The Ministry of Finance announced Decree Tai-Cai-Shui-Zi No. 10604704390 on January 2, 2018 with the latest tax registration regime. The National Taxation Bureau of the Northern Area (NTBNA), Ministry of Finance indicated that this decree provides new procedures for recognizing source income, simplifying calculations of cost and expense deduction, and clarifying the contribution ratio and tax filing method for foreign profit-seeking enterprises selling cross-border electronic services to domestic buyers (including persons, profit-seeking enterprises, organizations, institutions, or entities) within the Republic of China (“R.O.C.”). The decree became effective on January 1, 2017. Here are the three steps under the new decree of Income Tax on Cross-Border Electronic Services Transactions.
Step 1: Recognition of income source from the R.O.C. by considering the connection between the electronic services and national economy.
1. Where a foreign profit-seeking enterprise produces or manufactures a product (e.g., stand-alone software, e-book, etc.) outside of the R.O.C. and then transmits, downloads, and saves the product into a computer or mobile device via the Internet or other electronic means so as to offer electronic services to buyers within the R.O.C., if the product is provided with the assistance and involvement of a person or profit-seeking enterprise of the R.O.C., the sales amounts collected therefrom shall be recognized as income sources from the R.O.C.
2. Where, via the Internet or other electronic means, a foreign profit-seeking enterprise offers real-time, interactive, handy, and continuing electronic services (e.g., online games, online films and series, online music, online video, online advertisements, etc.) to domestic buyers within the R.O.C., the sales amounts collected therefrom shall be recognized as income sources from the R.O.C.
3. Where, via the Internet or other electronic means, a foreign profit-seeking enterprise selling services which are delivered by physical locations (e.g., accommodation services, automobile renting services) in the R.O.C., the sales amounts collected therefrom shall be recognized as income sources from the R.O.C.
4. Where a foreign platform operator provides an Internet-based platform on which onshore and offshore sellers and buyers conduct transactions, if one of the transaction parties is a person, enterprise, organization, institution, or entity within the R.O.C., the sales amounts collected therefrom shall be recognized as income sources from the R.O.C.
Step 2: Calculating the taxable income
1. If the foreign profit-seeking enterprise can provide accounting books and documents together with documents which can support clear division of the onshore and offshore transaction as well as the contribution ratio attributed to the services performed within the territory of the R.O.C., the taxable income shall be the verified actual amounts.
Taxable income = (Revenue from sources in the R.O.C. - costs and expenses) * actual domestic profit contribution ratio.
2. If any aforementioned documents are not available, the foreign enterprise can apply the net profit ratio (NPR) of the profit standard of the same trade concerned or 30% NPR with 50% domestic profit contribution ratio (DPCR) to calculate the taxable income by applying to the competent tax authority with which the enterprise or the agent is registered. The application can be submitted by the enterprise itself or through an agent.
Taxable income = Revenue from sources in the R.O.C. * verified NPR * verified DPCR.
Step 3: Complete reporting and paying taxes (Only for foreign profit-seeking enterprises with neither a fixed place of business nor a business agent within the R.O.C.)
1. Income within the withholding tax scope
(1) The tax withholder shall withhold the tax at the time of payment in accordance with the withholding ratio of the payable amount.
(2) If a foreign profit-seeking enterprise has applied with the taxation authority in accordance with the above criteria and thereby given an applicable NPR and DPCR in advance, its payable tax of the income sources from the R.O.C. shall be calculated and withheld based on the given NPR and DPCR.
2. Income not within the withholding tax scope
(1) The foreign profit-seeking enterprise shall file the annual income tax return and make payment in accordance with the relevant regulations at eTax portal, the Ministry of Finance (http://www.etax.nat.gov.tw) by itself or through a tax agent within the period from May 1 to May 31 for the preceding taxable year.
(2) If a foreign profit-seeking enterprise has applied with the taxation authority in accordance with the above criteria and thereby has been given an applicable NPR and DPCR in advance or in the tax reporting period, its payable tax of the income sources from the R.O.C. shall be calculated and withheld based on the given NPR and DPCR.
The NTBNA reminds taxpayers that effective from taxable year 2017, enterprises may file an application for a refund of any excessive tax to the competent tax authority if the withholding tax amount of a foreign profit-seeking enterprise selling cross-border electronic services is different from the actual taxable income amount, NPR, DPCR, or transferring ratio assessed by the tax authority. Enterprises should collect the data from the regional Taxation Bureau with which the enterprise or the agent is registered within a period of five years starting from the date the income is received, then submit the application to the competent authority by the enterprise itself or through an agent. After the assessment, the competent authority will transfer the application to the regional Taxation Bureau to refund the excessive tax. If you have any questions, please visit the Bureau’s website at https://www.ntbna.gov.tw/ or call our toll-free number 0800-000321 for more information on the relevant aspects of the subject. The Bureau is pleased to provide further consultation services about your inquiry.