The Tax authority stated that businesses operating both taxable and tax-exempt sales in Taiwan must carefully calculate input tax deductions on fixed assets, with the tax bureau providing clear examples of the proportional and direct deduction methods to ensure compliance and avoid penalties.
Taiwan’s Northern Region National Taxation Bureau announced on 13 February 2025 that businesses selling both taxable and tax-exempt goods must follow specific regulations when claiming input tax credits on fixed assets like factory buildings and machinery.
Companies can choose between two approaches for calculating deductible input tax:
- Proportional deduction method: Businesses calculate a non-deductible ratio based on the proportion of their tax-exempt sales. For example, if Company A purchases equipment for TWD 100,000, with a 20% non-deductible ratio, only TWD 80,000 can be claimed as a deduction. The remaining TWD 20,000 related to tax-exempt operations cannot be refunded.
- Direct deduction method: This requires detailed accounting records separating purchases into three categories: exclusively for taxable use, exclusively for tax-exempt use, and jointly used. Among them, the input tax on fixed assets that can be clearly classified as exclusively for tax-exempt use cannot be deducted, while the input tax on the jointly used portion should be calculated according to the non-deductible ratio for the current period and declared for deduction or applied for a tax refund.
The Bureau emphasises that businesses must accurately assess the use of fixed assets when filing returns. Companies that discover errors in their tax calculations should voluntarily report and pay any owed taxes, plus interest, before authorities initiate investigations. Under Article 48-1 of the Tax Collection Act, proactive correction may exempt businesses from penalties.
