Triangular Trade and Taiwan Business Tax (VAT): Commission vs Purchase-and-Sale Accounting Explained

Note: this article summarizes public MOF tax Q&As and rulings for general understanding only. Actual filings are subject to the tax authority’s determination; please confirm with your accountant.

Two Ways to Book Triangular Trade

Item	Brokerage (commission)	Purchase and sale
Key test	Does not bear warranty liability for the goods	Bears warranty liability, with separate, independent sales contracts with the customer and the supplier
Income recognition	The margin is booked as commission or fee income	Full amounts booked as cost of purchases and sales revenue
Business tax	Margin reported as zero-rated sales (Business Tax Act Art. 7(2))	Outside the scope of business tax; no sales to report
Rulings	MOF rulings No. 7555603 (29 Jul 1986) and No. 780691662 (23 Nov 1989)	Taxation Administration ruling No. 881933421 (5 Aug 1999)
Determining brokerage vs sale	MOF ruling No. 09304525270 (2004) and No. 09404551250 (4 Oct 2005): may be determined by how it is booked	Same

Option 1: Brokerage (Commission Income, Zero Rate)

MOF tax Q&A 9216 explains that a business doing triangular trade that books the difference between letters of credit received and paid as commission or fee income may report that margin as its business tax sales and, under Article 7(2) of the Business Tax Act, apply the zero rate by attaching foreign exchange documents and transaction documents (such as the overseas customer’s and third-country supplier’s purchase orders, bills of lading or delivery notes).

Q&A 9219 covers goods imported from a third-country supplier and transshipped to the overseas customer, stating that the supporting documents may be import and export foreign exchange settlement certificates and copies of domestic and foreign letters of credit, filed with the tax authority for the zero rate (MOF ruling No. 770572584, 18 Aug 1988).

Option 2: Purchase and Sale (Outside Business Tax)

If the business signs separate, independent sales contracts with the overseas customer and the supplier and pays and receives the full amounts, it may book them as purchases and sales. Q&A 9216 explains that because the goods neither ship from nor are delivered in Taiwan, the transaction is outside the scope of business tax and no sales need be reported.

Brokerage or Purchase and Sale: How Is It Decided?

Principles summarized in MOF Q&A 9216:

• If the Taiwanese business does not bear warranty liability for the goods, it is brokerage: book the margin as commission income and report it as zero-rated sales with supporting documents.
• If it does bear warranty liability, it is a purchase and sale: book the full amounts as purchases and sales, with no business tax to report.
• Whether a deal is brokerage or a sale may be determined by how it is booked: commission income means brokerage; purchases and sales mean a sale.

In other words, the contract, the accounting and who bears quality liability must all line up. If the contract says the trader is responsible for quality and after-sales, but the books show commission income, disputes may arise in an audit.

How Are Invoices Issued in Multilateral Trade?

If a deal passes through two Taiwanese companies (for example, overseas customer → Company A → Company C → third-country supplier), MOF Q&A 9225 explains that Company A may issue a uniform invoice for the L/C margin as commission income at the zero rate, while Company C books the difference between what it receives from Company A and pays the third-country supplier as commission income and should issue a uniform invoice no later than three days after receiving the supplier’s shipping documents, keeping all records (the Q&A also notes that invoices are currently not required for exported services). See What Is Multilateral Trade?

Which Documents Should You Keep?

• Purchase orders or contracts from the overseas customer and third-country supplier
• Bills of lading, delivery notes and other shipping evidence
• Foreign exchange evidence (such as settlement certificates), L/C copies or remittance records
• Commercial invoices and packing lists
• Correspondence with buyer and supplier (showing who bears quality liability)

How Tang Sugar Can Help

The tax outcome of triangular trade depends on how the contracts and documents are designed from the start. Tang Sugar’s triangular and multilateral trade service helps set up back-to-back contracts, coordinate invoices and bills of lading, and arrange payment terms (L/C, T/T) and invoice structure so that logistics, payments and documents are consistent and auditable. We still recommend that your accountant handle tax filings. To evaluate a deal structure, contact us.

FAQ

Is triangular trade subject to Taiwan business tax?

According to MOF Q&As, if the margin is booked as commission income (brokerage), it can be zero-rated under Article 7(2) of the Business Tax Act; if full purchases and sales are booked, the deal is outside business tax because the goods neither ship from nor are delivered in Taiwan. Actual filings are subject to the tax authority.

What documents are needed to zero-rate triangular trade commission?

Foreign exchange documents and transaction documents, such as the overseas customer’s and third-country supplier’s purchase orders, bills of lading or delivery notes; for goods transshipped through Taiwan, import and export settlement certificates and copies of domestic and foreign letters of credit.

How is triangular trade classified as brokerage or a sale?

Under MOF rulings it may be determined by how it is booked; the key test is whether the Taiwanese business bears warranty liability for the goods. No liability means brokerage; liability means a sale.

How are invoices issued for triangular trade in Taiwan?

For commission accounting, an invoice is issued for the margin and reported at the zero rate; for purchase-and-sale accounting, the deal is outside business tax. For an intermediate company in multilateral trade, MOF says the invoice should be issued no later than three days after receiving the shipping documents.

Further Reading

• What Is Triangular Trade? Definition and Who It Suits
• Triangular Trade Process: Orders, Shipping, Payment and Documents
• What Is Multilateral Trade?

Sources

• MOF eTax portal: Can the L/C margin from triangular trade be zero-rated? (Q&A 9216) (in Chinese)
• MOF eTax portal: Documents for zero-rating triangular trade commission (Q&A 9219) (in Chinese)
• MOF eTax portal: Zero-rating invoices for the L/C margin in multilateral trade (Q&A 9225) (in Chinese)