The National Taxation Bureau of the Southern Area (hereinafter “NTBSA”), Ministry of Finance, indicated that the social entertainment expenses used to expand business for which positive evidence of payment has been received may be listed as expenses within the limit by different ratios according to the various transaction amount when filing the profit-seeking enterprise income tax return. In addition, for the purpose of broadening export trade, the government allows the enterprises that engage in export trade to declare an additional special social entertainment expense.
The NTBSA further stated, in accordance with Paragraph 2, Article 37 of the Income Tax Act (hereinafter “the Act”), besides listing the payment of social entertainment as expenses in accordance with Paragraph 1, Article 37 of the Act, for a profit-seeking enterprise which engages in export trade and earns foreign exchange receipts, a special social entertainment expense may also be listed as expenses, not exceeding 2% of the total foreign exchange receipts settlement of the current year. Therefore, the declaration of special entertainment expenses for tax deduction requires not only the fact of “exporting”, but also earnings of the “foreign exchange receipts”. If the foreign exchange is received in advance, the special entertainment expenses shall be listed in the fiscal year only when such foreign exchange was realized and recognized as the annual business revenue.
To illustrate the rule, for example, Company A has declared NT$25 million of export sales collected in the year 2019 income tax return, but NT$10 million among the export sales was earned from the profit-seeking enterprises located in domestic tax-free zones. Though Company A has carried out the customs clearance procedures and declared zero-tax-rate sales, NT$10 million of the sales did not actually earn foreign exchange receipts and so did not meet the requirements for the special social entertainment expenses. Finally, Company A was only allowed to list to the extent within 2% of NT$15 million as special social entertainment expense.
The NTBSA would like to remind profit-seeking enterprises that, in addition to declaring the foreign exchange sales of the current year, those that engage in export trade must actually earn foreign exchange receipts to conform to the requirements for the special social entertainment expense. Enterprises should pay close attention to the aforesaid provisions to avoid being levied additional tax due to non-compliance with the regulations.
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Ms. Chen, First Examination Division
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