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Provisional Income Tax in Taiwan and tax relief
Companies registered in Taiwan or the Taiwan branches of foreign companies are required to pay, on the 30th day of September each year, an amount of tax equal to 50% of the income tax on their previous year's tax return.
Provisional income tax is the prepaid tax payment that the company can deduct the tax payable with the paid provisional tax payment when they file the current year's tax return.
Q: In the event that the financial performance in the first half of this fiscal year is less favorable this year due to economic factors or other influences, is it still imperative to remit such a substantial sum in provisional taxes?
A: If a Tax Attestation Report for provisional taxation for the company for the first half of the year and if provisional reporting is carried out as scheduled, it is permissible to calculate the provisional tax amount based on the profit during the first six months of the current fiscal year, in accordance with the provisions of the Income Tax Act pertaining to income tax for profitable enterprises.
At Songjer CPA, in addition to notifying clients of their provisional tax obligations, our primary function is to assist clients in a comprehensive review of the financial statements for the first half of the fiscal year. We meticulously compare the reports from January to June with the figures from the previous fiscal year. If we observe that the current year's financial performance doesn't align with the previous year's, we engage in a thorough assessment and conduct discussions with our clients regarding the suitability of obtaining a Tax Attestation Report for provisional taxation.
Suppose the profit in 2022 amounted to $1,200,000, resulting in a tax liability of $240,000. Under the standard provisional tax rules, the company would be required to pay 120,000 for the current fiscal year.
That is 240,000 X 50% = 120,000
However, if the profit for the first six months of the year only amounts to $400,000, the company can engage a certified public accountant to issue a Tax Attestation Report. This would reduce the tax obligation to just 80,000
That is 400,000 * 20% = $80,000.
Relief for provisional tax during Covid-19
Relief for 2023 provisional tax
The company may apply for an exemption from the provisional corporate income tax for the fiscal year 2023, by submitting an application from September 1 to October 2, 2023, and relevant supporting documents to the local National Taxation Bureau:
The company's business has experienced a sudden decline in revenue within a short period due to the impact of the pandemic. For example, if the average monthly revenue for two consecutive months starting from January 2020 or the revenue for any single month has decreased by 15% compared to the average revenue for the six months preceding December 2019 or the average revenue for the same period in 2017.
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