Newsletter
BUSINESS TAX ON GOODS DELIVERED TO BONDED ZONES
When a business entity in Taiwan receives an order and delivers the goods to a foreign cus-tomer, the delivery of goods (export) is subject to zero-rate business tax. If such goods are subse-quently sold by the foreign customer and deliv-ered to another business entity within a cus-toms-bonded zone in Taiwan, there will also be no liability for business tax; so the business tax liability throughout the entire transaction is zero.
However, prior to 29 June 2007, if a business entity received an order from a foreign customer, and on the customer's instructions delivered the goods to another business entity within a cus-toms-bonded zone in Taiwan without the goods ever having been exported, then although the supplier received payments in foreign currency, such goods were deemed not to have been ex-ported, and therefore not eligible for the zero tax rate. This added to the cost of goods purchased in Taiwan for foreign customers, and thus eroded the profitability and international competitive-ness of Taiwanese suppliers.
To take account of the second type of transaction described above, which is used by business enti-ties in order to simplify operations and reduce transportation costs, on 29 June 2007 the Minis-try of Finance (MOF) issued a ruling stating that if a Taiwanese business entity, acting on the in-structions of a foreign customer, delivers goods ordered by the foreign customer to another business entity located within a science-based industrial park, an agricultural science and tech-nology park, a free port zone, or a duty-free ex-port processing zone, or to a bonded factory, bonded warehouse, or bonded logistics center supervised by the customs authorities, then al-though such goods are not directly exported, as they are delivered to a location in a bonded zone and the payment is received in foreign currency, business tax may be applied at the zero rate.
The MOF ruling also states that when a business entity receives an order from a customer located within another bonded zone in Taiwan, and on the customer's instructions delivers the goods to another business entity within a bonded zone, if the goods supplied are items referred to in Sub-paragraph 4, Article 7 of the Value-Added and Non-Value-Added Business Tax Act, the sup-plier may also enjoy zero rate business tax; oth-erwise, business tax shall be duly levied at the normal rate of 5%.
The provisions of the above ruling apply to transactions for which business tax assessment was not yet concluded by 29 June 2007, and to transactions occurring after that date.