2014/04/24 15:34:15
Taiwan company incorporation Q&A (4)
1. What determines the extent of a company’s liability to pay Taiwanese income tax?
According to Article 3 of the Income Tax Act, for any profit-seeking enterprise having its head office within the territory of Taiwan, profit-seeking enterprise income tax (which is equivalent to corporate tax) will be levied on its total profit-seeking enterprise income derived within or outside of the territory of Taiwan; whereas for any profit-seeking enterprise having its head office outside of the territory of Taiwan but having income derived from sources in Taiwan, profit-seeking enterprise income tax will be levied on its profit-seeking enterprise income derived within the territory of Taiwan.
2. How is residence treated for tax purposes?
For any individual having income from sources within the territory of Taiwan, income tax will be levied in Taiwan on his/her income from those sources. Specifically, in the case of an individual residing in Taiwan, income tax will be levied on the amount that remains after deducting certain items from his/her consolidated income from sources within the territory of Taiwan (excluding income that is exempt from tax) at a progressive tax rate from 6% to 40%. On the other hand, in the case of an individual not residing in Taiwan, income tax will be levied on his/her income from sources within the territory of Taiwan at the prescribed flat rate (20% at present).
According to Article 7, paragraph 1 of the Income Tax Act, an “individual residing in Taiwan refers to (1) a person who has domicile within the territory of Taiwan and resides at all times within the territory of Taiwan; or (2) a person who has no domicile within the territory of Taiwan but stays in the territory of Taiwan for a period of more than 183 days during a taxable year. Therefore, if a foreign national stays in the territory of Taiwan for a period of more than 183 days, according to Article 2, paragraph 1 of the Income Tax Act, the foreign national must file a personal income tax return.
3. What is the corporate tax rate and how is it applied?
According to Article 5, paragraph 5 of the Income Tax Act, the minimum taxable amount, tax brackets and rates for profit-seeking enterprise income tax are as follows:
(1) If the total taxable income of a profit-seeking enterprise is NT$120,000 or less, the profit-seeking enterprise is exempt from tax.
(2) If the total taxable income of a profit-seeking enterprise is more than NT$120,000, the income tax rate is 17% in principle.
However, if the income tax calculated by this tax rate exceeds one half of the portion of taxable income over NT$120,000, the income tax shall be the amount of the excess over the one half of the portion of taxable income over NT$ 120,000.
4. What is the tax rate applicable to foreign companies on their income earned in Taiwan?
The method by which a foreign company makes corporate income tax payments levied in Taiwan depends on whether the foreign company has established a fixed place of business in Taiwan or not.
(1) Where a foreign company has a fixed place of business in Taiwan
The Statute for Upgrading Industries provided relevant tax incentives for foreign investments; however, it was abolished on December 31, 2009. In response to its abolition, and in order to continuously promote foreign investments in Taiwan, Article 5, paragraph 5 of the Income Tax Act was amended accordingly on May 27, 2009. As of January 1, 2010, the corporate income tax rate has been reduced from 25% to 20%. In addition to the amendment in 2009, the proposed amendment of the aforementioned provision with regard to the corporate income tax rate was approved. As a result, the corporate income tax rate has been reduced from 20% to 17% retroactively from January 1, 2010. Please refer to the answer to question 3 for details on this provision.
(2) Where a foreign company does not have a fixed place of business in Taiwan
According to Article 88, paragraph 1, item 2 of the Income Tax Act, income paid to a foreign profit-seeking enterprise having no fixed place of business or business agent within the territory of Taiwan is subject to withholding tax. According to Article 92, paragraph 2 of the same Act, the tax withholders must, within ten days from the date of withholding, effect payment to the national treasury of all the taxes withheld from income paid to the taxpayers (i.e., foreign profit-seeking enterprise). Afterwards, the tax withholders shall submit withholding certificates to the local collection authority in charge for verification, and shall issue the certificates to each of the taxpayers (i.e., foreign profit-seeking enterprise).
5. What other taxes are payable in Taiwan?
According to Article 4 of the Subdivision of Financial Income and Expenditure Act, there are two types of taxes payable in Taiwan, national taxes and local taxes. Please see the following list of some of the key taxes under each category.
(1) National Taxes
National taxes include personal income tax, corporate income tax, estate and gift tax, customs, commodity tax, tobacco and alcohol tax, business tax, futures transaction tax, securities transaction tax, and mineral tax, etc.
(2) Local Taxes (including county, city and other local governments)
Local taxes include land value tax, land tax, land value increment tax, license tax, stamp tax, housing tax, entertainment tax, and deed tax, etc.
6. Is there a tax on dividends?
According to Article 14 of the Income Tax Act, “income from profit-seeking activities is included in the calculation of personal income tax. Furthermore, the so-called “income from profit-seeking activities include the gross dividends received by each shareholder of a company, the gross surplus profit received by each member of a cooperative, the gross surplus profit payable each year to each partner of a profit-seeking partnership, the gross surplus profit derived each year by a sole proprietor from the operation of an enterprise invested solely by him/her, and the surplus profit derived by an individual from incidental trading activities. Therefore, income tax will be levied on dividends as “income from profit-seeking activities.?
7. Are payments subject to withholding tax?
(1) Income subject to withholding tax
According to Article 88 of the Income Tax Act, income subject to withholding tax can be divided into two categories as follows.
(a) Net dividends distributed by a company to an individual not residing in the territory of Taiwan or profit-seeking enterprise having its head office outside the territory of Taiwan; or the net surplus profits distributed by a cooperative, partnership or a wholly-owned organization to its member, partner or sole investor not residing in the territory of Taiwan.
(b) Salary, interest, rental, commission, royalty, cash award or prize given in a contest or game competition, lottery prizes, retirement pay, severance pay, separation pay, resignation pay, life-time pension, old-age pension not covered by insurance benefits, reward for information or accusation, income from transactions in structured products, and fees for professional practices paid by any organization, institution, school, enterprise, bankruptcy estate, or practitioner of profession, and the income paid to a foreign profit-seeking enterprise having no fixed place of business or business agent within the territory of Taiwan.
(2) Method of withholding
According to Article 92 of the Income Tax Act, the tax withholders must, within the 10th day of each month, effect payment to the national treasury of all the taxes withheld in the previous month, and, before the end of January of each year, issue withholding certificates and submit them to the local collection authority in charge to verify the amounts of tax withholdings from the taxpayers in the preceding year, and issue a receipt of the withholding certificates to each of the taxpayers before February 10 of each year.
In the case of a non-resident individual or a profit-seeking enterprise without a fixed place of business in Taiwan but having income as enumerated under Article 88, the tax withholder must within ten days from the date of withholding, effect payment to the national treasury of all the taxes withheld, issue withholding certificates to the taxpayer after submitting them to the local collection authority in charge for verification. The same shall apply in the case of net dividends or earnings received by a profit-seeking enterprise having its head office outside the territory of Taiwan but having a fixed business place within the territory of Taiwan.
8. Is capital gains tax payable in Taiwan?
(1) Personal income
According to Article 14 of the Income Tax Act, “income from property transactions is included in the calculation of income tax. The method of calculating the amount of the aforementioned income from property transactions is as follows: (1) where the property or right was originally acquired at a price, the amount of the income is the transaction price after deduction of the original cost and all expenses necessary for acquisition, improvement and ownership transfer of that asset; (2) where the property or right was originally acquired through succession or donation, the amount of the income is the transaction price after deduction of the value prevailing at the time of succession or donation and all expenses necessary for acquisition, improvement and ownership transfer of that property or right; (3) one-half of the amount of income of an individual derived from transactions in registered stocks or registered corporate bonds issued by a company limited by shares, or public bonds issued by governments of all levels, or development bonds issued by banks under the approval of government, if the individual has held such stocks or bonds for a period of one year or longer, is considered a part of his income in the taxable year, while the other one-half is exempted from income tax.
However, it should be noted that where the object of the property transaction involves goods such as land, shares, and futures, according to Articles 4, 4-1 and 4-2 of the Income Tax Act, the income generated there from is exempted from income tax.
(2) Corporate income tax
According to Article 24 of the Income Tax Act, the amount of income of a profit-seeking enterprise is the net income calculated by deducting all costs, expenses, losses and taxes from the gross yearly income. Thus, if there is any surplus after the deduction of the relevant costs such as the costs of purchasing assets and transaction expenses from the proceeds generated from the property transaction, the amount of surplus is included as taxable income.
4. What is the tax rate applicable to foreign companies on their income earned in Taiwan?
The method by which a foreign company makes corporate income tax payments levied in Taiwan depends on whether the foreign company has established a fixed place of business in Taiwan or not.
(1) Where a foreign company has a fixed place of business in Taiwan
The Statute for Upgrading Industries provided relevant tax incentives for foreign investments; however, it was abolished on December 31, 2009. In response to its abolition, and in order to continuously promote foreign investments in Taiwan, Article 5, paragraph 5 of the Income Tax Act was amended accordingly on May 27, 2009. As of January 1, 2010, the corporate income tax rate has been reduced from 25% to 20%. In addition to the amendment in 2009, the proposed amendment of the aforementioned provision with regard to the corporate income tax rate was approved. As a result, the corporate income tax rate has been reduced from 20% to 17% retroactively from January 1, 2010. Please refer to the answer to question 3 for details on this provision.
(2) Where a foreign company does not have a fixed place of business in Taiwan
According to Article 88, paragraph 1, item 2 of the Income Tax Act, income paid to a foreign profit-seeking enterprise having no fixed place of business or business agent within the territory of Taiwan is subject to withholding tax. According to Article 92, paragraph 2 of the same Act, the tax withholders must, within ten days from the date of withholding, effect payment to the national treasury of all the taxes withheld from income paid to the taxpayers (i.e., foreign profit-seeking enterprise). Afterwards, the tax withholders shall submit withholding certificates to the local collection authority in charge for verification, and shall issue the certificates to each of the taxpayers (i.e., foreign profit-seeking enterprise).
5. What other taxes are payable in Taiwan?
According to Article 4 of the Subdivision of Financial Income and Expenditure Act, there are two types of taxes payable in Taiwan, national taxes and local taxes. Please see the following list of some of the key taxes under each category.
(1) National Taxes
National taxes include personal income tax, corporate income tax, estate and gift tax, customs, commodity tax, tobacco and alcohol tax, business tax, futures transaction tax, securities transaction tax, and mineral tax, etc.
(2) Local Taxes (including county, city and other local governments)
Local taxes include land value tax, land tax, land value increment tax, license tax, stamp tax, housing tax, entertainment tax, and deed tax, etc.
6. Is there a tax on dividends?
According to Article 14 of the Income Tax Act, “income from profit-seeking activities is included in the calculation of personal income tax. Furthermore, the so-called “income from profit-seeking activities include the gross dividends received by each shareholder of a company, the gross surplus profit received by each member of a cooperative, the gross surplus profit payable each year to each partner of a profit-seeking partnership, the gross surplus profit derived each year by a sole proprietor from the operation of an enterprise invested solely by him/her, and the surplus profit derived by an individual from incidental trading activities. Therefore, income tax will be levied on dividends as “income from profit-seeking activities.?
7. Are payments subject to withholding tax?
(1) Income subject to withholding tax
According to Article 88 of the Income Tax Act, income subject to withholding tax can be divided into two categories as follows.
(a) Net dividends distributed by a company to an individual not residing in the territory of Taiwan or profit-seeking enterprise having its head office outside the territory of Taiwan; or the net surplus profits distributed by a cooperative, partnership or a wholly-owned organization to its member, partner or sole investor not residing in the territory of Taiwan.
(b) Salary, interest, rental, commission, royalty, cash award or prize given in a contest or game competition, lottery prizes, retirement pay, severance pay, separation pay, resignation pay, life-time pension, old-age pension not covered by insurance benefits, reward for information or accusation, income from transactions in structured products, and fees for professional practices paid by any organization, institution, school, enterprise, bankruptcy estate, or practitioner of profession, and the income paid to a foreign profit-seeking enterprise having no fixed place of business or business agent within the territory of Taiwan.
(2) Method of withholding
According to Article 92 of the Income Tax Act, the tax withholders must, within the 10th day of each month, effect payment to the national treasury of all the taxes withheld in the previous month, and, before the end of January of each year, issue withholding certificates and submit them to the local collection authority in charge to verify the amounts of tax withholdings from the taxpayers in the preceding year, and issue a receipt of the withholding certificates to each of the taxpayers before February 10 of each year.
In the case of a non-resident individual or a profit-seeking enterprise without a fixed place of business in Taiwan but having income as enumerated under Article 88, the tax withholder must within ten days from the date of withholding, effect payment to the national treasury of all the taxes withheld, issue withholding certificates to the taxpayer after submitting them to the local collection authority in charge for verification. The same shall apply in the case of net dividends or earnings received by a profit-seeking enterprise having its head office outside the territory of Taiwan but having a fixed business place within the territory of Taiwan.
8. Is capital gains tax payable in Taiwan?
(1) Personal income
According to Article 14 of the Income Tax Act, “income from property transactions is included in the calculation of income tax. The method of calculating the amount of the aforementioned income from property transactions is as follows: (1) where the property or right was originally acquired at a price, the amount of the income is the transaction price after deduction of the original cost and all expenses necessary for acquisition, improvement and ownership transfer of that asset; (2) where the property or right was originally acquired through succession or donation, the amount of the income is the transaction price after deduction of the value prevailing at the time of succession or donation and all expenses necessary for acquisition, improvement and ownership transfer of that property or right; (3) one-half of the amount of income of an individual derived from transactions in registered stocks or registered corporate bonds issued by a company limited by shares, or public bonds issued by governments of all levels, or development bonds issued by banks under the approval of government, if the individual has held such stocks or bonds for a period of one year or longer, is considered a part of his income in the taxable year, while the other one-half is exempted from income tax.
However, it should be noted that where the object of the property transaction involves goods such as land, shares, and futures, according to Articles 4, 4-1 and 4-2 of the Income Tax Act, the income generated there from is exempted from income tax.
(2) Corporate income tax
According to Article 24 of the Income Tax Act, the amount of income of a profit-seeking enterprise is the net income calculated by deducting all costs, expenses, losses and taxes from the gross yearly income. Thus, if there is any surplus after the deduction of the relevant costs such as the costs of purchasing assets and transaction expenses from the proceeds generated from the property transaction, the amount of surplus is included as taxable income.
However, it should also be noted that where the object of the property transaction involves goods such as land, shares, and futures, according to Articles 4, 4-1 and 4-2 of the Income Tax Act, the income generated there from is exempted from income tax.