Taiwan tax highlights (January 2024)
Business entity
Business entities
The available entity types include an unlimited company, a hybrid unlimited company, limited partnership, limited company, and a company limited by shares. A foreign company is also allowed to establish a branch office to conduct business in Taiwan.
A foreign company can establish a representative office (RO) for activities such as liaison or placing bids in Taiwan. However, RO is not allowed to engage in profit-generating activities.
Resident company
A company that is incorporated in Taiwan or incorporated offshore, but its effective management is in Taiwan is considered a resident company.
Corporate taxation
Basis of taxation
A resident company is liable for taxes on its worldwide income. A nonresident company, including a branch office of foreign company, is only subject to tax on its Taiwan source income.
Corporate income tax rates
The statutory tax rate is 20%, with a potential additional 5% surtax on undistributed earnings for resident companies.
If certain income is exempt from regular income tax according to relevant laws and rules, a resident company may need to calculate its tax liability under the Alternative Minimum Tax (AMT) using a separate set of rules. The company must pay AMT if it exceeds the regular tax liability, and the current AMT rate is at 12%.
Net operating loss (NOL)
10 years carry forward. Carryback is not allowed.
Tax incentives
Tax incentives are merely available to resident companies and limited partnerships. Common tax incentives include income tax deduction to expenditures on R&D, 5G networks and brand-new smart machines. Small and medium-sized businesses may benefit from a super deduction on salaries. Income tax deduction incentive for 5G networks and smart machinery investments is available until 2024.
Withholding tax on profit repatriation
Dividends received by a resident company from another domestic company are exempt from income tax. Dividend paid by domestic companies to foreign shareholders is subject to a 21% withholding tax, the rate could be reduced if applicable tax treaty applies. Taiwan has currently concluded more than 30 tax agreements.
Branch profit remittance is not subject to withholding tax.
Withholding tax on interest, royalty, and service fee
The normal rate is 20%, the rate could be reduced if applicable tax treaty or other preferential treatments apply.
Share transfer
Subject to additional requirements, capital gain on disposal of shares of a domestic company by foreign shareholders is exempt from income tax, unless the company being disposed is deemed property rich. In such cases, the House and Land Transactions tax may apply when capital gain arises.
Capital gain on disposal of shares of a domestic company which is not property rich by domestic companies is not subject to ordinary income tax but could be imposed AMT at a rate of 12% (6% if the holding period is more than 3 years). If the company being disposed of is property rich, the House and Land Transactions tax could apply instead.
Indirect share transfer
Indirect transfer of a domestic company is not subject to any Taiwan tax implications unless the underlying domestic company is a property rich company.
House and Land Transactions tax (HLTT)
Capital gain arising from the transfer of real property, including the transfer of shares in a property rich company, may be subject to HLTT. HLTT is imposed separately from corporate income tax. A property rich company is defined as one where more than 50% of the value of the company’s shares comprises real property located in Taiwan.
HLTT rate varies from 15% to 45% for resident individuals, depending on the length of the holding period of real property. For resident companies, the rates range from 20% to 45%. HLTT rate for nonresidents is 45%, if the holding period is less than 2 years, the rate is 35% if the holding period is more than 2 years.
Transfer pricing (TP)
Taxpayers may need to disclose related party transactions in tax returns and submit a contemporaneous TP report if the amount of these transactions reaches specific thresholds.
Thin capitalization rules
Generally, debt to equity ratio is 3:1. Interest on excess portion of related party loan is not deductible.
Controlled Foreign Company (CFC) rules
Commencing from the 2023 taxable year, resident companies will be subject to CFC rules. According to the rules, if a resident company directly or indirectly holds 50% or more of shares in, or has significant influence over, a foreign entity located in a low-taxed jurisdiction or a jurisdiction that taxes income solely on a territorial basis, the foreign entity is deemed a CFC. Pending further clarification, the resident company should include its proportionate share of the CFC’s earnings in taxable income.
Prior to the implementation of the CFC rules, taxation on foreign entity’s earnings could be deferred until the earnings were actually distributed to the Taiwan parent company.
Tax administration
An annual income tax return must be filed within 5 months following the end of the fiscal year (e.g., calendar year end or other fiscal year end approved by tax authority). Extension of filing is not available.
Individual taxation
Basis of taxation
Income tax is imposed on Taiwan source income for resident and nonresident individuals.
Income tax is charged at progressive rates up to 40% for resident individuals. Nonresident individuals, subject to certain conditions, are subject to withholding tax on the Taiwan source income received, the withholding tax rate varies from 15% to 20%, depending on the nature of the Taiwan source income.
Resident individual is subject to AMT. Under the AMT regime, certain income, such as foreign source income and capital gain from the disposal of private companies not covered by regular income tax, is assessed and included in AMT calculation. Resident individual who has AMT income exceeds the deduction of NT$6.7 million could be subject to AMT at 20%. A resident individual must pay AMT if the AMT exceeds regular tax liability.
CFC rules are applicable to resident individuals. Subject to further determination, resident individuals should include their proportionate share of the CFC’s earnings in AMT income. The CFC rules will come into effect from January 1, 2023, for resident individuals.
Resident individual
An individual who has household registration in Taiwan and either stays in Taiwan for more than 31 days in a calendar year or has vital interests in Taiwan is considered resident individual.
A foreign national who stays in Taiwan for 183 days in a calendar year is considered resident individual.
Tax administration
The tax year is calendar year. Resident individuals or foreign nationals who stay in Taiwan for more than 90 days in a calendar year are subject to filing income tax return before departure from Taiwan or in May of the year following the tax year. Extension of filing is not available.
Value added tax (VAT)
Taxable transaction
VAT applies to sales of goods, imports, and the provision of services.
Rate
The normal rate is 5%. 0% rate is possible for export of goods or services, or sales made to special tax zones.
Registration
Business entities which have fixed place of business in Taiwan are required to register with the tax authority for VAT purpose.
Foreign entities which provide E-commerce services to individuals with annual turnover of NTD480,000 are required to register with the tax authority for VAT purpose.
VAT administration
The VAT return is required to be filed every two months, and tax payment, if any, has to be paid before or on filing of the return.
Disclaimer
The information provided by Yapro, CPAs is for general information purposes only. The information is provided in good faith, however we make no representation or warranty regarding adequacy, availability, or completeness of any information appeared here or on our website. The relevant tax laws/ rules should always be consulted to determine the appropriate rates and/or applications in specific circumstances.