2024/08/15 Fines Imposed on Profit-seeking Enterprises Can Not Be Deducted as Expenses or Losses

When profit-seeking enterprises are fined for violating regulations, these fines can not be reported as expenses or losses on annual income tax declaration.

The National Taxation Bureau of the Southern Area, Ministry of Finance (hereinafter “the Bureau”) stated that, fines as provided in various tax acts shall not be included as expenses or losses in accordance with Article 38 of the Income Tax Act. Because such fines are not necessary expenses for business operation, they shall not be deductible from the current-year income. Furthermore, fines under different laws and regulations are punishments for administrative violations. If these fines were allowed to be deducted as expenses or losses, the deductions would be essentially equated with subsidization of the punished with tax revenue, thereby greatly diminishing deterrent effect of the penalties. Therefore, profit-seeking enterprises shall make adjustments to exclude these fines from expenses when filing their annual income tax returns. 

The Bureau would like to remind the public that, according to Article 42-1 of the Enforcement Rules of the Income Tax Act, the various penalty fines stated in Article 38 of the Income Tax Act refer to fines imposed in accordance with various laws and regulations. In other words, not limited to tax laws, any fines imposed for administrative violations, such as environmental pollution, food safety, communicable disease control, or traffic, etc., shall not be recognized as expenses or losses.

Profit-seeking enterprises shall pay attention to the relevant regulations when declaring income tax, carefully reviewing the filing data to avoid mistakes that could lead to additional tax payment. 

Press Release Contact: Ms. Chen
Profit-seeking Enterprise Income Tax Division
TEL: 06-2223111 ext.1101