Michaela Merz

Taiwan – registration obligation for foreign companies providing B2C services expected soon

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PwC_fl_30mmh_cUnder current VAT regulations, payment of VAT on provision of services sold by foreign companies to individual Taiwanese customers are the obligation of the individual Taiwanese customer for purchase of services exceeding TWD 3,000 per transaction.

22 of September, a draft amendment of the Business Tax Act concerning sales of cross-border B2C services was approved by the Executive Yuan, where the obligation to report and pay VAT is to be switched to the foreign companies that provide services to individual Taiwanese customers.

The foreign companies would be required to register for VAT purposes in Taiwan and pay VAT. However, many of the key aspects (e.g. VAT registration threshold, definition of a foreign taxpayer etc.) of the new VAT mechanism have not been announced by the tax authority. Moreover, the draft amendments to the Business Tax Act should be further passed by the Legislative Yuan in order for it to be enacted.

For cross-border B2B sales, the current reverse charge mechanism is to remain in place.

Following issue remain open

Uncertainty over definition of foreign taxpayer liable for VAT :
As cross-border digital services are often provided via a platform (e.g. App developer selling Apps through an App platform), whether the App developer or the platform provider would be the taxpayer liable for VAT registration is uncertain. During open discussions with the tax authority, a clear answer was not provided. Therefore, this issue will need to be resolved in the future, possibly through further promulgations by the tax authority or via private tax ruling applications.

VAT registration and exemptions
Under this new mechanism, foreign taxpayers liable for VAT would be required to register in Taiwan. However, as compared with the requirements for domestic companies, it is expected that the registration procedures and requirements for foreign taxpayers would be simplified. Moreover, it is also expected that there would be an exemption threshold, whereby foreign taxpayers with sales under said threshold would be exempt from registration and payment of VAT. However, at what amount the exemption threshold would be set at is currently unclear.

Implications for corporate income tax.
The tax authority has indicated that they have plans to propose corresponding corporate income tax reform for foreign cross-border sellers of services. However, there is currently no official time frame for this as the tax authority has been concentrating its efforts on the new VAT mechanism.
For further details please contact li-li.chou@tw.pwc.com | http://www.pwc.tw.

draft-vat-regulation-on-cross-border-b2c-services_english-version

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