(a) For details, see Section B.
(b) Effective from 1 January 1990, income from securities transactions is not subject to regular corporate income tax. Such income is subject to alternative minimum tax. See Section B.
(c) For details and the definition of a nonresident corporation, see Section B.
(d) Payments in connection with securities issued under the Financial Asset Securitization Act or Real Estate Securitization Act and interest derived from short-term commercial paper are subject to a 10% withholding tax. In addition, they are included in the computation of the resident corporation’s taxable income and are taxed at a rate of 20%.
(e) Interest arising from short-term commercial paper, asset-backed securities, bonds, structured products and repurchase agreements underlying such financial instruments is not included in the tax computation in a resident individual’s tax return but is subject to a 10% withholding tax.
(f) The applicable tax rate for interest arising from short-term commercial paper, asset-backed securities, bonds, structured products and interest arising from repurchase agreements is 15%. Other types of interest are subject to a tax rate of 20%.
(g) The withholding of tax is not required if the licensor issues a Government Uniform Invoice (GUI).
B. Taxes on corporate income and gains
Corporate income tax. A domestic profit-seeking enterprise is subject to corporate income tax on all of its income regardless of source. All profit-seeking enterprises, including subsidiaries of foreign companies that are incorporated under the Company Law of Taiwan, are considered domestic profit-seeking enterprises. A foreign profit-seeking enterprise is subject to tax only on income sourced in Taiwan.
Place of effective management. Taiwan introduced an act containing a place of effective management regime in July 2016. Under the act, a company is regarded as tax resident in Taiwan if it is effectively managed in Taiwan. “Effective management” refers to the situation in which the company’s critical decisions are made in Taiwan, accounting and legal records are kept in Taiwan, and major business activities are executed in Taiwan. However, this act has not yet entered into force. The Executive Yuan will decide the effective date of the act.
Tax rates. The rate is 20% (increased from 17%) for tax years starting on or after 1 January 2018. For enterprises with taxable income not exceeding TWD500,000, the corporate income tax rate was 18% for 2018 and 19% for 2019.
Alternative minimum tax. The alternative minimum tax (AMT) applies to domestic profit-seeking enterprises and foreign profitseeking enterprises that have a fixed place of business or business agent in Taiwan, if the enterprise’s base income exceeds TWD600,000. The AMT is calculated in accordance with the following formula:
AMT = (basic income – deduction of TWD600,000) × 12%
Basic income equals the sum of the following items:
• Taxable income
• Tax-exempt income under the Statute for Upgrading Industries and other tax-incentive regulations
• Income from transactions in securities and futures
• Tax-exempt income of offshore banking units
If the regular income tax equals or exceeds the AMT, only the regular income tax is payable. The regular income tax equals tax
payable calculated under the Income Tax Law, less tax credits. If the regular income tax is less than the AMT, the difference between regular income tax and the AMT is payable in addition to the regular income tax. The additional tax payment cannot be offset by tax credits.
Tax incentives. A new Statute for Industry Innovation (SII) was announced and published on 12 May 2010 to replace the old Statute for Upgrading Industries (SUI), which expired on 31 December 2009. In comparison to the SUI, the SII retains only the tax incentive for expenditure spent on research and development (R&D) activities and offers other non-tax subsidies for various qualified activities. Under the SII, enterprises may claim up to 15% of their R&D expenditures as a credit to offset against their corporate income tax payable in the current year only or claim up to 10% of their R&D expenditures as a credit to offset against their corporate income tax payable in three years, with a maximum credit of 30% of the tax payable. The SII is effective from 1 January 2010 through 31 December 2029. The tax incentives obtained before the expiration of SUI remain effective after the expiration of SUI. Amendments were made to the SII in November 2017. Under the amendments, a venture capital limited partnership started from 2017 to 2029 that meets some requirements and obtains the regulator’s approval can be treated as a pass-through entity rather than as a taxable corporate entity for 10 years from its startup. Under an amendment made to the SII in July 2018, from 2018, profit-seeking enterprises may use their undistributed earnings to construct or purchase buildings, software or hardware equipment, or technology for their operation, as needed, within three years after the year in which such earnings are derived. This investment can be deducted from the undistributed earnings in the current year’s undistributed earnings calculation under Article 66-9 of the Income Tax Act.
In addition, on 18 February 2022, the Executive Yuan amended Article 10-1 of the SII to extend the date for investment in artificial-intelligence machinery or 5G-related equipment to 31 December 2024 and to include the products or services of cybersecurity in the scope of the investment deduction. This amendment gives tax credits to enterprises that invest in the artificial-intelligence machinery or 5G-related equipment, technology or services or the products or services of cybersecurity and that meet relevant requirements, including the following:
• Tax credits cannot exceed 30% of a company’s tax liability for the year of the investment. Enterprises can choose between a one-time 5% reduction to their income tax for the year or a three-year 3% tax reduction.
• The expenditure must be at least TWD1 million and is capped at TWD1 billion in a tax year.
• The expenditure must be made between 1 January 2019 and 31 December 2024 (for the products or services of cybersecurity, the period is from 1 January 2022 to 31 December 2024).
On 2 November 2020, Taiwan’s Ministry of Economic Affairs and Ministry of Finance issued a new tax ruling (no.10904604900 and no.10904670180), which amends some articles of the regulations governing the application of R&D tax credits for corporations and limited partnerships. The key aspects of the amendment
tax-exempt amount of 8.5% of dividend income (capped at TWD80,000) or have dividends taxed separately at a flat rate of 28%.
Dividends received by resident companies from other resident companies are exempt from corporate income tax.
Foreign tax relief. A tax credit is allowed for foreign income tax paid directly by a domestic profit-seeking enterprise, but it may not exceed the additional amount of the Taiwan tax resulting from the inclusion of the foreign-source portion in the profit-seeking enterprise’s total income.
C. Determination of trading income
General. Income for tax purposes is computed according to Taiwan’s generally accepted accounting principles, adjusted for certain provisions included in the tax code.
Necessary and ordinary expenses of a profit-seeking enterprise are deductible, provided these are adequately supported by documentation. The guidelines of Examination of Income Tax of ProfitSeeking Enterprises, promulgated by the Ministry of Finance, provide guidance for determining deductible business expenses. Transactions must conform to regular business practice; otherwise, tax authorities may assess tax based on standard profit margins derived from industry statistics.
If the income of a company consists of both taxable income and exempt income, the costs, expenses or losses, except for those that are attributable to the taxable income and exempt income in a direct, reasonable and definite way, must be allocated to taxable income and exempt income based on certain permitted methods.
Tax exemptions. A foreign enterprise engaging in international transportation that derives income in Taiwan is exempt from tax if Taiwan and the home jurisdiction of the foreign enterprise have entered into an international transportation income tax agreement, which provides reciprocal treatment to Taiwan international transportation enterprises operating in the foreign jurisdiction.
Gains on sales of land had been exempt from income tax. However, see Capital gains in Section B for the Taiwan tax implications if the transaction of a house and land meets the criteria of the House and Land Transactions Income Tax 2.0.
On approval from the competent authority, royalties paid to a foreign enterprise for the use of its patent rights or trademarks, or for the licensing of other special rights, may be exempt from tax if the licensed rights are used to introduce new production technology or products, improve product quality or reduce production cost. In addition, service fees received by foreign enterprises for rendering technical services in the construction of a factory for certain strategically important enterprises (SIEs) and royalties for the licensing of patents to SIEs may also be exempt from tax on approval.
A foreign-based corporate taxpayer that is engaged in international transportation, construction contracting, technical service provision, or machinery and equipment leasing may apply to use a deemed-profit-rate method (15% in general, and 10% for
international transportation business) in determining its taxable income in Taiwan if it is difficult to calculate the costs and expenses arising from the conduct of the business in Taiwan.
Interest received by a foreign financial institution for offering financing facilities to its Taiwan branch offices or other financial institutions in Taiwan is exempt from tax. With the approval of the Ministry of Finance, interest received by a foreign financial institution for extending loans to legal entities in Taiwan for financing important economic construction projects is also exempt from tax.
Inventories. Inventories are valued for tax purposes at the lower of cost or net realizable value. In determining the cost of goods sold, specific identification, first-in, first-out (FIFO), weighted average, moving average, or any other method prescribed by the competent authority may be used. However, the use of two different cost methods in one fiscal year is not allowed.
Provisions. Provisions for a retirement fund approved by the authorities are deductible in amounts up to 15% of the total payroll. The applicable percentage depends on whether the fund is managed separately from the business entity and whether it conforms to the provisions of the Labor Standards Law.
Allowance for bad debts is limited to 1% of the balance of outstanding trade accounts and notes receivable (secured or unsecured) at year-end.
Tax depreciation, depletion and amortization. A taxpayer may claim a depreciation deduction for most property (except land) used in a trade or business. Depreciation may be computed using the straight-line, fixed percentage on diminishing book value method, working-hour method, sum-of-the-years’-digits method or production-unit method. Under the working-hour method, depreciation is computed based on the number of working hours that a depreciable asset is used in a tax year. The time periods over which an asset may be depreciated are specified by the tax authorities. The following are some of the applicable time periods.
Companies may use the accelerated depreciation method if they meet certain criteria.
Depletion of assets in the form of irreplaceable resources can be computed either based on the production units or methods provided by the Table of Depletion Assets promulgated by the Ministry of Finance. This method must be applied consistently from year to year. In addition, a taxpayer may claim an amortization deduction for intangibles and organizational expenses. Business rights (for example, commercial rights for operating public utility, telephone, public transportation, shipping and air transportation businesses) and copyrights are amortized over
Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Project. The amendments apply to the profitseeking enterprises’ income tax returns starting with the 2017 tax year.
However, a Taiwan profit-seeking enterprise that is an affiliate of a multinational enterprise (MNE) group can be exempt from submission of the Master File if the sum of the net operating revenue and non-operating revenue in the current year is less than TWD3 billion or if the aggregate amount of cross-border controlled transactions in the current year is less than TWD1.5 billion.
A Taiwan profit-seeking enterprise that is an affiliate of an MNE group can be exempt from submission of the CbCR if the following criteria are met:
• The Taiwan profit-seeking enterprise is the Ultimate Parent Entity (UPE) of an MNE group, and the total consolidated revenue of the group in the preceding year was less than TWD27 billion.
• The UPE of the MNE group is not within the jurisdiction of Taiwan and one of the following conditions applies:
The jurisdiction in which the UPE is a tax resident has established the CbCR requirement, and the MNE group meets the safe harbor rules of the jurisdiction.
The jurisdiction in which the UPE is a tax resident has not established the CbCR Requirement, and the Surrogate Parent Entity (SPE) meets the safe harbor rules of the jurisdiction in which the SPE is a tax resident.
The jurisdiction in which the UPE is a tax resident has not established the CbCR requirement, there is no SPE, and the Taiwan safe harbor rules are met.
It satisfies for the condition of the safe harbor of the Master File, namely the sum of its net operating revenue and nonoperating revenue in the current year is less than TWD3 billion or the aggregate amount of its cross-border controlled transactions in the current year is less than TWD1.5 billion.
Even if the safe harbor rules are met, the Taiwan profit-seeking enterprise is still required to submit the Master File or CbCR to the tax authority on request for audit if the MNE group is obligated to submit these documents based on the request of the other tax jurisdiction.
On 15 November 2019, the Taiwan Ministry of Finance issued a new tax ruling that provides guidelines for making a one-off transfer-pricing adjustment. Because foreign related-party transactions of profit-seeking enterprises with an overseas parent are often not carried out at the expected terms of the group’s transferpricing policy, there has been a need for one-off transfer-pricing adjustments. From the 2020 fiscal year, profit-seeking enterprises can conduct one-off transfer-pricing adjustments if they are carried out prior to the end of the year and meet the relevant required criteria. As outlined in the regulation, the relevant duties and taxes (for example, customs duty, value-added tax, commodity tax and withholding tax) are paid or refunded based on the adjusted transfer price.