In this thought piece, we break down the Taiwan government uniform invoice (GUI) regulations for FECOs (Foreign eCommerce Operators without a fixed place of business in Taiwan).

Overview

FECOs should issue cloud GUIs to domestic purchasers. The cloud GUIs are electronic GUIs and issued by business entities to domestic purchasers through email, phone and other Ministry of Finance approved means.

Issuance of cloud GUIs

The regulations are effective for transactions occurring on or after 1^st January 2019. Penalties may be waived on the failure of FECOs to issue cloud GUIs to domestic purchasers for the period from January 1^st 2019 to December 31^st 2019, allowing FECOs additional time to implement the required procedures to adopt the cloud GUI regulations.

An overview of the tax system for foreign companies

Before issuing an eGUI, FOCEs must first determine their Taiwan source income, as well as the income tax base. The section below sets out which business activities are Taiwan source income, and how to deal with business combining domestic and foreign transactions.

Determining Taiwanese source income

The guiding principle for determining income source is the link between the labor performed and Taiwan. The following transactions are classed as Taiwan source income:

1. Sales involving a foreign platform operator providing an internet-based platform where onshore and offshore sellers and buyers conduct transactions, and one party is a person, profit-seeking enterprise, organization, institution, or entity within the R.O.C.
2. Services which are sold on the internet but used domestically (e.g. house or vehicle rental services). If the service is used abroad, then income is non-R.O.C. source income, even if a domestic enterprise assists in the provision of the sale.
3. If a FOCE manufactures a product abroad and a domestic individual or profit-seeking enterprise assists in providing the product within the ROC. However, if no domestic assistance is provided, and the FOCE transmits, downloads, and saves the product into a computer or mobile device via the internet to provide electronic services to buyers within the R.O.C., the sales amounts collected are not Taiwan source income.
4. Remuneration gained from providing electronic services to buyers in Taiwan that are real time, interactive, convenient, and continuing in nature (e.g. online games, TV shows, music or advertising).

Calculating the income tax base

1. If accounting books/documents are provided, taxable income is:

Gross revenues from domestic sources less related costs and expenses

2. If other evidence that allows tax authorities to verify the applicable major business items like contracts, onshore and offshore transaction flows, and major business items are provided taxable income is:

Gross revenue from Taiwan sources x net profit ratio (30%)

The deemed net profit ratio is 30% for FOCEs offering platform electronic services. For FOCEs that do not fit this standard a different ratio applicable to their trade may be more relevant.

If neither of the above is met, then the taxable amount is calculated based on a net profit ratio of 30%. If the Taiwan tax authority verifies the actual net profit ratio is higher than the ratio verified based on the first and second item above, the actual net profit ratio shall be applied.

Mixed location transactions

If part of a transaction involving an FOCE takes place outside of Taiwan, the profit contribution ratio from within Taiwan is determined according to:

1. Documents supporting a clear division of the onshore and offshore transaction flows as well as the ratio attributed to services performed within Taiwan. Such documentation includes financial statements audited and certified by CPAs, transfer pricing documentation, work planning records or reports, etc.
2. If the whole transaction flow is onshore or all services are provided and used in Taiwan, the profit contribution ratio is 100%.

If a FOCE does not meet either of these conditions, the contribution ratio shall be 50%. However, if the actual domestic profit contribution ratio verified by the tax authority is higher than 50%, the actual domestic profit contribution ratio shall be applied.

Noncompliance

FOCEs that violate the rules may be subject to penalties for noncompliance as below:

Unregistered FOCEs must register and pay a fine between NTD3,000-30,000 (USD98-980).

FOCEs that don’t submit a correct report within 30 days after the deadline must pay between NTD1,200-12,000 (USD39-392). FOCEs pay a cumulative fine of 1% of the taxable amount per 2 days exceeding the deadline.

FOCEs exceeding the deadline by more than 30 days must pay a fine of between NTD3,000-30,000 (USD98-980), calculated as the audited taxable amount x 30%.

FOCEs that omit a sum from the calculation must pay the omitted amount plus a fine of up to 5 times the omitted amount, and cease operations.

Further advice

CPAs can play a role in tax planning, and auditing supporting documents when applying for eGUIs. Determining foreign and Taiwan source income can be tricky, particularly in international business involving transactions of different natures. To ensure full compliance please do not hesitate to contact us.

Chungsun Prime CPAs, Taipei

Vincent Fan CPA

Matt Baum