Taiwan VAT Guide: Zero-tax-rate, Refunds & Credits

Del Sol CPA
1 day ago
2 min read

At Del Sol CPA & Associates, we frequently assist foreign businesses navigating Taiwan’s VAT system. In this article, we help clarify the difference between zero-rated and tax-exempt supplies, guiding refund and credit rules, and ensuring compliance with Taiwan’s VAT regulations.

Key Takeaway

Zero-rated VAT treatment is a major advantage for export-oriented businesses in Taiwan. It allows recovery of input VAT through refunds or credits, preventing VAT from becoming a cost.

However, proper application requires:

Accurate classification (zero-rated vs. exempt)
Complete supporting documentation
Understanding of refund limitations and procedures

What Is Zero-Rated Export VAT?

In Taiwan, sales of goods or services to overseas customers may qualify for zero-rated VAT (0%). This means:

No standard 5% VAT on the sales, and
You may still claim input VAT credits or refunds on related expenses.

This treatment applies only when specific criteria are met (e.g., proof of export, foreign customer, and proper documentation).

Why Does Taiwan Offer Zero-Rated VAT?

It is mainly because the Taiwan government encourages local businesses to generate income from abroad. To promote international trade and enhance the competitiveness of local companies, a preferential zero tax rate is provided.

Zero-Rated vs. Tax-Exempt Taiwan zero-rated VAT refund

It is essential to distinguish between these two:

Zero-rated (0%)
- Output VAT: 0%
- Input VAT: creditable or refundable
Tax-exempt
- Output VAT: exempt
- Input VAT: not creditable or refundable

In practice, zero-rated treatment is more favorable because it preserves the ability to recover input VAT.

What are VAT Refunds?

If your business primarily exports, you typically have:

No output VAT (because sales are zero-rated), but
Input VAT from local purchases (rent, services, supplies, etc.)

To avoid VAT becoming a cost to exporters, Taiwan allows businesses to apply for refunds of excess input VAT, subject to regulatory conditions.

Is There a Refund Limit?

Yes, but this is often misunderstood.

Taiwan imposes a ceiling on refundable VAT for zero-rated sales, generally calculated as:

Refund limit = Zero-rated sales × 5%

In addition:

Input VAT related to fixed assets (e.g., equipment purchases) is typically not subject to this ceiling and may be refundable in full if qualifying conditions are met.
Refund claims are also subject to document review and substantiation requirements.

Example:

Export revenue: $100,000
Input VAT: $1,000

Refund limit = $100,000 × 5% = $5,000

Since the input VAT ($1,000) is below the limit, the total $1,000 can be refunded.

What are VAT Credits?

When input VAT exceeds output VAT, the excess becomes VAT credits (留抵稅額).

These credits arise commonly in export businesses and can be:

Refunded (if eligible), or
Carried forward to offset future VAT payable

Options for your VAT Credits

You generally have two options:

1. Excess VAT will be rolled over to the next filing period and offset future VAT liabilities.

2. You may request a refund for export-related input VAT, subject to documentation and tax authority review.

Do VAT Credits Expire?

No. VAT credits in Taiwan do not expire and are not forfeited.

However, keep in mind:

They are not cash equivalents
They can only be used to offset future VAT liabilities or be refunded (if eligible)

Missteps in any of these areas can result in overpaid VAT or delayed refunds, which is where professional guidance becomes especially valuable.