Taiwan's Ministry of Finance amended and promulgated certain provisions of the Regulations Governing the Collection of Commodity Tax, recently.

Effective January 1st, 2027, electric vehicle manufacturers and importers may apply to their local National Taxation Bureau or the customs office at the port of import for bonded tax-exempt factory release or importation, replacing the current "pay-first-refund-later" mechanism.

According to sources, Tesla, the largest importer, currently has approximately NTD 500-600 million (US$ 15.7-18.8 million) tied up annually under the existing system, while the new regime is initially estimated to reduce this amount by roughly 80%.

Li Chih-chung, Deputy Director-General of the Department of Taxation, said the current commodity tax reduction for electric vehicles operates on a "pay-first-refund-later" basis. Manufacturers and importers must first pay commodity tax at half the prescribed rate when electric vehicles leave the factory or are imported. After consumers purchase the vehicles and complete licence-plate registration, the tax is refunded. The process ties up manufacturers' capital, increases compliance costs and adds to the collection, review and refund workload of the National Taxation Bureau and customs authorities.

The amendment introduces a bonded tax-exemption system with post-hoc case closure. From January 1st, 2027, manufacturers and importers may apply for bonded tax-exempt factory release or import clearance for fully electric vehicles before they leave the factory or are imported, and subsequently complete case closure after licence-plate registration.

Businesses must complete licence-plate registration within one year from the first day of the month following vehicle import release or factory shipment and apply for case closure with the customs office at the port of import or their local National Taxation Bureau. If case closure cannot be completed within the prescribed period, businesses must either apply for an extension or pay the commodity tax in advance. Extensions are limited to six months. Failure to close cases by the deadline will result in back taxes and the revocation of bonded tax-exemption eligibility.

Ministry of Finance officials said imported electric vehicles rarely remain unsold for more than one year and that the one-year case closure period should cover most normal sales scenarios.

The Department of Taxation provided an example to illustrate the difference between the two systems. If a business imports an electric passenger car with a dutiable value of NTD 3.2 million and 208.8 imperial horsepower (HP), the vehicle falls into the category corresponding to an engine displacement of 2,001cc or above and is subject to a 30% commodity tax rate. Under the current regulations, the importer must pay commodity tax at half the rate upon import, amounting to NTD 480,000 (NTD 3.2 million x 15%), or approximately US$ 15,000.

The tax exemption for electric passenger cars is capped at the tax amount calculated on a dutiable value of NTD 1.4 million, meaning any amount above this threshold is not exempt. After the consumer purchases the vehicle and completes licence-plate registration, the importer can apply to customs for a refund of NTD 210,000 (NTD 1.4 million x 15%), or approximately US$6,600, resulting in an actual tax burden of NTD 270,000.

Under the new system, businesses approved for bonded tax exemption with post-hoc case closure would pay NTD 270,000 in commodity tax when importing the same vehicle, calculated as (NTD 3.2 million - NTD 1.4 million) x 15%. The refundable portion would therefore not need to be paid in advance.

The amendment also clarifies labelling requirements for commissioned manufacturing of taxable goods. Where product packaging already displays a product code, manufacturers may choose to display either the name and address of the commissioned manufacturer or those of the commissioning party, according to operational requirements.

The current commodity tax reduction structure for electric vehicles varies by vehicle type and horsepower. Electric passenger cars with a maximum motor output of 208.7 imperial horsepower or below, or 211.8 metric horsepower (PS) or below, corresponding to an engine displacement of 2,000cc or less, are subject to a 12.5% tax rate. Electric passenger cars with 208.8 imperial horsepower or above, or 211.9 metric horsepower or above, corresponding to 2,001cc or more, are subject to a 15% rate. Electric motorcycles are taxed at 8.5%, while other electric vehicles, including trucks and buses, are taxed at 7.5%.

The electric vehicle commodity tax exemption policy has been extended through the end of 2030. The existing pay-first-refund-later mechanism has been criticised by industry because of its impact on working capital. Under the new system, manufacturers and importers will not need to temporarily finance the refundable portion of the tax. In Tesla's case, the annual amount tied up under the existing system is estimated at NTD 500-600 million, with the new regime initially expected to reduce this by roughly 80%. The capital could be allocated to charging infrastructure, after-sales services or other operational activities.

The impact on consumers will depend on how manufacturers currently handle tax refunds. Some manufacturers already reflect refund amounts directly in vehicle prices, meaning consumers' actual costs would not change under the new system. However, if a manufacturer currently collects the tax from consumers upfront and refunds it after receiving the tax rebate, its fee structure could change from next year, potentially reducing consumers' cash outlays at the time of purchase.

The Ministry of Finance said the bonded tax-exemption system with post-hoc case closure will reduce manufacturers' capital and tax compliance costs, as well as the administrative workload of the National Taxation Bureau and customs authorities.