The Ministry of Finance has recently reminded enterprises that the input VAT paid on souvenirs distributed to shareholders during shareholders’ meetings cannot be claimed as a credit against output VAT. As many enterprises distribute souvenirs to encourage shareholder attendance, the relevant business tax treatment is easily overlooked. Enterprises should pay special attention to statutory regulations to avoid the risk of tax assessments and penalties resulting from filing errors.
Pursuant to Article 19, Paragraph 1, Subparagraph 3 of the Value-Added and Non-Value-Added Business Tax Act and Article 26 of its Enforcement Rules, input VAT on goods or services used for entertainment purposes—including entertaining guests and gifts not directly related to business promotion—is non-creditable. The Ministry of Finance considers that shareholders’ meeting souvenirs are in the nature of gifts to shareholders, which are not directly related to business promotion; therefore, even if an enterprise obtains a valid uniform invoice, the input VAT paid on purchasing the souvenirs still cannot be claimed for credit.
Furthermore, if an enterprise distributes its self-manufactured products or goods originally intended for sale as souvenirs, and the input VAT on the relevant raw materials or goods has already been claimed as a credit, such gift distribution shall be deemed a sale. The enterprise must issue a uniform invoice based on the current market value with the company itself as the purchaser, and complete the relevant business tax reporting procedures according to regulations.
If an enterprise inadvertently claims non-creditable input VAT as a credit, in addition to paying the outstanding tax, it may be subject to penalties under Article 51 of the Value-Added and Non-Value-Added Business Tax Act. However, if the enterprise voluntarily files a supplementary tax return, pays the underpaid tax, and pays the accrued interest prior to being reported by an informant or audited by the tax collection authority, penalties may be exempted pursuant to Article 48-1 of the Tax Collection Act. Enterprises are advised to review the procurement and distribution processes of souvenirs prior to shareholders’ meeting preparations and tax filings to mitigate tax compliance risks.
