Taiwan’s Ministry of Finance has issued a renewed reminder regarding the VAT (Taiwan’s business tax) filing treatment applicable when an enterprise concurrently engaged in investment business receives dividend income.
Under the MOF’s prior ruling, dividend income received during the year may be provisionally excluded from the exempt sales amount reported in each interim VAT filing period. However, in the final VAT filing for the year, the enterprise must aggregate all dividend income received during the year and report it under the “exempt sales amount” column of the Business Entity’s Sales Amount and Tax Amount Return, and must also perform the annual adjustment of input VAT based on the applicable non-deductible ratio for that year.
Reportable dividend income includes cash dividends and stock dividends arising from the capitalization of undistributed (unappropriated) retained earnings. Where a dividend is paid out of capital surplus, in principle it should be limited to the portion of capital surplus that does not have the nature of a shareholder capital contribution — that is, the amount stated in the dividend payment notice issued by the investee company shall govern. In addition, Dividends received from overseas investees, including enterprises in Mainland China, must be reported on a gross basis before deduction of any tax withheld at source in the foreign jurisdiction .
Where excess input VAT has been credited as a result of a failure to report such dividend income or a failure to perform the required annual adjustment, in addition to a retroactive tax assessment, the enterprise may also be subject to penalties under Article 51, Paragraph 1, Subparagraph 5 of the Value-Added and Non-Value-Added Business Tax Act. Companies in Taiwan with domestic or overseas investments should therefore reconcile their investment records, dividend statements and bank receipts before filing the final VAT return and verify that foreign dividends and the related annual input VAT adjustments have been properly accounted for.
