Friday, 2 June 2017

Taiwan announces VAT rules governing nonresident suppliers of e-services

Amended VAT registration rules were promulgated in Taiwan on 29 March 2017 and, on 22 March, the Ministry of Finance (MOF) published an official ruling that sets the annual sales threshold for a nonresident electronic services (eservices) provider to be required to register for Taiwan VAT purposes at NTD 480,000. The MOF ruling follows the announcement by the Executive Yuan on 13 February 2017 that the new VAT rules requiring nonresident business entities providing e-services to domestic individuals to register with Taiwan’s tax authorities for VAT purposes and pay a 5% VAT in Taiwan will apply as from 1 May 2017. A public consultation was held from 11-17 March 2017 on draft amended enforcement rules.
An online VAT registration website is expected to be open for testing purposes sometime in the near future.
Once a foreign e-service provider is registered, it will be required to file bimonthly VAT returns and pay the VAT due before the 15th day of the following “odd month” (i.e. the first VAT return for a registered foreign e-service provider for the VAT period from May-June 2017 will have to be submitted by 15 July 2017).

Definition of e-services
According to the draft amended enforcement rules, e-services would be defined as the following:

  1. Services that can be downloaded from the internet and stored in a computer or mobile device;
  2. Services that can be used via the internet without downloading or storing; and
  3. Other services that can be used through the internet or another electronic environment.

The scope of services in the third bullet is very broad, and it is expected that affected foreign service providers will be allowed to request clarification from the Taiwan tax authorities as to whether their services fall within the scope of the definition of e-services before 1 July 2017.

Registration requirements
The amended VAT registration rules require nonresident e-service providers to submit the following information and documents at the time they register for VAT:

  • Company name (the certificate of incorporation of the nonresident e-service provider must be notarized and authenticated by the Taiwan consulate);
  • Name of the company representative;
  • Operating information, including the domain name, IP address, commencement date of services, country of registration and registered name in that country and the company’s registered identification number in that country;
  • Contact information, including the phone number, mailing address and email address;
  • Information about the entity’s Taiwanese tax agent (the power of attorney issued to the tax agent is required); and
  • Bank account information (domestic and/or foreign bank account).

The draft enforcement rules do not specify which party would be required to register for VAT when various parties are involved in a supply of e-services. In particular, it is unclear which party would be required to register when sales are made via a foreign online platform (i.e. the online platform or a local supplier), but the MOF is aware of the issue and is working to clarify the requirements.

VAT invoicing obligations
Unlike domestic sellers that are required to issue VAT invoices to buyers, based on a ruling issued by the MOF, registered nonresident e-service providers are not required to issue invoices for supplies made to Taiwanese individuals during the period from 1 May 2017 to 31 December 2018.
Taiwan has a unique system of invoicing for VAT purposes. The invoice, which is called a Government Uniform Invoice (GUI), is regulated by the tax law as to its format, content and submission. The government assigns GUI numbers to VAT payers every two months. In addition, the tax authorities are encouraging businesses to issue electronic VAT invoices (eGUI) in lieu of “paper computerized” invoices to comply with the “green policy.” As part of this initiative, the tax authorities no longer grant new approvals to use paper computerized GUI applications, and encourage business entities that were approved to use such GUIs before 2017 to upgrade their systems to issue eGUIs.
Registered nonresident e-service providers should begin to assess the potential impact of eGUIs once the invoice exemption period has expired.

VAT payment/input VAT
Since VAT can be paid only with New Taiwan dollars, the draft enforcement rules address the exchange rate for a nonresident e-service provider to determine its VAT sales. The spot rate quoted by the Bank of Taiwan on the last day of a VAT period will have to be used.
The draft enforcement rules allow input VAT on local purchases that are used solely for the foreign e-service provider’s further sales to individuals in Taiwan to be credited against the provider’s output VAT. However, the rules do not explain how to determine whether a domestic purchase is “solely” for e-services sold to individuals in Taiwan.

Source: Deloitte