|---|---|
| Import tax | Customs value (CIF: cost + insurance + freight to Taiwan) × import tax rate |
| Anti-dumping tax | Customs value (CIF) × anti-dumping tax rate |
| VAT | (Customs value (CIF) + import tax + anti-dumping tax [+ commodity tax, if any]) × 5% |
| Cost of product | Customs value (CIF) + import tax + anti-dumping tax |
The 5% VAT is paid to Customs but can be offset as input tax, so it is not a cost for a company registered for VAT.
Example: Suppose you import 10 KG pillowcases with a CIF value of 10,000. The import tax rate is 10.5% and the anti-dumping tax rate is 29.72%. Using the formula above:
| Item | Calculation | Amount |
|---|---|---|
| Import tax | 10,000 × 10.5% | 1,050 |
| Anti-dumping tax | 10,000 × 29.72% | 2,972 |
| VAT (paid to Customs and offset as input tax) | (10,000 + 1,050 + 2,972) × 5% | 701.1 |
| Cost of product | 10,000 + 1,050 + 2,972 | 14,022 |
An import declaration with three declaration behaviors and failure to declare them accordingly is subject to separate penalties
Filling out an import declaration involves three types of taxes at the same time: customs duty, goods tax and business tax; if you fail to file a true declaration, you will evade all three types of taxes at the same time, and you will be subject to penalties for each of the three types of taxes, and there is no such thing as “one line of work does not carry two penalties”.
Importer/Exporter Registration with the International Trade Administration
Before importing or exporting, you should register as an importer/exporter with the International Trade Administration. There are some points to note:
Q: Do I have to register as an importer/exporter before importing?
Yes, according to Article 9 of Trade Law, “A company or a firm registered as an importer/exporter by the International Trade Administration may engage in the business of importing and exporting goods”. The information system of the Customs and Excise Department (C&ED) is connected with the International Trade Administration. If a company is not registered with the International Trade Administration, the C&ED will not be able to find out the company’s information and your logistics can’t clear customs for your company.
The consequence when declaring a low/high value on importing/exporting goods
Undervaluing exported goods can have several consequences, both for the exporting company and the importing country. It’s important to note that these consequences can vary depending on the specific regulations and laws of the countries involved. We would like to discuss the tax implication that undervalues customs declaration when importing and exporting.
Case 1: Undervalue the export goods
You may have been asked by your foreign clients to declare a lower value. Since the customs duties in most countries are calculated on a percentage of the good’s value, your foreign clients can pay less tariff if the values of goods are lower.
According to Customs Anti-smuggling Act article 37, If a person who reports goods for export is involved in one of the cases mentioned in the preceding paragraph, he/she shall be fined not more than NT$3 million and his/her goods may be confiscated. In the case of evasion of control, the penalty shall be by the first and third paragraphs of the preceding Article.
Processed exported goods with imported raw materials tax refunded and exported are subject to a fine of up to five times the amount of tax refunded and the goods may be confiscated.
Case 2: Undervalue the import goods
Sometimes a foreign supplier offers to show a lower price on the invoice, so that the importer pays less import duty and VAT, with the rest of the price paid separately. This is a false declaration of value.
Under Article 37, paragraph 1 of the Customs Anti-smuggling Act, an importer who misstates the value of imported goods may be fined up to five times the import duty evaded, and the goods may be confiscated. Because the same import declaration also determines the VAT and any commodity tax collected by Customs, the evaded VAT and commodity tax are recovered and penalized separately under those tax laws.
There are income tax consequences as well. The cost of imported goods is supported by the supplier’s invoice, the import declaration and proof of payment. Any amount paid to the supplier on top of the declared value has no matching import declaration, so the tax office may refuse to recognize it as a cost. Payments abroad that do not match the import declarations can also be questioned by the bank and the tax office.