Taiwan: Considerations to reduce withholding tax on cross-border service fees

Taiwan: Considerations to reduce withholding tax

Remunerations paid to foreign company for providing cross-border services to a Taiwan domestic company generally are subject to withholding tax.

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In some instances, the Taiwan company tends to regard such payments as the foreign company’s Taiwan-source income and thus withholds tax of the gross amount (at a rate of 20%) at the time of making the payments to avoid any potential penalty for a failure to withhold tax.

The amount of the payments for the cross-border services that is subject to withholding tax is usually the gross amount. This withholding typically does not take into consideration the location of the foreign services provider or the relevant costs and expenses incurred in providing the services, and in turn this can result in an increased tax burden for the foreign service provider. 

There may be methods available to reduce the withholding tax burden. For example, if the service is conducted entirely from outside of Taiwan and without any Taiwanese parties' participation and assistance, then the foreign service provider could claim that the service remuneration received is non-Taiwan-sourced income and is exempt from withholding tax. However, in practice, whether a Taiwanese individual or company is involved in the process of providing services is subject to a case-by-case determination. While there are no firm guidelines, there are commonly used approaches that take into consideration the effective tax rates and other processes.
 

Read a December 2020 report [PDF 289 KB] prepared by the KPMG member firm in Taiwan

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