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Yishian Lin |
Taiwan's Ministry of Finance (MOF) released a tax ruling Tai-Tsai-Shuei number 09604530290 on June 29 2007. The aim was to mitigate the double business taxation issue arising from the triangular sales transaction located in tax-free zone from local supplier to foreign client.
Prior to the issuance of this ruling, when a foreign business client placed orders with a local supplier and requested that they ship the goods to a tax-free zone (for example a tax-free export zone, the Science-based Industrial Park, a bonded factory or bonded warehouse administered by Customs office), a 5% value-added tax was levied as the goods were not being exported directly and were stored in Taiwan.
The new tax ruling stipulates that a zero-rated VAT will apply to business entities that generate foreign income from the acceptance of the foreign client's purchase orders, and under the foreign client's instructions, deliver the products to local business entities located in the tax-free zone. Subsequently, when the goods are sold or transported into non-tax-free zone, a 5% VAT will be imposed thereafter.
In principle, this ruling reflects the underlying spirit of article 7 of the Value-Added and Non-Value-Added Business Tax Act to treat the said arrangement similarly to the export of goods. The new decree allows the zero-rated VAT to be applied by domestic business suppliers that deliver goods on behalf of a foreign client to a domestic business located in tax-free zones. This ruling will reduce the purchase cost of foreign entities in Taiwan while increasing the domestic supplier's profitability and international competitiveness.
Yishian Lin (yishian.lin@tw.pwc.com), Taipei, Taiwan
