The digital economy is thriving, sparked by developments in science and technology, increasing internet bandwidth, and widespread application of mobile devices and the internet of things, making innovative internet-based industries like e-commerce and the sharing economy the order of the day. As a result, bringing current laws and regulations in line with these changes has gradually become a pressing issue for countries around the world.
The government is proactively responding to this issue by adapting domestic laws governing the digital economy, making key amendments to the Value-added and Non-value-added Business Tax Act (the "Act") to create a welcoming environment for the relevant industries, innovation, and entrepreneurship.
Before the Act was amended on December 28, 2016, domestic consumers that purchased services from a foreign e-commerce business paid a 5-percent business tax, with a tax-free threshold of NT$3,000 (US$92.82). But when those same consumers purchased services from a domestic e-commerce business, the domestic business was responsible for paying that 5-percent tax on gross sales, with no tax-free threshold. Moreover, some domestic consumers who purchased services worth more than NT$3,000 from a foreign e-commerce business failed to declare and pay the 5-percent tax, giving foreign businesses an unfair advantage.
To resolve this issue, the Ministry of Finance (MOF) drafted amendments to the Act based on suggestions from the Organization for Economic Cooperation and Development and solutions adopted by the European Union, Japan and South Korea. The amended Act provides that the subject of taxation is now the seller of services rather than the purchaser, and stipulates that a foreign business entity that sells a service across borders to a domestic individual via the internet shall register with Taiwan's competent tax authority and either pay the business tax themselves, or through an appointed tax-filing agent.
The amended Act was promulgated by the president on December 28, 2016, and approved by the Executive Yuan to enter into force on May 1, 2017.
II. Amendments ensure fair taxation and tax revenues
Responding to international e-commerce taxation trends, the current amendments to the Act ensure greater control over sources of tax revenue while meeting practical needs, and contribute to a more equitable tax structure while enhancing the competitiveness of Taiwan enterprises. Key points in those amendments:
A. Define foreign companies conducting cross-border sales of electronic services as business entities obligated to pay business tax in Taiwan.
B. Require that foreign business entities selling electronic services to domestic individuals register with Taiwan's competent tax authority, either on their own or through a tax-filing agent.
C. Require that a foreign business entity conducting cross-border sales of electronic services to domestic individuals file business tax returns and pay the requisite tax on a regular basis; the provision that previously allowed a domestic purchaser to buy services from a foreign entity up to a certain amount on a tax-free basis was deleted.
The current amendments to the Act provide a legal basis for levying a business tax on cross-border e-commerce companies. After the amended Act comes into force, foreign businesses that sell electronic services to domestic natural persons, such as Apple Store sales of paid apps and LINE sales of stickers and games, must register with Taiwan's competent tax authority and pay the business tax, just like domestic companies. This applies to all foreign businesses, whether they have a fixed place of business in Taiwan or not.
These changes will make the tax regime more equitable for domestic and foreign businesses while helping to develop innovative domestic enterprises. To ensure smooth implementation, the government will promptly amend the relevant secondary legislation and set up a streamlined platform to handle business tax registration along with filing and payment procedures, and publicize the amended law's relevant provisions.