Embark on a journey into tax efficiency with our guide on Taiwan loss carry forward. In this article, we delve into the perks and strategic advantages of this financial tool, offering valuable insights to maximize your tax benefits in Taiwan. Let’s navigate the intricacies together for a smarter approach to tax planning.
What Defines Taiwan Loss Carry Forward?
Taiwan loss carry forward, as defined by the Income Tax Act, allows profit-seeking enterprises organized as companies to carry forward accumulated losses from financial activities. This provision, announced by the enterprise and duly certified by a certified public accountant, offers a strategic mechanism to offset taxable income for up to ten years. With relevant regulations enforced by the Ministry of Finance, businesses can navigate their fiscal year and address tax liability. Proper documentation, including duly certified accounting records, is essential for compliance with the tax authority, ensuring smooth implementation of loss carry forward within the stipulated tax year or calendar year.
Four Essential Conditions for Optimizing Profit and Loss Offset
1st Condition for Taiwan Loss Carry Forward:
Qualifying as a Profit-Making Entity
Entities such as sole proprietorships or partnerships established under civil law and lacking independent legal status are not considered corporate organizations and miss out on the eligibility for loss carry forward. However, organizations and groups in the public, education, charity, or cultural sectors, as clarified by the Ministry of Finance, will fall under the profit-making entity category of organizations and are able to utilize loss carry forward for the tax savings benefits.
2nd Condition for Taiwan Loss Carry Forward: Making Certain of Timely Reporting
The cut-off period for yearly filing of the business tax settlement is May, as you are required to report the previous year’s business tax settlement. Both the fiscal year with losses and the deduction year for reporting by profit-making entities of organizations must be reported in a timely manner to enjoy the profit and loss offset benefits.
However, many companies tend to opt for the convenient option of online filing when planning to report on corporate income tax, which can often lead to missing the filing deadline.
In addition, if a company happens to face a dissolution, merger, cessation, or transfer during the fiscal year, the reporting may be delayed due to the ongoing settlement or liquidation process. According to the Ministry of Finance regulations, the settlement deadline profit-making enterprises are looking at is 45 days from the date of company changes, while the liquidation deadline is within 30 days of the company’s termination.
3rd Condition for Taiwan Loss Carry Forward: Keeping Up Through Comprehensive Accounting Records
As mentioned in the explanation of loss carry forward prior to this, in the event that there are discrepancies in the accounting records, there is a high possibility of not meeting the loss carry forward regulations that are due to tax evasion. Here is what the concept of maintaining comprehensive accounting records entails.
According to the Taiwan Taxation Authority’s Circular No. 8210, other than possessing accounting books and records, it is essential to refer to the Commercial Accounting Act and the Ministry’s interpretation in relation to accounting documentation, obtain supporting documents, and account for transaction records of cost and expenses in a manner that is in line with the law.
For small and medium-sized enterprises, the proper handling of funds is crucial for trouble-free operations. In the event of failure to report income tax of over NTD$100,000, discrepancies which is more than 5% of the annual income, or utilizing improper methods to evade taxes, these are flagged as “serious situations” and will result in the inability to enjoy loss carry forward benefits.
For that reason, it is strongly advised not to compromise accounting practices for minor gains and to pass the task to experienced professionals. This will not only save a lot of time but also minimize the risk of unintended legal violations.
4th Condition for Taiwan Loss Carry Forward: Utilizing Blue Declaration Forms or Obtaining Audit from Accountants
As per Article 77 of the Income Tax Act, taxpayers employ the blue declaration form to compute their overall personal comprehensive income or to finalize declarations when engaged in the operation of two or more profit-making businesses.
The blue declaration form serves as a settlement declaration for companies or organizations involved in profit-making activities, encouraging truthful reporting. Its utilization requires approval from competent tax authorities.
The Ministry of Finance emphasizes that employing the blue declaration form enables entities to benefit from loss deduction advantages and the higher deductible entertainment expenses. Those who enlist accountants for tax audit similarly access the advantages associated with the blue declaration form.
The assistance Premia TNC can provide
From the above article, you can find that the loss carry forward involves a number of regulations. If you accidentally violate the law, you may have to pay a large amount of penalty, or you may no longer be eligible for tax benefits. With Premia TNC, you can experience seamless financial management with our comprehensive services, including monthly bookkeeping, generation of management accounts, clearing backlog accounts, and expert liaison with auditors and tax agents during financial year-end.
FAQs
Q1: What is the duration of the Taiwan loss carry forward?
A1: In Taiwan, the loss carry forward period extends up to 10 years following the year in which the loss was incurred.
Q2: Can the order of loss carry forward offset be decided independently?
A2: It is crucial to note that according to the regulations for settling and reporting profit-making businesses, when applying for a loss carry forward deduction of business income tax, the deduction order will start from the year following the loss year and proceed year by year.
