Key Considerations for Sole Proprietors When Transferring Inventory and Assets
When the sole proprietorship that uses Government Unified Invoices(“GUI”) changes its responsible person, and the original responsible person transfers inventory and fixed assets to the new responsible person, such transfers are deemed as sales of goods thus GUI must be invoiced with VAT duly declared and paid.
A sole proprietorship does not have legal personhood. Although it operates externally under the name of the business, in essence, it is still considered an individual’s business. The natural person operating the sole proprietorship is the subject of rights and obligations. When the responsible person changes, even though the business registration number remains unchanged, it is essentially a transfer of rights and obligations of the responsible person. Therefore, if the original responsible person transfers inventory and fixed assets to the new responsible person, such a transfer—regardless of whether consideration is received—shall be regarded as a sale of goods. A GUI must be issued at fair market value at the time of transfer, and the applicable VAT must be declared and paid.
Example as follows:
A sole proprietorship “Company A” is a business that issues GUI. The original responsible person, Mr. Lin, signed a transfer agreement with Ms. Li to transfer the business operation rights to her, along with inventory and fixed assets valued at NTD1.2 million. In accordance with the regulations, Mr. Lin must issue a triplicate GUI under the name of Company A for a taxable sales amount of NTD1.2 million and tax of NTD60,000, and declare and pay the VAT accordingly. Ms. Li, upon receiving the GUI, may use it to claim input tax deduction against Company A’s output tax.
