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Taiwan: Tax relief available for foreign corporations receiving Taiwan-source income

Taiwan: Tax relief available for foreign corporations

The Ministry of Finance announced relief measures available for certain foreign companies not having a permanent establishment (PE) in Taiwan but that receive Taiwan-sourced income.

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Background

Under the current Taiwan income tax regime, foreign companies without a PE in Taiwan and that derive Taiwan-source income falling under the category of service income or business profits are subject to withholding tax. The Taiwan companies that make the underlying payment to the foreign companies are required to withhold tax if the income falls within the types of income subject to the withholding tax regime.

The relevant income tax rules allow foreign companies to claim costs and expenses incurred offshore; however, if the foreign company has been subject to income tax or withholding tax, the Taiwan tax authority, in practice, tends to challenge these claims for offshore expenses; these expenses are subject to strict scrutiny.


Tax relief under “deemed profit” approach

The Ministry of Finance on 27 September 2019 announced a change in its policy to provide certain tax relief to foreign companies affected by the prior rules.

Under this new policy, foreign companies without a PE in Taiwan can now adopt a “deemed profit” approach to calculate their taxable Taiwan-sourced income as an alternative option—instead of trying to claim actual costs and expenses incurred—and to apply for refund on amounts of overpaid withholding tax.

To invoke this treatment, foreign companies first must seek advance confirmation from the tax authority concerning the income calculation under Article 15-1. The detailed procedures for filing an application for advance confirmation are included in guidance that, in English, is known as: “Directions for foreign profit-seeking enterprises applying for issuance of assessment permission of applicable net profit ratio and domestic profit contribution ratio for calculation of income from sources in the Republic of China” (also known as the instructions for Art. 15-1 TSI guidance application).

The relief measures are effective immediately.

Read an October 2019 report [PDF 488 KB] prepared by the KPMG member firm in Taiwan

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