Business Tax Treatment of Compensation and Penalty Fees
Ministry of Finance of Taiwan highlighted to businesses that compensation or penalty fees arising from the sale of goods or services are considered taxable under the Business Tax Act. Such amounts form part of the sales revenue, as the sales amount includes all consideration received, including charges collected in addition to the original price.
Businesses must issue a Government Uniform Invoice(GUI) and declare business tax when these fees are related to sales activities. Fees not derived from sales activities are not taxable.
If any underreported sales are identified, businesses may file voluntary corrections and pay the corresponding tax before any investigation, which may qualify for penalty relief under Article 48-1 of the Tax Collection Act.
For example, if a company charges a customer a penalty fee due to delayed payment for delivered goods, such penalty is considered part of the sales amount. Therefore, the company must issue a GUI and report VAT accordingly.
