Tax Reporting for Corporate Gift-Giving in Taiwan
The Mid-Autumn Festival is one of the most important Chinese festivals, and many companies take the opportunity to present gifts to their clients or employees. In Taiwan, if a company distributes its own inventory as gifts, this should be regarded as the sale of goods, and an invoice must be issued based on the sale price, with business tax declared and paid accordingly. However, if the items were originally purchased with the intention of being given as gifts, and the input tax was not claimed as a deduction against output tax, the company is exempt from issuing an invoice.
Here’s an example: Company A purchased 100 units of inventory at a total cost of TWD 100,000 with input VAT amounting to TWD 5,000. At the time of purchase, the input VAT of TWD 5,000 was claimed as a deduction against the output VAT. Later, when Company A decided to repurpose the goods as Mid-Autumn Festival gifts for employees, it must issue a government uniform invoice based on the fair market value (listing itself as both the seller and buyer). Furthermore, the input VAT on this transaction cannot be used to offset the output VAT.
In another scenario, Company A purchased 10 gift boxes for TWD 210,000 to give as gifts to clients. Since the amount of TWD 210,000 was recorded as entertainment expenses, and the related input VAT of TWD 10,000 was not claimed as a deduction against output VAT, the company is exempt from issuing a government uniform invoice when gifting these items.
In summary, if a company purchases Mid-Autumn Festival gift boxes to present to clients or employees, the input VAT on these purchases cannot be used as a deduction when filing business tax.
However, from the perspective of corporate income tax, expenses related to Mid-Autumn Festival gifts can be reasonably reported as business expenses. Since entertainment expenses are an essential part of business operations, specific regulations exist under Taiwan’s Guidelines for the Examination of Profit-Seeking Enterprises to prevent extravagant spending. The following section outlines the relevant rules based on the recipients of the gifts.
-
Gifts for Clients
It is permissible for a company to purchase gift boxes or other items within the allowable “entertainment expense limit” to present or offer to clients. Any expenses deemed “necessary for business operations” (bearing the company’s tax ID and incurred under normal operating circumstances) can be recorded in the company’s accounts.
However, excessive entertainment expenses may not be fully deductible for tax purposes, as tax law imposes limits on such deductions. Moreover, an excessive amount of entertainment expenses could trigger an audit by the National Taxation Bureau.
-
Gifts or Rewards for Employees
(1) Distributed Directly by The Company
Bonuses or gifts distributed by the company to employees during the Mid-Autumn Festival are considered “salary income” under Article 14, Paragraph 1 of the Income Tax Act. When the company provides Mid-Autumn Festival bonuses or gifts to employees, it must withhold taxes and file the relevant tax documents by the end of January of the following year. If the company distributes goods in kind, the value must be treated as compensation. For example, if Company C buys 50 gift boxes containing pomelos worth NTD 250 each to distributed to employees, it must use the invoice amount (50 X 250) as the basis for calculation, and issue withholding statements to employees in January of the following year for them to report their comprehensive income tax.
(2) Distributed by a registered “Employee Welfare Committee”
If the Mid-Autumn Festival gifts are distributed by a registered “Employee Welfare Committee,” they are considered “other income” for employees. Regardless of the amount, there is no need to withhold taxes at the time of distribution, but the company must still file a non-withholding statement with the National Taxation Bureau by the end of January of the following year.
To summarize:
-
Business Tax: Regardless of whether the purchased gift boxes are given to clients or employees, the input VAT on these purchases cannot be used for deduction.
-
Corporate Tax: Gifts given to clients can be reported as business expenses under the “entertainment expenses” category. Gifts given to employees are considered employee income, with the distinction lying in how they are reported when filing withholding statements in January of the following year – either as “salary income” (if distributed directly by the company) or as “other income” (if distributed by a registered “Employee Welfare Committee”).
KNOWLEDGE
