Business Tax on Forfeited Lease Deposits
The National Taxation Bureau of Taipei states that if a tenant ends a lease early and forfeits the deposit, the landlord—if a business operator—must treat the amount as taxable income.
According to tax laws, such forfeited deposits are considered breach penalties and are part of sales revenue. Therefore, they must be included in the business’s taxable income, with a GUI issued and business tax paid.
Even though the payment arises from a breach of contract, it is still regarded as compensation for services, and tax obligations apply accordingly.
For example, Corporate business entity A, which leases office space, and startup company B entered into a one-year lease agreement in January 2025, with a security deposit of NTD 60,000. The contract included a clause stating that if the lease was terminated early, the entire deposit would be retained by A.
After signing the contract, company B relocated its office in April of the same year due to business expansion. As a result, company A received the full deposit amount of NTD 60,000. In this case, the NTD 60,000 should not be treated merely as a penalty but must be recognized as income. Therefore, this amount must be included in taxable income, and a GUI must be issued along with the payment of business tax.
