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2023-12-18Zero Tax Rate for Taiwan Companies
For encouraging exports, the export of physical products or services are applicable to zero tax rate of business tax in Taiwan. That is, the income earned from sales of exports is not only applied to zero tax rate but also refunded the input tax in full. The business tax can be exempted from imposition for encouragement of earning foreign currencies.
However, for zero tax rate applied to exports of labour forces in practices, although such encouragement is stated clearly in articles, the explanation of ordinances for both parties is different all the time. According to the article 7th in Business Tax Act “Services relating to export or services provided in the R.O.C. but used in a foreign country is applicable to zero tax rate”. The basis of labour forces “provided in the R.O.C. but used in a foreign country” is hard to judge, or the view of recognition for both parties is discrepant.
Here are some cases to discuss if the article 7th in Business Tax Act aforementioned are applicable or not:
Case 1
Taiwan company A introduces foreign company A to Taiwan company B to import its ingredients and receives the commission fees from foreign company A. Is the labour forces income received by Taiwan company A applied to the article 7th in Business Tax Act?
The answer is negative. Although the labour forces income from foreign countries, the act of labour forces is not attributed to exports or services provided in Taiwan but used in foreign countries. The income is not applicable to zero tax rate and is required to issue an uniform invoice with 5% business tax rate.
Case 2
Taiwan company A sells the foreign potent rights to Taiwan company B. Is the labour services income (royalties) received by Taiwan company A applicable to article 7th in Business Tax Act?
The answer is negative. Despite of the potent right registered in foreign countries, the Place of Provision is from Taiwan and the buyer is from Taiwan as well, so the “Place of Provision” and “Place of Use” are all situated in Taiwan. The labour forces should be attributed to “Taiwan domestic labour forces” to impose the business tax.
Case 3
Taiwan company A provides electronic data escrow services to foreign company A. Foreign company A can use the services provided by Taiwan company A remotely. Is the labour forces income received by Taiwan company A applied to the article 7th in Business Tax Act?
The answer is positive. The principle of taxation for Value-added and Non-value-added Business Tax Act is applied to the place of use. Foreign company A can use the services provided by Taiwan company A remotely, which is not within the coverage of taxation on sales of labour forces. In addition, the buyer (Foreign company A) without a permanent business place within Taiwan and the purchased services without a physical place to use (via Internet) is applicable to zero tax rate in accordance with the letter No. 09404532300 on May 5, 1994 promulgated the "Network Transaction Levy Business Tax and Income Tax Specification" and No. 10600549520 on April 24, 2010 promulgated "Cross-border Electronic Service Transaction Levy Business Tax Regulations" Regulation.
In conclusion, first of all, according to the code 1st of item 2nd at article 4th in Business Tax Act, “Where services sold are supplied or utilized within the territory of the R.O.C.” means the recognition of labour forces sales is by “Place of Provision” and “Place of Use”. Secondly, according to the item 2nd at article 7th in Business Tax Act,” Services relating to export or services provided in the R.O.C. but used in a foreign country” is applicable to zero tax rate, which means the “Place of Provision” is within the territory of Taiwan but the “Place of Use” is outside the territory of Taiwan.
However, for zero tax rate applied to exports of labour forces in practices, although such encouragement is stated clearly in articles, the explanation of ordinances for both parties is different all the time. According to the article 7th in Business Tax Act “Services relating to export or services provided in the R.O.C. but used in a foreign country is applicable to zero tax rate”. The basis of labour forces “provided in the R.O.C. but used in a foreign country” is hard to judge, or the view of recognition for both parties is discrepant.
Here are some cases to discuss if the article 7th in Business Tax Act aforementioned are applicable or not:
Case 1
Taiwan company A introduces foreign company A to Taiwan company B to import its ingredients and receives the commission fees from foreign company A. Is the labour forces income received by Taiwan company A applied to the article 7th in Business Tax Act?
The answer is negative. Although the labour forces income from foreign countries, the act of labour forces is not attributed to exports or services provided in Taiwan but used in foreign countries. The income is not applicable to zero tax rate and is required to issue an uniform invoice with 5% business tax rate.
Case 2
Taiwan company A sells the foreign potent rights to Taiwan company B. Is the labour services income (royalties) received by Taiwan company A applicable to article 7th in Business Tax Act?
The answer is negative. Despite of the potent right registered in foreign countries, the Place of Provision is from Taiwan and the buyer is from Taiwan as well, so the “Place of Provision” and “Place of Use” are all situated in Taiwan. The labour forces should be attributed to “Taiwan domestic labour forces” to impose the business tax.
Case 3
Taiwan company A provides electronic data escrow services to foreign company A. Foreign company A can use the services provided by Taiwan company A remotely. Is the labour forces income received by Taiwan company A applied to the article 7th in Business Tax Act?
The answer is positive. The principle of taxation for Value-added and Non-value-added Business Tax Act is applied to the place of use. Foreign company A can use the services provided by Taiwan company A remotely, which is not within the coverage of taxation on sales of labour forces. In addition, the buyer (Foreign company A) without a permanent business place within Taiwan and the purchased services without a physical place to use (via Internet) is applicable to zero tax rate in accordance with the letter No. 09404532300 on May 5, 1994 promulgated the "Network Transaction Levy Business Tax and Income Tax Specification" and No. 10600549520 on April 24, 2010 promulgated "Cross-border Electronic Service Transaction Levy Business Tax Regulations" Regulation.
In conclusion, first of all, according to the code 1st of item 2nd at article 4th in Business Tax Act, “Where services sold are supplied or utilized within the territory of the R.O.C.” means the recognition of labour forces sales is by “Place of Provision” and “Place of Use”. Secondly, according to the item 2nd at article 7th in Business Tax Act,” Services relating to export or services provided in the R.O.C. but used in a foreign country” is applicable to zero tax rate, which means the “Place of Provision” is within the territory of Taiwan but the “Place of Use” is outside the territory of Taiwan.
Disclaimer
All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage.
WhatsApp/Line/Wechat: +852 5616 4140
All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage.
WhatsApp/Line/Wechat: +852 5616 4140
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