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3. Value Added Tax (VAT) overview

 

Scope of Taxation

 

Except for entities subject to Non-VAT, all business entities fall within the scope of the VAT system. VAT is levied according to the value-added to goods or services at each stage in the production and distribution chain (see below for a sample calculation of VAT).

 

Tax Rate

 

The VAT rate is 5%.

 

Applicable Zero-Rated VAT

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The following sales of goods and provision of services are zero-rated:

(1)Exported goods;

(2)Services relating to exports or services provided in Taiwan but used in a foreign country;

(3)Goods sold to outbound or transit passengers by duty-free shops established under applicable law;

(4)Goods or services sold to a "bonded zone" business entity for its operational use;

(5)International transportation, although foreign transport enterprises engaged in international transport within the territory of

Taiwan will qualify for the zero tax rate only if reciprocal treatment or an exemption from similar taxes is granted to international transport enterprises of Taiwan by the foreign country in which the foreign enterprise is incorporated.

(6)Vessels and aircraft used in international transportation and deep-sea fishing boats;

(7)Sales of goods and maintenance services to vessels and aircraft used for international transportation and deep sea fishing vessels;

(8)Goods sold by a bonded zone business entity to a taxable zone business entity and exported directly without being transported to the taxable zone;

(9)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 an FTZ or by Customs.​

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"Bonded zone" means an EPZ, a science park, an agricultural technology park, or an FTZ approved by the government, or a bonded factory, bonded warehouse, or logistics center administered by customs, or any other designated area approved for establishment by the competent authority in charge of the relevant industry and supervised by customs.

 

"Bonded zone business entity" is an enterprise inside an EPZ, a science park, an agricultural technology park, or an FTZ that has been approved by the government, and also means a bonded factory, bonded warehouse, or logistics center administered by customs, or an enterprise inside any other designated area approved for establishment by the competent authority in charge of the relevant industry and supervised by customs. "Taxable zone business entity" is a business entity other than a bonded zone business entity.

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Refund of Overpaid VAT

 

The amount of overpaid VAT claimed by a business entity will be refunded after verification by the tax authorities when:

(1)The overpaid VAT is on goods or services subject to 0% VAT;

(2)The overpaid VAT is on purchased fixed assets; or

(3)The VAT overpayment is made by a business entity that has submitted an application for the cancellation of business registration due to a merger, business transfer, dissolution, or cessation of business.

 

Overpaid VAT resulting from circumstances other than the above may be offset against future business tax payable. Business entities with special situations can request approval from the MOF to receive tax refunds.

 

VAT Calculation

 

Output VAT
Output VAT is the amount of VAT to be collected at the time goods are sold or services are provided. The sales amount is all compensation received from the sale of goods or the provision of services, including any expense reimbursements other than the selling price of goods or services sold.

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Input VAT
Input VAT is the VAT paid by a business entity at the time goods or services are purchased.

• Creditable VAT

  • To qualify for creditable VAT, business entities must maintain the following documents which include their names, addresses and business administration numbers:

    • GUI specifying the VAT paid on purchases of goods and services.

    • GUI specifying the amount of VAT issued by the business entity itself in circumstances that are deemed to be sales of goods or services.

    • Other documentary evidence specifying amounts of VAT and approved by the MOF.

  • To qualify for creditable VAT, business entities that are permitted to deduct input VAT from output VAT must maintain the following documents that include their names, addresses and business registration numbers:

    • A GUI specifying the VAT paid on purchases of goods and services.

    • A GUI specifying the amount of VAT issued by the business entity itself in circumstances that are deemed to be the sale of goods or services.

    • Other documentary evidence specifying the amount of business tax and approved by the MOF.

• VAT Credit
  Input VAT paid may be credited against output VAT, and if the input VAT exceeds the output VAT (resulting in overpaid VAT), the business entity will have a VAT credit.

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VAT filing 

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VAT returns must be filed bimonthly before the 15th day of the following period and tax due must be paid at that time. The VAT filing date is the 15th day of every odd month; e.g. a VAT return for January and February must be filed and VAT paid before March 15.

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Not all GUI you get can be deductible

 

In any of the following events, a company may not deduct VAT:

(1)The goods or services purchased are not for the use of principal and ancillary business operations. 

(2)Goods or services for social relations purposes. The business meal, travel expenses, and accommodation expenses are also not VAT deductible.

(3)Goods or services rewarded to individual employees.  Employee benefits, prizes or gifts to employees, staff catering and purchase of main and auxiliary food, are also not VAT deductible.

(4)Passenger cars for personal use, except for business trucks.

(5)The invoices from other countries are not deductible.  

(6)Receipts, rent, and salary cannot be deducted, because there is no VAT paid.

 

Invoicing requirements

 

It is relevant for your business to comply with the invoicing requirements to prevent penalties. Furthermore, your customer, being the recipient of an incorrect GUI, may experience difficulties reclaiming VAT deduction on the incorrect invoices it received.  The specific information that a legit GUI should include:

 

(1)Date of issuing the invoice

(2)A sequential number that is already printed on a Uniform Invoice

(3)Your company's VAT identification number 

(4)The VAT identification number of your customer (if your customer is a company)

(5)Your company name and address as well as the full name of your customer

(6)The product name, quantity, and price of the goods and services 

(7)The date the goods were supplied or the services were rendered