Question

Taiwan taxes services paid by Taiwan companies to non-resident companies overseas at a withholding tax of 20%. How does this differ from common international taxation concepts? What problems might this create? What opportunities are there to reduce the tax?

Answer 1

TAIWAN

It is officially known as Republic of China. Eventhough, it is considered not as a part of China, in reality its status is that of a de jure sovereign state or a state over which the government has no actual control.

INTERNATIONAL TAXATION ( CORPORATES) - TAIWAN HIGHLIGHTS

• Determination of residence in Taiwan - If the company is headquatered in Taiwan and is established for the purpose of making profit (not other not-for-profit organisations), then it is a resident in Taiwan. If the headquater is outside Taiwan, then it is considered non resident for tax purposes.
• Taxation on the types of income - Taiwan companies are taxed on their worldwide income, while non resident companies are only taxed on their income generated at Taiwan.
• When a Taiwanese customer gets a service from outside Taiwan, specifically e-services; it will be taxed in Taiwan, deeming it to be Taiwan- source income.
• 5% surtax on undistributed profits; however branches need not pay this tax on their undistributed profits.
• 20% - corporate tax rate in Taiwan
• When income tax is paid outside Taiwan, foreign tax credit is available subject to some conditions

PROBLEMS OF TAIWAN MODEL TAXATION

• Intergrated tax system (pooling profit seeking enterprise income with individual income) has benefited the individuals, but the businessmen still suffer.
• AMT - some private enterprises do not have to pay taxes, due to some preferential treatments.
• The problem of the profit seeking enterprise.

OPPORTUNITIES TO REDUCE TAX

• Foreign companies are subject to a 20% withholding tax in the absence of a establishment in Taiwan like a branch. This can be reduced after seeking approval from the authorised tax treaty.
• Companies that make an investment from the profits that are not distributed, within 3 years of generating the same, get relief from the payment of surtax subject to proper documentation with the authorities.
• Fixed place of business attracts a 12% AMT, given the income level exceeds NTD 500,000 and they get some tax incentives. In such a case, wise decisions need to be taken while choosing place of business as well as while availing tax incentives.