Tax on Cross-Border Electronic Services

As from May 1, 2017, a foreign entity, without a fixed place of business or a business agent in Taiwan, providing cross-border electronic services (e-services) to domestic individuals should register and pay VAT if the annual sales amount exceeds NT$480,000.  Furthermore, in early 2018, the Ministry of Finance also announced the guidance (which takes effect retroactively from January 1, 2017) on determining Taiwan-source income derived from the provision of cross-border e-services by non-resident foreign entities in both B2C and B2B transactions.

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The main points of the guidance include:

1. Definition of e-services

2. E-service sales models [ platform or non-platform ]

3. How to recognize Taiwan-source income

4. How to calculate taxable income [ = profit (actual or deemed, e.g., standard industry profit rate or 30%) x contribution rate (actual or deemed, e.g., 100% or 50%) x tax rate]

5. Tax reporting obligation [ withholding or return filing ]

6. Tax refund for overpaid withholding tax if any

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Overview of Tax on Cross-Border E-Services Provided by Non-resident Foreign Entities

1. Foreign Entities sell E-Services to Individuals in Taiwan (B to C)

   • VAT

     1. As from May 1, 2017, foreign e-service providing entities should register for business on line through https://www.etax.nat.gov.tw/etwmain/web/ETW118W/VIEW/954

     2. The said foreign entities should file a bimonthly VAT return and pay VAT prior to the 15th day of the following period. (For example, the filing period for sales in January and February is from March 1 to March 15)  Starting from January 1, 2019, the said foreign entities should issue cloud invoices; however, the period of 2019 is deemed the preparation period, in which no penalty on not issuing cloud invoices will be enforced.

   • Income Tax​

     1. ​The said foreign entities can present accounting books and evidence to claim for the calculation of taxable income on an actual basis, and file the income tax return during the 5th month of the following year. (The income tax return filing period for the calendar year of FY 2017 is May 2018.)

     2. Starting from 2017, the said foreign entities can apply to tax authorities for using specified profit rate and contribution rate to calculate taxable income.

2. Foreign Entities sell E-Services to Entities or Organizations in Taiwan (B to B)

   • VAT​

     1. ​The e-service buyers (entities in Taiwan) should pay VAT prior to the 15th day of the following period of the day on which the e-service buyers make the service payment to the foreign entities.

     2. If the e-service buyers are entities who regularly file 401 VAT returns and the purchased services are used solely in conducting business in taxable goods or services, such services are exempted from VAT; where the e-service buyers are concurrently engaging in business involving tax-exempt goods or services, the proportion payable of VAT should be calculated in accordance with related rules.

   • Income Tax​

     1. ​The e-service buyers should withhold 20% tax on the gross revenue amount.

     2. Starting from 2017, if the said foreign entities obtain the approval from tax authorities for using specified profit rate and contribution rate to calculate taxable income,

        • ​the e-service buyers can calculate withholding tax as "gross revenue amount x profit rate x contribution rate x 20%"

        • the said foreign entities can apply for the refund for overpaid withholding tax within 5 years after receiving the payment if any.

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