Taiwan tax highlights (January 2025)
Business entity
Business entities
The available entity types include unlimited company, hybrid unlimited company, limited partnership, limited company, and a company limited by shares. Foreign companies can establish a branch office to conduct business in Taiwan.
Representative Offices (RO) can be established for liaison or placing bids but cannot 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 applicable to 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. If the AMT exceeds the regular tax liability, the company must pay the AMT. The current AMT rate is 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 incentives include income tax deductions for expenditures on research and development (R&D), 5G networks, brand-new smart machines, and information and communication security products and services. Small and medium-sized businesses may benefit from a super deduction on qualified salaries.
Withholding tax on profit repatriation
Dividends received by a resident company from another domestic company are exempt from income tax. Dividends paid by domestic companies to foreign shareholders are subject to a 21% withholding tax. The rate may be reduced if an applicable tax treaty applies. Taiwan has currently concluded more than 30 tax agreements.
Profit remittance by branch offices is not subject to withholding tax.
Withholding tax on interest, royalty, and service fee
The standard rate is 20%. The rate may be reduced if an applicable tax treaty or other preferential treatments apply.
Share transfer
Subject to additional requirements, capital gains from the disposal of shares of a domestic company by foreign shareholders are exempt from income tax, unless the company being disposed of is deemed property-rich. In such cases, the House and Land Transactions Tax (HLTT) may apply to the capital gains.
For resident companies, capital gains from the disposal of shares of a domestic company that is not property-rich are not subject to ordinary income tax but may be subject to Alternative Minimum Tax (AMT) at a rate of 12% (or 6% if the holding period is more than 3 years). If the company being disposed of is property-rich, the HLTT may apply instead.
Indirect share transfer
Indirect transfer of a domestic company by foreign shareholders is not subject to any Taiwan tax implications unless the underlying domestic company is deemed property-rich.
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 company is defined as property-rich if more than 50% of the value of its 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 their tax returns and submit a contemporaneous Transfer Pricing (TP) report if the amount of these transactions reaches specific thresholds. Additionally, there are requirements for submitting a Master File and a CbCR if certain criteria are met.
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
Starting from the 2023 taxable year, resident companies in Taiwan will be subject to Controlled Foreign Corporation (CFC) rules. According to these rules, if a resident company directly or indirectly holds 50% or more of the shares in, or has significant influence over, a foreign entity located in a low-tax jurisdiction or a jurisdiction that taxes income solely on a territorial basis, the foreign entity is deemed a CFC. The resident company must include its proportionate share of the CFC’s earnings in its taxable income if certain criteria are met.
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 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 individuals are 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 the AMT calculation. Resident individuals with AMT income exceeding the deduction of NT$7.5 million may be subject to AMT at a rate of 20%. A resident individual must pay AMT if the AMT exceeds the regular tax liability.
CFC rules are applicable to resident individuals. Resident individuals must include their proportionate share of the CFC’s earnings in AMT income if certain criteria are met. The CFC rules 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 a resident individual.
A foreign national who stays in Taiwan for 183 days in a calendar year is considered a 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 with a fixed place of business in Taiwan are required to register with the tax authority for VAT purpose.
Foreign entities that provide E-commerce services to individuals with annual turnover of NTD480,000 or more 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.