Zero-Rated VAT on Exported Services in Taiwan

In Taiwan, many companies offer professional services such as design, consulting, marketing, or research reports to overseas clients. When the client is located outside Taiwan and the services are ultimately used abroad, the company may apply to the local tax office for zero-rated VAT on exported services.

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The core requirement is that the service must be provided in Taiwan but used abroad. Therefore, during review, the tax authority will specifically check two things:

1. How the service was delivered to the overseas client.

2. How the overseas client actually used the service.

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Example 1- Eligible for Zero-Rated VAT

A Taiwanese company is commissioned by a foreign ecological research institute to produce a report on insect ecology in Taiwan. Although the research subject is in Taiwan, the final report is delivered by email to the foreign client and used abroad. In this case, even though the research object is domestic, the transaction still qualifies for the zero-rated VAT policy.

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In other words, as long as the service is used outside Taiwan, it meets the criteria. How the overseas client subsequently uses the information does not affect eligibility.

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Example 2- Eligible for Zero-Rated VAT

A Taiwanese IT company develops customized software modules based on the specifications of a U.S. client. All programming work is performed in Taiwan, but the completed software is delivered online to the U.S. client and integrated into their systems abroad.
Since the service is provided in Taiwan but used outside Taiwan, this transaction qualifies for zero-rated VAT.

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Example 3- Ineligible for Zero-Rated VAT

A Taiwanese company provides marketing services for a U.S. company selling mobile phones in Taiwan. Although the service contract is signed with a foreign client, the actual marketing activities (such as advertising campaigns, promotional events, and customer outreach) are conducted to promote sales in the Taiwan market. Because the services are consumed domestically, they do not meet the requirement of being “used abroad” and therefore do not qualify for zero-rated VAT.​

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Difference Between Zero-Rated and Exempt VAT

In practice, many people confuse “zero-rated” with “exempt,” but they are very different:

• Exempt: When selling exempt goods or services, VAT is not charged. However, the 5% VAT included in supplier invoices cannot be claimed or refunded. This means input VAT becomes a cost.

• Zero-rated: Although the sales tax rate is 0%, input VAT can still be credited and even refunded within the prescribed limits. Therefore, zero-rated treatment is more favorable, as it provides a complete relief from VAT costs.

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Required Documents for Application

When applying for zero-rated VAT on exported services, companies typically need to prepare:

1. A contract with the foreign client stating the service scope, duration, fee, and payment method.

2. Invoice issued by the Taiwanese company to the foreign client.

3. Remittance slip proving receipt of foreign currency.

4. Service description explaining how the service was provided and how the client used it abroad.

Common Pitfalls

Myth 1: Zero-rated VAT means no business income.
In reality, income from zero-rated services must still be included as business revenue and reported for income tax purposes.

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Myth 2: Any foreign exchange income qualifies.
Some companies assume that as long as the client is overseas and foreign currency is received, zero-rated VAT applies. This is incorrect — the key is where the service is used. If both the provision and use are in Taiwan, zero-rating does not apply.
 

Example:

A UK company sells machinery to its Taiwan customers and commissions a Taiwanese company to provide maintenance and testing services for that machinery. Even though the Taiwanese company receives payment in foreign currency, the services are performed in Taiwan and consumed in Taiwan. Therefore, the transaction is subject to the standard 5% VAT rate and does not qualify for zero-rating.

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Myth 3: Commission income can be treated as zero-rated.

Some companies believe that as long as the commission is paid by a foreign party, it qualifies for zero-rated VAT. This is incorrect. Commission income is treated differently from exported services.

When a Taiwanese company acts as a middleman — for example, introducing local buyers in Taiwan to foreign suppliers — the actual service (matchmaking, negotiation, or business facilitation) is performed and consumed in Taiwan. The fact that the payment comes from abroad does not change the place of consumption. Therefore, such commission income is subject to 5% VAT in Taiwan and cannot be zero-rated.

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Example:
Company A assists Company B in importing plastic raw materials from a foreign supplier (Company X). For this, Company A receives a commission paid in foreign currency by Company X. Although the income is paid from overseas and received in foreign exchange, the underlying service (introducing and facilitating the import transaction) is performed and used in Taiwan. Since the service is not related to the export of goods or services, the commission income does not qualify for zero-rated VAT. Company A must still issue a taxable uniform invoice and apply the standard 5% VAT rate.

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Myth 4: Agency services for overseas schools qualify.
For example, if a company in Taiwan helps a student apply to a U.S. university and receives commission from the school, the service is provided domestically and VAT must be charged.

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Myth 5: Maintenance or inspection for imported equipment qualifies.
If a foreign company asks a Taiwanese company to maintain or test equipment imported into Taiwan, the service is used in Taiwan and does not qualify for zero-rated VAT.

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Do Zero-Rated Services Require Invoices?

Although zero-rated goods and services technically do not require issuing a uniform invoice, it is recommended to issue a two-copy zero-rated invoice to avoid underreporting of income.

Practical Challenges

Even when the legal criteria are met, tax authorities may reject applications if the company is registered at a business center. While not stated in law, this issue occurs frequently in practice.

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Official Interpretations

• Services provided in Taiwan but used abroad can qualify for zero-rated VAT (Ministry of Finance Ruling No. 800120233, 1991).

• Commissions earned for introducing domestic buyers to overseas suppliers do not qualify

• Commissions from overseas publishers for soliciting ads from Taiwanese companies are taxable at 5% VAT (Ruling No. 7525151, 1986).

Conclusion

Zero-rated VAT on exported services is a valuable tax benefit, but the key test is whether the service is used abroad. By preparing contracts, invoices, remittance evidence, and a clear explanation of service use, companies can improve their chances of approval. Conversely, if the income is commission-based or the service is used domestically, zero-rating does not apply and VAT must be paid.

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