Taiwan: Income tax withholding on cross-border payments for e-services
Amendments to the rules with regard to taxes withheld on payments made to foreign companies for electronic services
Income tax withholding on cross-border payments for e-services
The Ministry of Finance on 16 December 2021 announced amendments to the rules with regard to taxes withheld on payments made to foreign companies for electronic services (e-services) provided to customers in Taiwan.
In general, Taiwanese payers must withhold tax from payments made for service income or business profit remitted to foreign companies. Because it was difficult for foreign companies to claim their actual costs and expenses in Taiwan, those rules were revised in 2018 to allow foreign companies to apply for a pre-approval for calculating their taxable income by adopting the deemed profit ratio (DPR) and contribution ratio (CR). Read a KPMG report (2018). Only foreign companies were eligible to submit a DPR/CR application with Taiwan’s tax authorities.
However, Ministry of Finance observed that some e-service recipients in Taiwan (that must withhold tax) were bearing the actual cost of the withholding tax. Because certain foreign companies were not subject to taxation in Taiwan, they were not assisting the service recipients in Taiwan in applying for the DPR/CR regime and this, in turn, was resulting in unfair taxation of those withholding the tax in Taiwan.
Accordingly, the Ministry of Finance in December 2021 amended the tax rules to allow Taiwanese persons that will bear the burden of the withholding tax on Taiwan-sourced income remitted to foreign companies to apply themselves for application of the DPR/CR regime.
For foreign companies that have already applied for DPR/CR with Taiwan’s tax authorities and that share approval letters with those withholding tax in Taiwan, the new measures will have no effect.
For Taiwanese e-service recipients, the main benefit of the amended rules is that it offers those withholding tax (if they would bear the burden of the withholding tax) to act as CPR/CR applicants without the need to seek consent or assistance from the foreign service providers for such applications.
In order for Taiwanese tax withholders to be eligible under the amended rules, the contracts or agreements between the foreign companies and Taiwanese service recipients must clearly stipulate that the Taiwanese contractors are to bear the withholding tax.
Read a January 2022 report [PDF 295 KB] prepared by the KPMG member firm in Taiwan
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