The Ministry of Finance issued the Tai-Cai-Shui-10600596370 Circular of July 26, 2017 (hereinafter, the “Circular”), which will go into effect on January 1, 2018, to abolish relevant interpretation circulars concerning the exemption of business taxes on cram school tuitions received by unregistered cram schools and companies authorized by law to set up and operate short-term cram school business.
Under Article 1, Subparagraph 5 of the Value-added and Non-value-added Business Tax Law, business taxes shall be exempt for educational services provided by schools, kindergartens and other educational or cultural institutions. The legislative objective is to raise the level of national education and reduce the cost of individuals receiving the education. Under previous circulars from the Ministry of Finance, unregistered cram schools and companies who set up and operate short-term cram school business pursuant to law were included in the scope of business tax exemption. However, after a proposal was made at the Legislative Yuan to review if there is any taxation unfairness when business taxes on cram schools for government employment and for school entrance exams are exempt, the Ministry of Finance amended previous requirements and issued this Circular to revoke such tax exemption requirement. Therefore, unregistered cram schools and those set up by companies will be subject to five-percent business taxes beginning with next year.
For cram schools set up in the name of a company, since they are profit-oriented or even very profitable and enjoy all kinds of tax incentives for enterprises, they should be excluded from the scope of business tax exemption on educational institutions. Therefore, only cram schools set up under personal applications are still eligible for the exemption.