Taiwan’s tax on the digital economy is now a reality. The Taiwan Tax Administration is also getting serious on enforcement with details in the country’s new digital Value Added Tax (VAT) legislation including the possible loss of a license for non-compliant foreign businesses.
The rules mean foreign businesses that supply digital services (e.g. video gaming, streaming, image downloads, etc) to Taiwan residents will have to register for VAT in Taiwan, file VAT returns, and pay VAT to the Taiwan Tax Administration.
On May 1 the taxation of digital services supplied by a foreign-based business to a consumer based in Taiwan changed. It is now the responsibility of the digital service supplier to collect and remit VAT so as to comply with the new rules. Non-compliance, as revealed recently, is not an option.
Returns for Taiwan VAT on digital services are due 15 days after the end of the taxable period. Returns are due bi-monthly. However, as the date for the first returns (July 15) is a holiday the Taiwan Tax Administration has advised that returns are due no later than July 17.
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. In all some 40+ tax jurisdictions are currently considering similar approaches to taxing the digital economy.
Taiwan is also the latest jurisdiction to follow the International VAT/Goods and Services Tax (GST) guidelines as recently endorsed by the OECD. The new Taiwanese rules follow the OECD recommendation that foreign businesses register for VAT in the jurisdiction of consumption and file VAT returns in Taiwan.
This is a significant change in Taiwan’s VAT law. It no longer matters where the supplier of a digital service is based as the tax rate is calculated based on the location of the consumer. Again, this approach is consistent with recommended OECD guidelines on taxing the digital economy.
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.
From now on there is a possibility that audits will be extended to suspected non-compliant foreign companies that supply digital services to Taiwan residents. 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.
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