Taiwan's tax authorities confirm that businesses cannot reduce invoice amounts when late-completion penalties reduce project payments. The full contract value must be invoiced and taxed regardless of penalty offsets.
The Taipei National Taxation Bureau of the Ministry of Finance issued a guidance on 4 September 2026 clarifying how businesses must handle invoicing when late-completion penalties offset outstanding project balances. The ruling clarifies that operators cannot reduce invoice amounts based on penalty deductions.
Invoices must reflect the full contract amount
Under Article 16 of the Value-Added and Non-Value-Added Business Tax Act, sales amounts include all consideration received by a business operator, regardless of other charges or deductions. Article 32 of the same act requires businesses to issue uniform invoices to buyers within the statutory timeframe.
The “Time Limit for Issuing Sales Invoices by Business Operators” schedule specifies that for contracted work, a uniform invoice must be issued for each instalment as outlined in the project contract.
The bureau emphasised that penalty assessments and invoice issuance are separate legal obligations. When a business operator incurs a fine for missed deadlines, that fine does not justify reducing the invoice amount to reflect only the net payment received after the offset.
Practical example from the bureau
The Taipei National Taxation Bureau illustrated the requirement with a construction case: Company A completed a project for Company B with a remaining balance of TWD 5 million (including tax).
Due to late completion, Company B imposed a TWD 2 million penalty, leaving Company A to receive TWD 3 million after the offset. Despite receiving only TWD 3 million, Company A must still issue a uniform invoice for the full TWD 5 million and pay business tax accordingly.
Voluntary compliance option available
The bureau encouraged businesses that failed to follow this rule to proactively report the situation and settle any unpaid taxes with the relevant tax authorities before an audit. Compliance under Article 48-1 of the Tax Collection Act permits exemption from penalties if interest charges are paid.
