Basic Introduction to Tax on Cross-Border Electronic Services
Date:2019-05-31
The Ministry of Finance (hereafter MOF) promulgated a new regulation on the income tax of the cross-border electronic services by a foreign profit-seeking enterprise. According to the annual income tax principle, the income tax regime became effective from the taxable year 2017. The basic introduction is described below: 1. Recognition of revenue sources from the R.O.C. 1. 1. The product produced or manufactured outside of the R.O.C., e.g., stand-alone software, e-book, etc. 1.1.(1) If only through changing the way of presentation of the product, the enterprise transmits and saves the product into a computer or mobile device via the Internet or other electronic means to offer electronic services to buyers within the R.O.C., the sales amounts collected therefrom are not regarded as income from sources in the R.O.C. 1.1.(2) If the product 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 from sources in the R.O.C. 1.2. The real-time, interactive, handy and continuing electronic services: Such as online games, streaming series, streaming music, streaming video, online advertisements, etc. offered to domestic buyers within the R.O.C., its sales amounts shall be deemed as income from sources of the R.O.C. 1.3. Electronic services delivered by physical locations: Such as accommodation services, automobile renting services offered via the Internet or other electronic means and if the locations of the service delivering are within the R.O.C., its sales amounts collected regarded as income from sources in the R.O.C.. 1.4. Foreign platform operator If one of the transaction parties of the internet-based platform is a person, profit-seeking enterprise, or entity within the R.O.C., its sales amounts collected from the seller and buyer shall be recognized as income from sources in the R.O.C. 2. Calculation of the taxable income 2.1. Deductible costs and expenses 2.1.(1) Verification: The accounting books and documents are provided, the taxable income amount shall be the verified gross revenue from sources in the R.O.C. after the deduction of related costs and expenses. 2.2.(2) If the accounting books and documents are not available, the taxable income amount shall be calculated as the gross revenue from sources of the R.O.C. multiplied by the net profit ratio of the profit standard of the same trade concerned applicable to the foreign profit-seeking enterprise. Provided that the business type of the foreign profit-seeking enterprise is recognized as the type "offering platform electronic services," the applicable net profit ratio is 30%. 2.2.(3) The net profit ratio of 30% is applied for foreign profit-seeking enterprises not meeting the 2.1.(1) and 2.1.(2) above. 2.1.(4) If the actual net profit ratio verified by the taxation authority is higher than the above ratio, the actual net profit ratio shall be applied. 2.2. The domestic profit contribution ratio shall be determined according to the following: If the whole transaction flow or the electronic service provided is within the territory of the R.O.C. the deemed domestic profit contribution ratio shall be 100%; otherwise, it should be determined as blow. 2.2.(1) Verification: A foreign profit-seeking enterprise should provide documents supporting a clear division of the onshore and offshore transaction flows as well as the ratio of the contribution attributed to the services performed within the territory R.O.C.. The domestic profit contribution ratio shall be determined based on the supporting documents provided. 2.2.(2) The domestic profit contribution ratio set to be 50% when it can’t meet 2.2.(1) above. 2.2.(3) The actual domestic profit contribution ratio shall be applied if such ratio verified by the taxation authority is higher than 50%. 3. Ways of reporting and paying taxes 3.1. For income within the withholding tax scope, the tax withholder shall withhold the tax from the payment source in accordance with the withholding ratio of the "payable amount". However, if a foreign profit-seeking enterprise has applied with the taxation authority in accordance with the above criteria, its payable tax of the income from sources in the R.O.C. shall be calculated and withheld based on the given net profit ratio and domestic profit contribution ratio. 3.2. For income not within the withholding tax scope, the foreign profit-seeking enterprise shall file the income tax return by itself or through a tax agent within the period for the taxable year. 3.3.(1) Where a foreign profit-seeking enterprise is a platform operator, the sales amounts it collects shall be subject to the income tax. 3.3.(2) If a part of the sales amounts it collects will be transferred to a foreign non-platform service provider, e.g. foreign online game software supplier, the platform service fees collected shall be subject to the income tax and tax withholding requirements. It shall settle all the taxes withheld in the previous month for the national treasury within the first ten days of each month, and shall report the calculation information of the withheld and paid taxes regarding the transferred sales amounts to the taxation authority. Reference: Taxation Administration, MOF, R.O.C.
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