It is inevitable that accounts payable happens in businesses. The Taiwan National Taxation Bureau reminds that when companies declare for corporate income tax, it is important to pay attention to the prescription on various kinds of outstanding accounts payable, which can vary from 2 – 15 years. Furthermore, if a payment is unsettled upon prescription, it must be changed to other income in accounting in that current year.
When Taiwan companies file tax returns, many expenses will be listed as expenses in the year in which rights and responsibilities are incurred. But in fact, the payment has not yet been paid. Since the Civil Code Article 125 to 127 stipulates prescription for various payments, it continues to be delayed until the time limit of the creditor’s claim expires, in theory, the Taiwan company does not have to pay any more, and therefore should be reclassified as taxable income.
There are different prescriptions on various kinds of payment claims. In general, they can be divided into 3 categories:
The prescription for most payment claims is 15 years.
However, the Civil Code also stipulates a shorter prescription for special payment claims. Take profit-making business as an example, payment such as interest, bonus, rent, pension and severance payment, etc., the claim is extinguished by prescription if it is not exercised within 5 years.
For payments such as payment for goods, freight, contract remuneration, attorneys, accountants, notaries, and advance payments will be extinguished by prescription if it is not exercised within 2 years.
Taiwan companied tend to list the above mentioned payments as expenses in the year when the rights and responsibilities are incurred. If the payments are still unsettled upon the right of claim extinguished, according to the Income Tax Act Article 24 and Regulations Governing Assessment of Profit-Seeking Enterprise Income Tax Article 108-2, they shall be classified as other income in the year of prescription extinguished.
However in some cases, even if the debt is over prescription, some Taiwan companies still choose to pay off the relevant payment due to good faith. In this case, even if the payment has been changed to other income for taxation, if the payment is settled in the future, it can still be listed as “non-business expenditure”.
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.
No matter foreigners or Taiwanese to be the responsible person of Taiwan company, the tax regulations will be varied as different as the country of tax residents.Residency and holding the household registration in Taiwan within 1 to 31 days (with Taiwan labour insurance, health insurance, national pension, or spouse and children in Taiwan).
To comply with the Anti-money laundering policies, Taiwan companies shall declare the shareholding information which shareholders holding the shares more than 10% on the shareholder declaration platform affiliated with TDCC (Taiwan Depository & Clearing Corporation) on March 1st to 31st annually.
Taiwan companies don’t have to pay taxes if the company have a great deficit within the first few years. Upon making profits, the losses incurred from the past few years are not possible to recover the offset, which is different than other countries. For tax return by the due date, from the position of Taiwan Taxation Bureau, the due date is included the tax return and payment.
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.