Many startups may involve purchasing used computers, used cars, or used office equipment from friends or relatives. However, it is not always possible to obtain Government Uniform Invoices (GUIs) from such individuals. So how can cost or expenses for startups be recorded? Such individuals do not usually keep the receipts from when they bought the materials or report the accumulated depreciation to the tax office, so how do they accrue profit from selling these used goods?
This purpose of this article is to answer the questions outlined above.
1. For the startup (the buyer) – how to claims costs or expenses
Generally speaking, the tax office will request the following evidence of the transaction:
- A purchase agreement, which includes the details of the transaction, the price, the rights and obligations of the buyers and sellers, the conditions of payment and other related information.
- Proof of payment such as a cash remittance note or a deposit book.
- Receipts signed by the seller.
- The personal trading data return provided by the seller.
Corporations should collect and preserve the evidence listed above for future tax audits.
2. For the individual seller — how to report the profit derived from selling used goods
According to a Taiwan tax ruling, the profit rate from selling personal used goods has been fixed at 6% since 1985. In other words,
Profit = Trading Value * 6%
This ruling uses the idea of ‘imputed profit’ to avoid the problem of unknown costs. The evidence requested is similar to that of the buyer company, as listed in point 1.
Lastly, we would remind the individual seller not to forget to report this income as ‘Income from profit-seeking’ just like the dividend income in the seller’s annual income tax return in May.
Conclusion & Suggestions
Buying used equipment is not only cost effective but also environmentally friendly. Also, the tax laws allow companies to declare it as costs or expenses in the same way as new materials. Although collecting and preserving competent evidence does not seem to be especially interesting, it is worthwhile when the amount is significant enough.
Image Credit:How To Buy A Used Car From A Private Seller
Our advice, comments, or analysis was made based on the relevant laws, regulations, and rulings are in effect and public available as of the date of this review and the facts and assumption given by the Client. The authorities are subject to change, which may be retroactive in their effect. We undertake no obligation to advise the Client of any changes or the developments that may affect our advice, comments, or analysis in the review or any matters set forth herein. Any changes to the authorities subsequent to the date of this review may affect the validity of the comments.