Should Business Entities Issue Uniform Invoice for Default Fine or Indemnity Received from Selling Goods or Services?
National Taxation Bureau of Kaohsiung, Ministry of Finance expressed that recently it has received calls to asked whether a uniform invoice should be issued for default fine or indemnity?
The Bureau stated that in accordance with Articles 1 and 16 of the Value Added and Non-Value-Added Business Tax Act, sales of goods, services or imported goods within the territory of the Republic of China shall be subject to business tax; The full consideration for the sales of goods or services for a business entity, including all fees charged by the business entity for the sales of goods or services. Therefore, if the default fine or indemnity obtained by the business entity comes from the sales of goods or services, a uniform invoice should be issued to pay the business tax. Otherwise, if it is not obtained for the sales of goods or services, it is not within the range of business tax.
The bureau exemplified that Company A sells 1 machine worth of NT$ 1 million (the same below) to Company B. In order to ensure the transaction, the two parties specified in the contract, if the company B defaults, a default fine of NT$100,000 should be paid to Company A; also agreed that Company A should deliver within the agreed period. If Company A fails to deliver the goods within the period, an indemnity of NT$50,000 must be paid to Company B for overdue delivery. According to the example, if Company B fails to purchase the machine after the contract signed, the default fine of NT$100,000 Company A received from Company B, so a uniform invoice should be issued according to the regulations and pay business tax. If Company A fails to deliver the machine to Company B as scheduled, the indemnity of NT$50,000 Company B received from Company A for overdue delivery is not resulted from the sales tax or service of Company B, so is not within the range of business tax and a uniform invoice does not need to be issued.
The bureau reminded that if the business entity obtains default fine or indemnity due to sales of goods or services, a uniform invoice should be issued to pay business tax, so as not to be penalized by the tax authorities.
Contact: Mrs.Liou, the Revenue Officer of the Fourth Examination Division
TEL: 07-7256600 ext.7311