Mid-Autumn Festival Reminder: VAT Input Tax on Client and Employee Gifts Not Deductible
With the Mid-Autumn Festival approaching, many business owners have asked whether the input tax on gifts purchased for clients or employees can be claimed as a deduction against output tax during VAT filing.
The Kaohsiung National Taxation Bureau explains, according to Value-Added and Non-Value-Added Business Tax Act Articles 19-1, input tax arising from gifts given for entertainment or as welfare to employees may not be declared as deductible against output tax. Such expenditures are viewed as non-business promotional expenses or employee rewards, rather than costs directly tied to taxable business operations.
Example is as follows.
Company A purchases 100 mooncake gift boxes from Company B at NTD1,050 each (total purchase amount NTD100,000 with VAT NTD5,000) for distribution to clients and employees. If Company A incorrectly claims the NTD5,000 input tax as deductible, it violates the above VAT rules and may be subject to back taxes plus penalties.
Additionally, when a business distributes souvenirs to shareholders during a general meeting and such items are unrelated to core business operations, the input tax similarly cannot be deducted.
Businesses that have wrongly claimed such input tax should proceed promptly to voluntarily file an amended return and settle the owed tax to avoid further penalties, per Article 48-1 of the Tax Collection Act.
