The tax year in Taiwan runs from 1 January to 31 December. Businesses may request approval from the local collection authority to file CIT returns using a fiscal year-end other than 31 December.
Tax returns are filed on a self-assessment basis. CIT returns are due no later than five months after the end of the tax year.
Payment of tax
Tax is paid on a self-assessment basis in two instalments. The first payment is based on 50% of the tax liability of the prior year’s tax return and is made in the ninth month of the enterprise’s fiscal year. However, if the taxpayer meets certain requirements, it may self-assess the provisional tax based on the taxable income of the first half of the current fiscal year and deduct income taxes paid overseas against the provisional income tax payable if corresponding income is consolidated in the provisional tax return. The second payment is made at the time of filing the annual tax return. The returns are subsequently reviewed by the tax authorities, and a final assessment is issued.
Any overpaid tax as a result of the tax collection authority’s mistake shall be refunded to the taxpayer within two years of the tax authority’s acknowledgement of such mistake, and shall not be subject to the original five-year period for applying for refund where the taxpayer is responsible for the mistake.
Tax audit process
Taiwan does not have a fixed audit cycle. Tax audit can be carried out any time prior to the expiration of the statute of limitations. Companies may be selected for audit if certain criteria are met.
Statute of limitations
The statute of limitations in Taiwan is five years from the tax return filing date if the return is filed on time. Where a taxpayer fails to file an annual tax return within the statutory deadline or evades tax by fraud or any other unrighteous means, the statute of limitations is extended to seven years.
Tax ruling system
Corporate taxpayers may file an advance tax ruling application with the tax authorities, together with the relevant supporting documents, to clarify their tax position before initiating the specific transaction. The tax authorities are obligated to issue a response within six months after submitting the application.
Recent focus of Taiwan tax authorities
The tax authorities have developed sophisticated and comprehensive tax audit techniques and approaches over the years. The following sets out some of the common items frequently challenged or audited by the tax authorities:
- Management fees allocated from the foreign parent company or affiliates: The tax authorities frequently question the economic substance of the services rendered, the allocation method, and the availability of sufficient documents to support the tax deduction claim.
- Amortisation of goodwill: The tax authorities frequently challenge the valuation report supporting the calculation of goodwill and whether the transaction itself should give rise to goodwill.
- Amortisation of business rights: The tax authorities have taken a more conservative view, which limits 'business rights' to those explicitly authorised by laws (e.g. those regulated under certain public utilities act).
- Eligibility for R&D tax credits.
- WHT compliance.
- Transfer pricing compliance.
- Business tax audit.