Financial year end closing in Taiwan is the crucial process of summarizing and reporting financial data at the end of the fiscal year, typically in December. It ensures compliance, assesses financial health, and informs future planning. In this article, take a closer look at the financial year end closing in Taiwan and what it entails.
Financial year end closing in Taiwan: What is it about?
Business entities in Taiwan are obligated to compile their financial statements within two months following the conclusion of each fiscal year, with the option of an additional two and a half-month extension if required (specifically for entities adhering to the calendar year, this extension would encompass the period until May 15 of the subsequent year). In line with Article 65 and Article 68 of the Business Accounting Act, these financial statements, along with supporting documents, must be submitted to investors, partners, or shareholders within six months of closing the accounting year.
These actions are essential for tax purposes, as they support the income tax payable calculation, particularly for entities following the calendar year from January to December. Adherence to these timelines aligns with Taiwan’s tax law and accounting standard, ensuring compliance with the tax-based framework, and allowing businesses to maintain accurate accounting records. Additionally, it aids in the submission of necessary documents to relevant authorities, such as the Ministry of Finance, and facilitates the tracking of financial performance over previous years.
Financial year end closing in Taiwan: Why is it necessary?
The primary objective of financial year end closing within the context of businesses is to offer investors a transparent insight into the present operational status of the company. The culmination of the financial year end closing procedure also signifies the release of representatives and accounting personnel from their obligations related to the accounting matters of the ongoing year. However, it’s important to note that in instances of unlawful or inappropriate conduct, individuals may still be held liable.
This process involves the careful preparation of financial statements and supporting documents, which are pivotal for income tax calculations and adherence to tax law, particularly for entities operating within the calendar year from January to December. It ensures compliance with tax-based regulations and accounting standards, facilitating the submission of essential records to pertinent authorities, including the Ministry of Finance. Furthermore, it aids in the assessment of financial performance across prior years, promoting accountability and transparency in business operations.
Financial year end closing in Taiwan: What are the statements required?
Financial year end closing statements encompass the requisite reports that business entities are obligated to assemble at the culmination of each fiscal year. These comprehensive reports comprise essential documents and necessitate submission for approval by shareholders. The encompassed documents are as follows:
- Operating report:
This report encapsulates a detailed overview of the company’s operational activities during the fiscal year.
- Financial statements:
These encompass a suite of critical financial documents, including the balance sheet, income statement, cash flow statement, and statement of changes in equity. They serve as a comprehensive record of the company’s financial performance and position.
- Proposals for profit distribution or loss allocation:
This section outlines proposals for distributing profits or allocating losses, which have a direct impact on the company’s financial well-being.
Financial year end closing in Taiwan: Is it a necessity for foreign companies?
Foreign companies operating branches in Taiwan under foreign laws must compile financial statements at the conclusion of each fiscal year. These financial statements are to encompass an operating report, balance sheet, income statement, and cash flow statement.
When foreign companies maintain branches in Taiwan, it is mandatory to subject their financial statements to an audit under the following conditions:
- If the dedicated funds allocated for business operations within Taiwan amount to NT$30 million or higher.
- If the annual sales generated by the branch reach NT$100 million or more.
- If the number of employees within Taiwan exceeds 100 individuals.
Financial year end closing in Taiwan: Are companies required to submit yearly statements to the Ministry of Economic Affairs?
Companies in Taiwan must maintain their financial year end closing statements on their premises. The competent authority retains the discretion to dispatch inspectors or issue directives for the company to furnish these statements within a specified timeframe. Therefore, in the absence of a notice from the Ministry of Economic Affairs requesting proactive submission, the company’s obligation is limited to retaining the financial year end closing statements on-site. There is no mandatory requirement for companies to proactively submit them in such cases.
Financial year end closing in Taiwan: Is there a penalty for late submission, and who would be penalized?
In cases where a company does not submit financial year end closing statements within the stipulated timeframe as indicated in the Ministry of Economic Affairs’ notice, each director responsible for submission may incur penalties ranging from NT$20,000 to NT$100,000.
How we can help you
At Premia TNC, we offer more than just traditional accounting and auditing services in Taiwan. Our suite of accounting services includes:
- Bookkeeping (on a monthly basis).
- Accounting. Inclusive of the generation of management accounts.
- Clearing of backlog accounts.
- Liaising with auditors and tax agents during the financial year-end.
Frequently Asked Questions
Q1: Are documents submitted by foreign companies with branches in Taiwan for financial year end closing allowed to be in the foreign company's language?
A: Documents submitted for financial year end closing by foreign companies operating branches in Taiwan, including financial statements and accountant's certification reports, must be prepared in traditional Chinese.
Q2: Is it obligatory for all companies to have their financial statements audited and certified by an accountant? Are there specific deadlines, and what are the penalties for non-compliance? Who bears the penalties?
A: As per current regulations, for a limited company, financial statements must undergo auditing and certification by an accountant if any of the following conditions apply at the fiscal year's end:
*Paid-up capital is NT$30 million or more.
*Annual sales reach NT$100 million or more.
*The number of employees in Taiwan exceeds 100.
Failure to conduct financial statement audits results in penalties for all company directors, ranging from NT$10,000 to NT$50,000.
Q3: Can a tax audit serve as a substitute for a financial audit?
A: No, tax audits and financial audits serve distinct purposes and have different scopes and foundations. Thus, tax certification cannot replace the certification of financial statements.
