During a company’s early stage, the management of startups must have a clear understanding of the requirements derived from Taiwan’s tax regulations. Generally speaking, owing to the limited resources in the primary stage of the company, the entrepreneur is unlikely to hire a tax pro. If the management entrusts the tax affairs to bookkeeping firms or accountancy firms without basic understanding, inadvertent errors may abound on the books, which brings the potential risk of the government’s investigation. After all, if the management, since the enterprise’s inception, can comprehensively evaluate the tax issues related to their industrial policy and business model and further make an appropriate plan according to the local tax acts, the company will be able to maintain the sustainable operation and profitability.
The tax regulations and the various collection practices are highly complicated. Here are five main points aimed at the tax issues which startups must know.
● Apply for “Taxation Registration" to National Taxation Bureau"
If an enterprise has completed the commerce registration at Taipei City Office of Commerce, then they have to ask the district branch of National Taxation Bureau for the taxation registration which creates the logic serial number (tax serial number) in the database of National Taxation Bureau for business use in order to pay business tax, business income tax, etc. in the future.
● Business tax
When an enterprise begins operations and sells goods and services, they have to submit the receipt and the uniform invoice in accordance with the sale items quantity, and amount to the customers, which is the tax proof called “output tax"; relatively, when an enterprise purchases goods, materials, or articles and services for daily business operations, it is necessary to ask the suppliers for the uniform invoice, which is called “input tax:• Though input taxes can offset the output taxes, it should be noted that some items on input taxes cannot be counted in Currently, the legal business tax rate is 5%. According to the legislation, 5% of business tax should be included in account of the uniform invoice, and companies must file their business taxes to the tax authorities every two months in principle. Therefore, it is extraordinarily crucial for startups to design sensible pricing strategies. The management needs to estimate the cost of business taxes which their company absorb by themselves or to shift the taxes to the customers via pricing. It is worth noting that when startups receive the input documentary evidence, they must transfer it into their account promptly in order to reduce cash outflows during the earlier period of the company establishment or employ it as the offset against the future business tax payable.
● Profit-seeking Enterprise Income Tax
Business income tax is calculated on income which the business earns for one year less costs, fees, losses and other taxes. Here are three current methods for filing computed income returns. The optimal one startups must adopt depends on their scale of revenue, completeness of accounting books and vouchers, and situation of operating incomes.
1. Audit by Reviewing Declaration on Tax Returns Expanding to the Cases Qualified:
For those enterprises with an annual turnover of less than 30 million NT dollars and relatively incomplete accounting books and vouchers, due to the difficulties in adducing evidence corresponding to the actual situation of costs and expenses for Nation Taxation Bureau’s verification, the tax authorities take the profits of other occupations for reference and lay down “The Standards of Income" as simple and convenient methods. The enterprises adopting the audit by reviewing tax declaration on paper can compute the assessable income according to the standards of income directly and don’t need to calculate the real net profit. Additionally, startups must pay attention to the possible annual adjustments of the standards.
For example, if their net income falls short of the standards (3% vs. 6%}, they will pay more taxes because adopting the method is equivalent to overestimating the true incomes. In the long term, it is supposed that startups prepare complete accounting books and vouchers to reflect the real situation of profits and losses.
2. Audit by Reviewing Accounting Books:
For those enterprises with an annual turnover of over 30 million NT dollars or those with a revenue of less than 30 million NT dollars but complete accounting books and vouchers, they can adopt the audit by reviewing accounting books, which computes the assessable income through the true annual profits from daily business operation.
3. Filing Returns Assessed and Certified by Certified Public Accountant:
This method is applicable to those enterprises with an annual turnover of over 1,00 million NT dollars or those with a revenue of less than the figure but complete accounting books and vouchers. When companies have reached such scale that they have hired a tax pro or a bookkeeper, possessed corresponding certificates for verification, and established clear and strict administration regulations on the internal control system, the complexity of various tax issues will increase. If the management doesn’t execute correct and beneficial approaches to tax treatment, National Taxation Bureau may call in question and request to compensate taxes, which may also bring tax burden and unnecessarily excess taxes.
If the company employs an accountant to assess the receipts for annual income tax returns, the accountant can inspect the tax issues worth noticing in advance, which will decrease the sequent risks of compensating taxes.
● Tax Preference for Startups
Businesses can make good use of the regulations related to tax preference, applying for tax relief to the authorities in advance. Generally, tax preference is aimed at the corporate expenditure of research development, cultivation of talent, investment in new plants and techniques, or increasing personnel expenses over domestic employees of small and medium enterprise (SME) etc.
● Individual Income Tax
If startups don’t belong to the category of “company" but “sole proprietorship" or “partnership", the annual business income less half of the taxes, that is the owner’s income from profit-seeking, have to be incorporated into his or her individual income tax, and the responsible person must pay tax according to individual income tax rate.