Tax Planning

Document-Based Review

The expanded document-based reporting system, also known as the "lump-sum tax system," allows businesses to calculate their profit tax based on the expanded document-based profit margin set by the Ministry of Finance. Generally, this exempts them from the hassle of audit inspections.

Advantages: Businesses that qualify for document-based reporting and have profits lower than the standard set by the Ministry of Finance can simply calculate and pay their income tax based on the government-set profit margin to avoid audit inspections.

Disadvantages: However, a downside of the expanded document-based system is that businesses with actual profit margins lower than or even at a loss compared to the government standard still need to adjust their taxes upwards. This can be disadvantageous for businesses as it leads to overpayment of taxes. In such cases, businesses should consult with an accountant to consider opting for audit-based reporting for better financial planning.

Eligibility criteria set by the Ministry of Finance for businesses to apply the expanded document-based system include:

Total annual business and non-business income below NT$30 million.
Annual settlement reports with complete documentation, adjusting the net profit margin above the expanded document-based rate, and timely tax payment.
Properly maintained books of accounts and supporting documents, with self-adjustments according to law. If the adjusted net profit margin is higher than the expanded document-based rate, taxes should be filed based on the higher original rate, not reduced to the expanded rate.

In essence, the reported profit margin can only be adjusted upwards, not downwards. Businesses eligible for document-based reporting are not subject to further tax audits if they are willing to calculate and pay income tax based on the government-set profit rate, even if their actual profits are lower than the ministry's standard.

Audit Inspection

An audit inspection refers to the National Taxation Bureau's process of examining a profit-making business's accounting books, documents, and other relevant data to determine the tax payable based on their filed returns.

Advantages: Taxes are paid based on the self-compiled financial statements, which means there's no overpayment of taxes as might occur with document-based audits.
Disadvantages: The tax payable is determined primarily through an audit, so the accounting records must withstand scrutiny. If they do not, additional taxes may be assessed.

Therefore, the cost of bookkeeping may increase. However, once audited by the National Taxation Bureau, they often find ways to impose additional tax payments. To reduce the risk of direct tax audits, one can opt for an accountant-certified filing, which lessens the likelihood of being directly audited by the tax authorities.

Accountant-Certified Filing

Accounting records and documents of a business are initially reviewed by an accountant. As a principle, the National Taxation Bureau also conducts a written audit. Accountants mainly audit and certify clients' profit-seeking enterprise income tax settlement reports according to relevant tax laws and generally accepted auditing standards. They examine whether the related transactions and accounting treatments comply with tax regulations to determine the taxable income and represent the client in filing tax returns. This tax audit report can be provided to the National Taxation Bureau, helping clients avoid tax evasion or overpayment due to unfamiliarity with tax laws. Within the legal framework, accountants offer advice for reasonable tax burden planning.

The tax law specifically provides the following incentives for accountant-certified filings:

Increased entertainment expense limit: Approximately a 30% increase in deductible expenses, directly reducing the tax burden.
Loss offsetting: Losses in any of the first 10 years of a business can be deducted from the current year's income, provided that the accountant audited those loss years and the deduction year. This is especially suitable for businesses that initially incur losses.
Reduced risk of audit: The National Taxation Bureau primarily conducts written reviews based on the accountant’s audit report, reducing the likelihood of direct audits by the tax authorities and hence lowering the risk of additional tax payments.