International Society of Primerus Law Firms

Enactment of Selective Goods and Services Sales Tax Act

Written By: Din-Fu Tsai, Esq.

Formosan Brothers

Taipei, Taiwan

I. Legislative Background and Purposes

Because the low tax rates on short-term housing and land transac-tions under the current taxation law facilitates opportunistic behaviors resulting in hikes of housing prices, the Ministry of Finance drafted the “Selective Goods and Services Sales Tax Act”, better known as “luxury tax”, in reference to similar laws and regulations of other countries. Effective as of June 1, 2011, the Act aims at narrowing the wealth gap and curbing im-proper property transactions. Revenues from the tax would be allocated to social welfare programs to help eliminate inequalities and injustices in Taiwan.

II. Subject and Method of Application

The Selective Goods and Services Sales Tax Act applies mainly to the followings:

1.    Under the new Act, a 15 percent luxury tax will be imposed on real estate not for personal use sold within one year of purchase, while a 10 percent tax will be imposed on properties sold within two years of purchase. Eleven exemptions are introduced to ensure the new tax is not levied on involuntary transactions, such as sales of real estate due to job transfers, unemployment, foreclosures, and urban development.
2.    Certain luxury goods and services will also face a 10 percent tax levy. Taxable items include cars, yachts, airplanes, helicopters and ultra-light planes that cost more than NT$3 million. Goods and services for educational, research, or experimentation pur-poses are exempted. The same luxury tax rate is applied to manufacturers and importers of furniture items, tortoise shells, coral, ivory, animal furs and hides, as well as related products over NT$500,000 apiece.
3.    Furthermore, specific membership fees amounting over NT$500,000, such as golf club membership, will be taxed at a rate of 10 percent. Refundable security deposits are not taxed.
Rather than being applied in specific regions, the Act is effective nationwide. Without transitional provisions, the Act adopts the date of contract as the initial day of taxation and the actual transaction price as the basis for taxing purposes from the date of implementation. Furthermore, the Act encourages a voluntary reportage of taxes, urging taxpayers to declare taxations towards certain competent authorities themselves. If auditors discover inaccurately declared taxes, the delinquent taxpayers will have to pay the owed amount and a fine up to three times as much as the taxes avoided.

III. A Closer Look at the Act

1.     Presale houses are not subject to the Act
Presale houses are the type of real estate with the highest po-tential of price inflation. Investors usually buy in such properties in large quantities during presale and sell them to the average home buyer to earn the price difference, resulting in price hikes in the housing market. Although this Act aims at preventing above mentioned price hikes, it may not resolve the problem because it fails to tax presale houses.
2.    The Act adopts the date of contract as the initial day of taxation
The Act adopts the date of contract rather than the date on which the ownership is transferred as the initial day of taxation, as a result, the contracting parties might fiddle with the time at which the contract was signed to avoid taxes.
3.    The Act did not require the parties to record the actual transac-tion price
The Act uses the actual transaction price as the basis for taxing purposes without forcing the buyer and seller to register this price. This may enhance the difficulty of auditing taxes in the future.
4.    The Act did not require the buyer as the collecting agent
The Act encourages voluntarily reporting taxes but does not make the buyer as the collecting agent, thus competent authorities cannot deduct luxury taxes from the purchase price in advance. This may enhance the difficulty of levying taxes in the future.
5.    The Act did not require the buyer to submit tax payment certif-icate after having registered the transfer of ownership
Due to the fact that buyers do not have the obligation under the current law to provide a certificate of paid duty when registering the transfer of ownership, the levy on luxury taxes is severed from the registration system of real estate.

IV. Conclusion

The collection of luxury taxes will help stabilize prices for real estate, enhance affordability of housing, making taxation fairer. But the full effect of this Act cannot be realized without strong auditing and enforcement sys-tems, which can effectively prevent the avoidance of taxes.

Ms. Din-Fu Tsai, associate at Formosan Brothers, obtained her LL.B. from the Division of Judicial Administration at National Taiwan University (Taiwan). Ms. Tsai specializes in the fields of civil and commercial law, criminal law, private participation in public infrastructure, government procurement, and international construction matters. E-mail:

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