Foreign Commission Income Recognition
When companies receive commission payments from foreign buyers for their agent services, it is essential for companies to understand when to recognize foreign commission income for tax purposes.
For example, Company A in Taiwan introduces Company B to a U.S. company C. On December 1, 2023, Company C ships the goods (under FOB terms) and agrees to pay Company A 5% commission based on the transaction price. Although Company A does not receive the commission payment until January 20, 2024, Company A is required to recognize the commission income as of the shipping date on December 1, 2023.
If the payment comes from a country with foreign exchange controls and the commission is within the limits approved by local authorities, the date of approval from the local government should be considered as the date of revenue recognition.
Tax bureau reminds businesses that if they earn foreign commission income through international transactions, they must be aware of the timing for revenue recognition and ensure compliance with reporting requirements to avoid potential tax adjustments.
