Taiwan is getting serious on taxing the digital economy. Details in the country’s new digital Value Added Tax (VAT) legislation includes the possible loss of a license for non-compliant foreign businesses.
The rules mean foreign businesses supplying digital services (e.g. video gaming, streaming, image downloads, etc) will have to register for VAT in Taiwan, file VAT returns, and pay VAT to the Taiwan Tax Administration.
From May 1 the taxation of digital services supplied by a foreign-based business to a consumer based in Taiwan changes. From this date on it is the responsibility of the business to comply with the new rules. Non-compliance, as revealed recently, is not an option.
International trend of digital taxation
The adoption of this type of indirect taxation model is part of a growing international trend.
Taiwan is the latest tax jurisdiction to enact such a taxation shift by introducing these place of consumption rules. In a press release heralding the legislative change the Taiwan government stated that the reasons for doing so was “in order to respond to international trend and for the government to control tax sources.”
Similar rules have already been implemented worldwide. Since the start of 2017 Russia (on January 1) and Serbia (on April 1) have introduced such provisions in their VAT laws. Australia is set to similarly amend its Goods and Services Tax (GST) system on July 1.
Taiwan is also the latest jurisdiction to follow the VAT guidelines as recently endorsed by the OECD. The new Taiwanese rules follow the OECD recommendation for foreign businesses to register for VAT and file VAT returns in Taiwan.
Another significant change in Taiwan’s VAT law is that it no longer matters where the supplier of a digital service is based as the tax rate is calculated on the location of the consumer. Again, this approach is consistent with recommended OECD guidelines on taxing the digital economy.
Audit threat and penalties
As stated in our introduction Taiwan is getting serious as regards taxing the digital economy. Taiwan as a tax jurisdiction is active in the regard of inspections and audits, for example the National Taxation Bureau is currently inspecting online business transactions.
Once these new place of consumption rules become law on May 1 there is a possibility that audits will be extended to suspected non-compliant foreign companies. Registered companies need to store information relating to sales (i.e. invoices) for a significant period of time. This is information that can, by law, be requested by the Taiwan Tax Administration for audit purposes.
Taiwanese penalties for non-compliance range from up to five times of the amount of VAT due to loss of a license to operate.
Partner with Taxamo
Hand Taxamo all your Taiwan VAT liabilities so you don’t have to:
- Register with the Taiwan Tax Administration
- File Taiwan VAT returns
- Settle your VAT liabilities in New Taiwan Dollar to Taiwan’s National Taxation Bureau
- Comply with local VAT rules
Taxamo aims to support every country which brings in destination-based VAT for digital sales.
We know every business is different, we use this knowledge to create bespoke solutions for each partner. By partnering with Taxamo you get full access to the Taiwan digital market.
Remember, we look after your global VAT liabilities so you can continue to sell your services.
Note: Taxamo content is created for guidance only, please consult your local tax advisor.