DOING BUSINESS IN TAIWAN 2017

Transcription

1 DOING BUSINESS IN TAIWAN 2017

2 Editors: Africa: Ridha Hamzaoui, Emily Muyaa, Mei-June Soo Asia-Pacific: Mei-June Soo, Nina Umar, Ying Zhang Caribbean: Priscilla Lachman, Sandy van Thol Europe: Khadija Baggerman, Larisa Gerzova, Adrián Grant Hap, Marjolein Kinds, Ivana Kireta, Magdalena Olejnicka, Andreas Perdelwitz, Marnix Schellekens, Kristina Trouch, Ruxandra Vlasceanu Middle East: Ridha Hamzaoui, Mei-June Soo Latin America: Vanessa Arruda Ferreira, Maria Bocachica, Diana Calderon Manrique, Lydia Ogazón Juárez North America: John Rienstra, Julie Rogers-Glabush IBFD Visitors address: Rietlandpark DW Amsterdam The Netherlands Postal address: P.O. Box HE Amsterdam The Netherlands Tel.: IBFD All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the written prior permission of the publisher. Applications for permission to reproduce all or part of this publication should be directed to: permissions@ibfd.org. Disclaimer This publication has been carefully compiled by IBFD and/or its author, but no representation is made or warranty given (either express or implied) as to the completeness or accuracy of the information it contains. IBFD and/or the author are not liable for the information in this publication or any decision or consequence based on the use of it. IBFD and/or the author will not be liable for any direct or consequential damages arising from the use of the information contained in this publication. However, IBFD will be liable for damages that are the result of an intentional act (opzet) or gross negligence (grove schuld) on IBFD s part. In no event shall IBFD s total liability exceed the price of the ordered product. The information contained in this publication is not intended to be an advice on any particular matter. No subscriber or other reader should act on the basis of any matter contained in this publication without considering appropriate professional advice. Where photocopying of parts of this publication is permitted under article 16B of the 1912 Copyright Act jo. the Decree of 20 June 1974, Stb. 351, as amended by the Decree of 23 August 1985, Stb. 471, and article 17 of the 1912 Copyright Act, legally due fees must be paid to Stichting Reprorecht (P.O. Box 882, 1180 AW Amstelveen). Where the use of parts of this publication for the purpose of anthologies, readers and other compilations (article 16 of the 1912 Copyright Act) is concerned, one should address the publisher.

3 DOING BUSINESS IN ARGENTINA TAIWAN JANUARY

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5 DOING BUSINESS IN TAIWAN 2017 INTRODUCTION This publication has been prepared by the International Bureau of Fiscal Documentation (IBFD) on behalf of BDO Member Firms and their clients and prospective clients. Its aim is to provide the essential background information on the taxation aspects of setting up and running a business in this country. It is of use to anyone who is thinking of establishing a business in this country as a separate entity, as a branch of a foreign company or as a subsidiary of an existing foreign company. It also covers the essential background tax information for individuals considering coming to work or live permanently in this country. This publication covers the most common forms of business entity and the taxation aspects of running or working for such a business. For individual taxpayers, the important taxes to which individuals are likely to be subject are dealt with in some detail. We have endeavoured to include the most important issues, but it is not feasible to discuss every subject in comprehensive detail within this format. If you would like to know more, please contact the BDO Member Firm(s) with which you normally deal. Your adviser will be able to provide you with information on any further issues and on the impact of any legislation and developments subsequent to the date mentioned at the heading of each chapter. About BDO BDO is an international network of public accounting, tax and advisory firms which perform professional services under the name of BDO. The fee income of the member firms in the BDO network, including the members of their exclusive alliances, was US$7.6 billion in These firms have representation in 158 countries and territories, with over 67,700 people working out of 1,401 offices worldwide. BDO s brand promise is built upon our vision, to be the leader for exceptional client service always, and everywhere. When you choose to work with BDO you quickly discover why we re different from the rest. BDO offers a comprehensive collection of high quality tax services and assets designed to support exceptional performance, and all our tax engagements benefit from the hands-on involvement of experienced professionals, backed by world-class resources. We are agile enough to handle the biggest and the smallest names in the industries we serve, and our relationship-driven culture means that we can provide responsive and personalised advice to all our clients. We work hard to understand our clients businesses and ensure that we match both our service offering and our people to their complex individual needs. We believe that providing our clients with access to experienced professionals who are actively engaged in addressing their tax and business issues is the most reliable way to provide exceptional service, always with a strong focus on trust and transparency. Regardless of your location, size or international ambitions we can provide effective support as you expand into new areas of the world. In an ever-evolving economic environment, businesses need a global network that provides exceptional, bespoke service combined with local knowledge and expertise. BDO is uniquely positioned to serve this demand, providing effective support and a truly global integrated global footprint. 3

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7 DOING BUSINESS IN TAIWAN 2017 TABLE OF CONTENTS CORPORATE TAXATION... 9 INTRODUCTION CORPORATE INCOME TAX TYPE OF TAX SYSTEM TAXABLE PERSONS Residence TAXABLE INCOME General Exempt income Deductions Deductible expenses Non-deductible expenses Depreciation and amortization Valuation of inventory Reserves and provisions CAPITAL GAINS LOSSES Ordinary losses Capital losses RATES Income and capital gains Withholding taxes on domestic payments INCENTIVES Statute for Industrial Innovation Statute for the Development of Biotech and New Drug Industries Free Trade Zone Incentives for business restructuring ADMINISTRATION Taxable period Tax returns and assessment Payment of tax Rulings TRANSACTIONS BETWEEN RESIDENT COMPANIES GROUP TREATMENT INTERCOMPANY DIVIDENDS OTHER TAXES ON INCOME INCOME BASIC TAX Taxable persons Taxable income Rates BUSINESS TAX ON TURNOVER Taxable persons Taxable base Tax rates RETAINED EARNINGS TAX TONNAGE TAX TAXES ON PAYROLL PAYROLL TAX SOCIAL SECURITY CONTRIBUTIONS Labour insurance Pension

8 DOING BUSINESS IN TAIWAN 2017 TABLE OF CONTENTS Employee Welfare Funds National Health Insurance TAXES ON CAPITAL NET WORTH TAX REAL ESTATE TAX House tax Agricultural land tax Land value tax INTERNATIONAL ASPECTS RESIDENT COMPANIES Foreign income and capital gains Foreign losses Foreign capital Double taxation relief NON-RESIDENT COMPANIES Taxes on income and capital gains Taxes on capital Administration WITHHOLDING TAXES ON PAYMENTS TO NON-RESIDENT COMPANIES Dividends Interest Royalties Other Withholding tax rates chart ANTI-AVOIDANCE GENERAL TRANSFER PRICING THIN CAPITALIZATION CONTROLLED FOREIGN COMPANY VALUE ADDED TAX GENERAL TAXABLE PERSONS TAXABLE EVENTS TAXABLE AMOUNT RATES EXEMPTIONS NON-RESIDENTS MISCELLANEOUS TAXES CAPITAL DUTY TRANSFER TAX Immovable property Shares, bonds and other securities STAMP DUTY CUSTOMS DUTY EXCISE DUTY Commodity tax Tobacco and alcohol tax Special commodity and service tax INDIVIDUAL TAXATION INTRODUCTION INDIVIDUAL INCOME TAX TAXABLE PERSONS

9 TABLE OF CONTENTS DOING BUSINESS IN TAIWAN TAXABLE INCOME General Exempt income EMPLOYMENT INCOME Salary Benefits in kind Pension income Directors remuneration BUSINESS AND PROFESSIONAL INCOME INVESTMENT INCOME CAPITAL GAINS Immovable property Shares PERSONAL DEDUCTIONS, ALLOWANCES AND CREDITS Deductions Allowances Credits LOSSES RATES Income and capital gains Withholding taxes ADMINISTRATION Taxable period Tax returns and assessment Payment of tax Rulings OTHER TAXES ON INCOME INCOME BASIC TAX Taxable persons Taxable income Personal deductions, allowances and credits SOCIAL SECURITY CONTRIBUTIONS EMPLOYED SELF-EMPLOYED OTHER TAXES ON CAPITAL NET WEALTH TAX REAL ESTATE TAX House tax Agricultural land tax Land value tax OTHER TAXES Land value increment tax INHERITANCE AND GIFT TAXES TAXABLE PERSONS TAXABLE BASE PERSONAL ALLOWANCES RATES DOUBLE TAXATION RELIEF INTERNATIONAL ASPECTS RESIDENT INDIVIDUALS Foreign income and capital gains Foreign capital Double taxation relief

10 DOING BUSINESS IN TAIWAN 2017 TABLE OF CONTENTS 6.2. EXPATRIATE INDIVIDUALS Inward expatriates Outward expatriates NON-RESIDENT INDIVIDUALS Taxes on income and capital gains Taxes on capital Inheritance and gift taxes Administration KEY FEATURES

11 CORPORATE TAXATION DOING BUSINESS IN TAIWAN 2017 TAIWAN This chapter is based on information available up to 31 January Introduction Broadly, taxes in Taiwan may be categorized into national taxes and local taxes, depending on the level of government to which tax revenues are to be allocated. For the purposes of tax, the jurisdiction of Taiwan s laws extends to the island of Taiwan and its subordinate group of islands. The tax system comprises of levies on behalf of the central (national) government, the Taipei City government, the New Taipei City government, the Taichung City government, the Tainan City government, the Kaohsiung City government, provincial governments, and local subdivisions under provincial governments. Profit-seeking enterprises are subject to national profit-seeking enterprise income tax and income basic tax. Generally, all capital gains derived from transactions in property and property rights are taxable as ordinary income, and thus not subject to a separate tax for corporate taxpayers. Business tax (value added tax and non-value added tax) is also imposed as a national tax. Local taxes include stamp duties, land taxes (land value tax, agricultural land tax and land value increment tax), house tax and deed tax. The profit-seeking enterprise income tax is levied under the Income Tax Act 1943 (ITA), as amended, and VAT under the Business Tax Law The classification and administration of taxes are the responsibility of the Taxation Administration of the Ministry of Finance (MOF). The collection of taxes is the responsibility of the National Tax Authorities (NTA) and the Tax Collection Offices in various prefectures and municipalities. There is no provision for social security benefits in Taiwan. Instead, a number of laws provide for specific benefits funded by contributions from employers and employees, for example the National Insurance Policy and Labour Insurance Policy. On 20 January 2017, the MOF announced a tax reform. The imputation tax system will be abolished in order to reinstate the traditional tax system on investment income, and to resolve the large discrepancy between the corporate and individual income tax rates. The highest individual income tax rate will be reduced from 45% to 40% or lower, and the corporate income tax flat rate will be increased from 17% to 20% or higher. The currency is the new Taiwan dollar (TWD). 1. Corporate Income Tax 1.1. Type of tax system Taiwan operates an imputation tax system (Liang Shui He Yi) in relation to the taxation of dividend income in order to eliminate double taxation on the earnings of a corporation. The imputation system was changed from full credit into partial credit in accordance with a tax law amendment by the Legislative Yuan (the parliament) on 16 May According to an amendment to article 66-6 of the ITA, from tax year 2015, only 50% of corporate income tax may be credited to resident shareholder individual income tax. Further, only 50% of the corporate income tax paid by sole proprietorships and partnerships may be credited to the individual income tax of proprietors and part- 9

12 DOING BUSINESS IN TAIWAN 2017 CORPORATE TAXATION ners, according to an amendment to article 71 of the ITA. The MOF has announced a tax reform policy to abolish the imputation tax system and will propose a new investment income tax system to Legislative Yuan for legislation in Intercorporate dividends within Taiwan are exempt Taxable persons Taxable persons are categorized into two groups: individuals and profit-seeking enterprises, and as such the definition of a company is not important for tax purposes. The term profit-seeking enterprise refers to industrial, commercial, agricultural, forestry, fishing, animal husbandry, mining or metallurgical enterprises operated by public, private, or joint public and private interests, and having a business name or place and organized in the form of a sole proprietorship, partnership, company or in any other form of operation. Corporate income tax applies to all profit-seeking enterprises. A partnership engaged in business, known as a business partnership, is treated as a separate taxable entity from the individual partners and taxed as a profit-seeking enterprise. The business partnership s after-tax income is taxable on the partners whether or not the income is distributed to them, and the corporate tax is then creditable in the same tax year in the individual partners income tax returns. According to an amendment to article 71 of the ITA effective from tax year 2015, only 50% of the corporate income tax paid by sole proprietorships and partnerships may be credited to the individual income tax of proprietors and partners. Limited liability partnership is also treated as a taxable profit-seeking enterprise, under the Limited Liability Partnership Act. Professional partnerships are not treated as separate business entities. For income tax purposes, they are treated as independent service providers (and not as partnerships) and are subject to individual income tax only. There are no specific transparent entities for tax purposes in Taiwan tax law. This survey is restricted to profit-seeking enterprises in the form of a company incorporated under Taiwan s Company Law Act, as well as foreign-incorporated entities of a similar description with a branch registration in Taiwan Residence Under the company law, the principal office of a company must be registered with the government. Corporate residence is determined by the place of registration, which normally is the place of central management. As such, a company that has its head office in Taiwan is a tax resident in Taiwan, and is known as a domestic company, under the incorporation principle, and not the place of effective management principle. However, on 27 July 2016, an amendment to article 43-4 of the ITA was passed by the Legislative Yuan and will become effective on 1 January Under the amendment, corporate residence is determined based on the place of effective management, which is deemed to be in Taiwan if the following three conditions are satisfied: the decision makers in regard to the main business, finance and human resource management are Taiwanese residents having head offices located in Taiwan, or the resolution of such decisions are made in Taiwan; 10

13 CORPORATE TAXATION DOING BUSINESS IN TAIWAN 2017 the financial reports, accounting books, board resolutions and/or shareholders resolutions are produced or stored in Taiwan; and the major business activities are effectively performed in Taiwan Taxable income General A domestic company is subject to income tax on its worldwide income. A foreign company is subject to tax only on income sourced from Taiwan (see section 6.2.). The income tax law categorizes income as Taiwan-source income and non-taiwansource income. The source rules in Taiwan are different from the concept of a permanent establishment as defined in the OECD Model Convention (see further section ) Exempt income Types of income exempt from tax include, but are not limited to (article 4 of the ITA): income earned by organizations or societies which are established for educational, cultural, public welfare or charitable purposes; profit derived by consumer cooperatives operating in accordance with the law and doing no business with outsiders; profits retained by a state-operated profit-seeking enterprise that is a monopoly and which capital is appropriated from the Treasury; all kinds of income derived by governments at any level or utilities owned by such governments; royalties paid to foreign enterprises in respect of patents, trademarks or other special licensing rights for introducing new technology or products, improving quality and reducing production costs in Taiwan with an advanced ruling from competent authorities; technical service fees paid to foreign enterprises for building a factory, as approved by the competent authorities to be a significant manufacturing business; interest paid to foreign government or international economic development financial institutions for the loan to local government or domestic legal persons; interest paid to a foreign financial institution for the loan to its branch or other financial enterprises located in Taiwan; and business profits sourced from Taiwan and received by a foreign enterprise engaged in international transportation, provided reciprocal treatment is granted by the resident country of the foreign enterprise to Taiwanese transportation enterprises operating in its territory. Capital gains from the trading of securities and futures are exempt and capital losses from related transactions are not deductible under regular income tax. However, the capital gains are subject to income basic tax (see section 3.1.). Domestic dividends are not exempt, but an imputation credit is available for individual resident shareholders (see section 1.1.). Intercorporate dividends within Taiwan are exempt (see section 2.2.). 11

14 DOING BUSINESS IN TAIWAN 2017 CORPORATE TAXATION Deductions Deductible expenses The expenses relating to the earning of business income are generally deductible for tax purposes to the extent that they are ordinary and necessary business expenses. The expenditure must be incurred in the course of operating a business or subsidiary business. If an enterprise has both taxable and tax-exempt income, the related costs, expenses and losses must be allocated according to rules established by the Ministry of Finance (MOF), unless they can be reasonably clearly identified. Generally, the following are deductible: salaries and wages; research and development expenses; interest payable on loans (not exceeding the MOF s statutory interest rate and subject to thin capitalization rules effective from January 2011 (see section 7.3.)); entertainment expenses (per prescribed rules/formulas); royalties, technical assistance and management fees (per contractual amounts and amounts approved by the Ministry of Economic Affairs for payment to non-residents); head office and regional headquarter management expenses, subject to rules; improvements and repairs, subject to conditions; charitable donations, subject to rules; taxes other than income tax and VAT; advertising expenses; travelling expenses; pre-operation or initial expenses (amortization as per prescribed rules); and losses caused by earthquakes, typhoons, floods, drought, insects, fire or theft to the extent that such losses have not been indemnified through insurance. Effective 20 October 2016, a foreign company s offshore insurance unit (OIU) that is established in Taiwan and allocates costs and expenses to the foreign company s other business operations on the same site (for example, both the OIU and the business operations use the same building) is required to file the details of the allocation of costs and expenses with the competent tax authority within 3 months of the commencement of operations of the OIU. According to the tax authority of Taiwan, the filing is intended to prevent the attribution of costs, expenses and losses incurred in generating exempt income to the taxable income and, therefore, erosion of the tax base of the taxable income. In cases where a clear allocation of costs and expenses is impossible, allocation must be made on the basis of the proportion of taxable or exempt income to total income Non-deductible expenses The following are not allowed as deductions: income tax; expenses and losses not incurred in the course of business or subsidiary business, e.g. losses incurred in a sale of shares or bonds, and losses arising from futures transactions; family and personal expenses; 12

15 CORPORATE TAXATION DOING BUSINESS IN TAIWAN 2017 fines/penalties; and interest on capital or interest on loans for capital investment Depreciation and amortization The common depreciation methods are the straight-line, declining balance and working-hour method. For the two latter methods, approval of the local tax office must be obtained. The service life of various kinds of fixed assets is listed in a prescribed table. Land may not be depreciated. Intangible assets, including business rights, trademarks, copyright, patents, and special permission rights, are recognized as amortizable assets only if they are acquired with a consideration. The amortization periods for intangible assets are prescribed as follows: Assets Business rights Copyright Trademarks, patents, special permission rights Goodwill Amortization period 10 years 15 years Economic life after acquisition Minimum of 5 years It is unclear whether the amortization of goodwill from mergers and acquisitions is deductible. The MOF is expected to publish a new tax regulation to clarify this issue. Depreciation is compulsory and generally may not be deferred Valuation of inventory Inventories are valued at cost. Where the cost is higher than the market value, the market value may be used as the basis for valuation. The cost may be determined either as the cost of acquisition or the cost arrived at by the FIFO, weighted average, moving average or simple average method, or other methods in accordance with the class or nature of the asset. The adoption of any method of valuation and any subsequent change must be reported to and approved by the local tax authorities prior to the use or change. If no choice is made, the weighted average method is deemed to have been adopted. Where no report of a change has been made, the tax authorities assume that the original method employed is still in use Reserves and provisions A reserve for a retirement pension is allowed. The maximum deduction is 4% of the total salaries and wages. As for a separate approved reserve fund for retirement pension, the maximum deduction is 8% of the total salaries and wages. An enterprise to which the Labour Standards Law applies may deduct up to 15%, subject to the approval of the local tax collection authorities. A provision for a retirement fund approved by the authorities is deductible 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 Labour Standards Law. An allowance for bad debts is limited to 1% of the balance of outstanding trade accounts and notes receivable (secured or unsecured) at year-end. Actual bad debts may be claimed as a deduction only with the appropriate legal procedures and documentation. 13

16 DOING BUSINESS IN TAIWAN 2017 CORPORATE TAXATION Additionally, companies that obtain approval from the competent authorities for their outbound investments may set up provisions for losses on their outbound foreign investments, equal to 20% of the gross amount invested but subject to conditions (see section ) Capital gains Generally, all gains derived from transactions in property and property rights are taxable as ordinary income. The levy of tax on gains derived from securities other than shares has been suspended since 1 January 1990, but a securities transactions tax is imposed (see section ). Income basic tax (see section 3.1.) may also be levied on such capital gains from share transfers. However, the following gains are exempt from income tax: gains derived from the transfer of listed or unlisted shares (only of companies limited by shares) or bonds; and gains from futures transactions. A new capital gains tax on the transfer of buildings and land has been introduced on 5 June 2015 and became effective on 1 January The new capital gains tax on real property is applicable for different holding periods: buildings and land acquired after 1 January 2015; and buildings and land acquired after 1 January 2014 but being held for less than 2 years. The new capital gains tax does not apply retrospectively to buildings and land acquired before 1 January The following real properties are exempt from the new capital gains tax: land for agricultural use qualified as such under the Agriculture Development Statute; land and land improvement imposed by government; and land used for public facility assigned by the City Planning Rule. With respect to resident enterprises, the transfer of land is subject to land value incremental tax (LVIT) first (see section ). Subsequently, the resident enterprise s capital gains from the sale of land and buildings (netted by the incremental value of land under LVIT) are subject to ordinary corporate income tax at a rate of 17%. With respect to non-resident enterprises, however, capital gains generated by non-resident enterprises by holding land and building through PEs (branches) are subject to higher tax rates: Real property holding period Tax rate (%) Less than 1 year 45 More than 1 year 35 These two rates also apply to gains from the transfer of shares by a non-resident company deriving more than 50% of its value directly or indirectly from buildings and land situated in Taiwan. 14

17 CORPORATE TAXATION DOING BUSINESS IN TAIWAN Losses Ordinary losses Losses incurred may be deducted from other income of the same business accounting year. As a general rule, a loss is not allowed to be carried forward unless the company maintains a complete set of accounts, uses a blue return duly authorized by the local tax authorities and has the losses certified by a certified public accountant. Such losses may be carried forward for 10 years. Losses may not be carried back Capital losses Capital losses may be set off against income from other sources in the same year. The capital losses of investment (participation) from holding companies are not deductible unless such capital losses are proved to arise from the operational subsidiaries with business substance. Capital losses from the transfer of buildings and land may be deducted from ordinary income (excluding the incremental value calculated under LVIT) Rates Income and capital gains The profit-seeking enterprise income tax rates (with effect from the fiscal year 2010) are: Taxable income (TWD) Rate (%) Up to 120,000 0 Over 120,001 17% on the total taxable profit Capital gains from transfer of buildings and land 45% for holding period less than one year; 35% for holding period more than one year. These two rates only apply to non-resident enterprises Withholding taxes on domestic payments Tax is withheld at the following rates from income paid to domestic enterprises or individuals: Income Rate (%) Dividends and other forms of profit distribution 0 Commissions 10 Interest from short-term commercial papers, securitized products, state and corporate bonds and other such financial instruments, and income from transactions in structured products 10 Other interest 10 Income from structured financial products 10 Rental income 10 Royalties and technical service fees 10 Prizes or payments from contests and games won by chance and prizes won in a lottery held under government auspices exceeding TWD 2,000 per ticket 20 15

18 DOING BUSINESS IN TAIWAN 2017 CORPORATE TAXATION Tax withheld is creditable against the enterprise s income tax liability, with the exception of tax withheld on short-term commercial paper, interest from government bonds, corporate bonds and bank debentures which is a final tax. The withholding tax on prizes from lotteries or games which are organized or sponsored by the government, where the prize exceeds TWD 2,000 per ticket, is also final. See section 6.3. for withholding tax on payments to foreign (non-resident) enterprises Incentives The Statute for Industrial Upgrading (SIU) which provided both tax and non-tax incentive measures was effective from 1 January 1991 to 31 December New tax incentives apply from 1 January 2010 under the Statute for Industrial Innovation (SII). Although the SIU ceased to apply at the end of 2009, taxpayers may still enjoy the tax incentives under the SIU if approval was granted before the end of Thus, the income basic tax may still apply to those taxpayers who are enjoying the tax exemption incentives under the SIU in 2010 (see section ). In addition, in order to encourage enterprises to reorganize and further optimize operational efficiency, the Business Mergers and Acquisitions Law provides a number of tax incentives Statute for Industrial Innovation Under the SII, tax credits for research and development (R&D) are available for up to 15% of qualifying R&D expenses incurred, with the maximum amount of tax credit capped at 30% of the tax payable for the year in which the expenses were incurred. Unutilized R&D credits are forfeited, and may not be carried back or carried forward. The qualifying R&D expenses are: salaries for R&D personnel; consumption of machinery, materials and samples; payments for acquiring patents and technical know-how; payments for professional or special databases and software programs; outsourcing payments for domestic and foreign research personnel; payments of domestic and foreign joint R&D projects. Foreign subsidiaries established in Taiwan by foreign companies with the approval of the government are regarded as domestic companies of Taiwan and may enjoy tax incentives under the SII, which does not apply to branches of foreign companies in Taiwan Statute for the Development of Biotech and New Drug Industries The Statute for the Development of Biotech and New Drug Industries provides R&D tax credits for up to 35% of qualifying R&D and human resources training expenses incurred, with the maximum amount of tax credit capped at 50% of the tax payable in each fiscal year. Unutilized R&D credits may be carried forward for up to 5 years. The taxation of income from shares of qualified biotech or new drug companies issued in exchange for technology contributed in kind by the top professional management and technical investors is deferred until the shares are further transferred. 16

19 CORPORATE TAXATION DOING BUSINESS IN TAIWAN Free Trade Zone Under the Act for the Establishment and Management of Free-trade-zones, a foreign company or its branch in Taiwan which applies for the establishment of, or assigns free trade zone enterprises to store and/or perform simple processing of goods in a free trade zone and sell the goods within or outside Taiwan, is exempted from corporate income tax. However, in the event that the annual domestic sales exceed 10% of the total annual domestic and foreign sales of the goods distributed from the free trade zone, the portion in excess is not exempted from corporate income tax. There are also indirect tax incentives in free trade zones, for example, the trading of goods and services within the free trade zones is exempted from customs duty, commodity tax and VAT Incentives for business restructuring Under the Business Mergers and Acquisitions Law, in carrying out a merger/consolidation, an acquisition or a division of assets or shares of a company, using shares with voting rights to exchange for shares of the merged/consolidated and acquired company where the total value of the shares is at least 65% of the total consideration, the following incentives are available: exemption from stamp tax on the deeds and certificates; exemption from deed tax on the transfer of title of immovable property; exemption from securities transaction tax on the transfer of marketable securities; any commodities or labour services transferred are deemed as not falling within the scope of business tax; deferred payment of land value increment tax until the next transfer; a 15-year amortization period for goodwill derived from merger/consolidation and acquisition transactions (article 35). The MOF is expected to publish a new regulation to clarify the deductibility of amortization for goodwill (see section ); a 10-year amortization period for expenses incurred from the merger/consolidation or acquisition of a company on a straight-line basis; carry-over of tax incentives enjoyed by the dissolved company to the surviving company or newly incorporated company, provided that it continues to produce the same product or services as the dissolved company and meets the same incentive conditions and standards; exemption of capital gains realized from the disposal of main business and/or assets, other than land and marketable securities, from profit-seeking enterprise income tax, if the proposed asset and business operation transfer satisfies the requirements in article 39; carry-forward for up to 10 years of the net operating loss of the dissolved company to the surviving company or the newly incorporated company; a 15-year amortization period for exchange losses from the application of a company s business or assets to subscribe or exchange for the shares of another company; group taxation, whereby the acquired company may choose to file a consolidated income tax return with the dissolved company; and a 5-year tax holiday on income derived from the assets or business acquired. 17

20 DOING BUSINESS IN TAIWAN 2017 CORPORATE TAXATION 1.8. Administration Taxable period The tax year is the calendar year. A company may change the commencing and expiring dates of its fiscal year in certain cases if given approval by the tax authorities Tax returns and assessment Income tax returns used by companies are: an ordinary return used by enterprises other than by those authorized to use the blue return or simplified return; a blue return to be used by profit-seeking enterprises as authorized by the local tax authorities; and a simplified return to be used by small-scale profit-seeking enterprises. A company must apply to the NTA for approval to use a blue return. The application by an existing company must be submitted within the 6th month of the accounting period and 1 month from the end of the accounting period for new companies. The primary purpose of the blue return is to enable the taxpayer to be free from arbitrary tax assessments and to benefit from more liberal deductions for entertainment expenses and carry-forward of losses for 10 years. Companies listed on the Taiwan Stock Exchange and large companies having their income tax returns reviewed and certified by certified accountants are also granted the benefits of a blue return. Companies are generally required to file both a provisional (semi-annual) and a final (annual) return. The provisional return must be filed between 1 September and 30 September of the tax year except for the following: a company without a permanent establishment in Taiwan, where its tax is withheld by an agent or the payer in Taiwan; an approved small-scale profit-seeking enterprise; a tax-exempt business approved by the MOF; and a business taxed on deemed taxable income subject to withholding tax. Companies are required to make a self-assessment when filing the provisional return. If the taxpayer fails to file a declaration of provisional tax within the required time, the local tax authorities are authorized to determine the provisional tax amount payable plus 1 month s interest calculated at the prevailing interest rate. A final or annual return is generally required to be filed during the 5th month following the end of the tax year. For the final assessment, the local tax authorities appoint an official to examine the annual tax return of a taxpayer after it has been filed to determine the actual amount of tax due. Under the statute of limitations, the tax authorities have the right to assess tax on newly discovered taxable income up to 5 years after the return to which the income applies has been accepted as final. No assessment can be made after the expiry of this period. However, if the taxpayer has failed to file a return or has evaded taxation by reason of fraud, the local tax authorities may make an additional assessment of tax up to 7 years after the original due date of the return. 18

21 CORPORATE TAXATION DOING BUSINESS IN TAIWAN Payment of tax Companies must make an estimated income tax payment (provisional income tax) of half the income tax declared for the previous year. The payment must be made between 1 September and 30 September of the tax year, and any tax withheld may be deducted from the provisional tax. If, having received the provisional return, the tax authorities require the payment of further provisional tax, such tax must be paid within 10 days of the issue of the demand notice. The taxpayer is required to compute the income tax payable for the whole year after deduction of provisional tax payments and any tax withheld, and make a voluntary payment before filing the annual return. The collection authorities must, after having determined the annual income of a taxpayer, serve a demand giving notice of the balance of the tax due after having deducted any provisional payment, withholding tax yet to be offset and voluntary payment, and requiring payment accordingly. In the event that the taxpayer has already paid more than the amount due, a refund is made. Demands for tax and refunds must be paid within 10 days from the date of determining the amount due Rulings There is an advance ruling system. The MOF issued the Directions for the Implementation of Advance Tax Rulings on 20 December 2003 to enhance consistency and certainty in the application of tax laws, reduce controversy and litigation between tax authorities and taxpayers, and encourage compliance with the tax laws. The term advance tax ruling (ATR) means an interpretation or clarification letter issued by the MOF with respect to the request of a taxpayer or his representative, concerning the application of tax laws to a specific contemplated transaction which will be undertaken within 1 year. ATRs are provided on international transactions or investments which meet one of the following conditions: the total amount of the investment (excluding land investment) exceeds TWD 200 million, or the amount of the first transaction exceeds TWD 50 million; or the proposed transaction will bring significant economic benefit to Taiwan. The MOF normally concludes an ATR and issues the ruling to the applicant within 3 months after receiving the application or the supplementary information from the applicant; however, the duration may be extended for another 3 months, of which the MOF must notify the applicant in advance. 2. Transactions between Resident Companies 2.1. Group treatment It is not permitted to make consolidated returns for affiliated companies. However, a financial holding company that holds 90% or more of the shares of subsidiaries in Taiwan for at least 12 months may elect to file a consolidated income tax return under its own name Intercompany dividends Dividends distributed by a domestic profit-seeking enterprise to a domestic corporate shareholder are exempt. 19

22 DOING BUSINESS IN TAIWAN 2017 CORPORATE TAXATION 3. Other Taxes on Income 3.1. Income basic tax The income basic tax became effective on 1 January 2006 and is imposed under the Income Basic Tax Act (IBTA). The concept of income basic tax originated from an alternative minimum tax regime. Taxpayers must pay the higher amount of normal income tax or income basic tax. The IBTA is not applicable to proprietary, partnership, and charity organizations Taxable persons The income basic tax is imposed on a resident profit-seeking enterprise, except for the following: a profit-seeking enterprise organized in the form of a sole proprietorship or partnership; an organization or society established for educational, cultural, public welfare or charitable purposes; a consumer cooperative; a public utility enterprise owned by various levels of government; a profit-seeking enterprise with no fixed place of business or business agent in Taiwan; a profit-seeking enterprise undergoing liquidation or bankruptcy; a profit-seeking enterprise that has not applied for any investment tax credits and does not have any income listed as add-backs; and a profit-seeking enterprise whose basic income (before losses) is less than TWD 2 million Taxable income The basic income of a profit-seeking enterprise is taxable income as calculated in accordance with the ITA, plus the following items added back: exempt capital gains from the disposal of securities and futures; and income exempted in accordance with: the Statute for Industrial Upgrading (although the SIU ceased to apply at the end of 2009, the income basic tax may still apply to those taxpayers who continue to enjoy the tax exemption incentives under the SIU after 2009 (see section 1.7.)); the Statute for Encouragement of Private Participation in Transportation Infrastructure Projects; the Statute for Promotion of Private Participation in Public Construction Projects; the Act for Establishment and Administration of Science Parks; the Business Mergers and Acquisitions Act; the Statute Governing Offshore Banking Operations (excluding the total revenue derived from a credit extension that is taxed at the prescribed withholding rate); and other laws as may be promulgated and thereafter announced by the MOF. 20

23 CORPORATE TAXATION DOING BUSINESS IN TAIWAN 2017 Where the enterprise has incurred a loss that has been assessed by the collection authorities, the loss may be offset against income of the same category in the current year and any excess may be carried forward to the following 5 years. A standard deduction of TWD 500,000 is available for a corporate taxpayer from basic income Rates The income basic tax rate is 12% (statutorily, the tax rate must be between 12% and 15%) Business tax on turnover Business turnover tax is levied under the Business Tax Law This tax is also known as the non-value-added business tax and covers special categories of services that are not subject to the value added business tax (see section 8.). The tax is levied on gross business revenue from the sale of goods or the rendering of services within Taiwan, and no input tax credit is granted Taxable persons Business turnover tax is payable by the following persons: enterprises engaged in banking, insurance, trust and investment, securities and brokerage services and pawnbrokers; night clubs, restaurants with entertainment facilities, saloons, tea rooms, coffeeshops and bars; and small-scale businesses having a gross monthly revenue of less than TWD 200,000. Small businesses and banks, insurance, trust and investment companies engaging in non-financing activities such as the leasing of warehouses, equipment or safe deposit boxes or investment in immovable property may, with respect to all or part of their non-financing activities, request MOF approval to be subject to VAT instead of business turnover tax. The election for VAT is irreversible for 3 years Taxable base In general, the taxable base is the gross revenue. However, the collection authorities may determine a different taxable base; the collection authorities determine the taxable base and make an assessment every 3 months with respect to pawnshops, small-scale enterprises and enterprises engaged in banking, insurance, trust and investment services, etc. The minimum amount assessable for small businesses is prescribed by the MOF. Small businesses having a gross monthly revenue from sales of goods lower than TWD 80,000 or from services lower than TWD 40,000 are exempted from business turnover tax. If a small-scale business purchases goods or services for business purposes and obtains evidence of the VAT paid on filing its return, a special deduction of 10% of the input tax is deducted from the business turnover tax due. However, when the business turnover tax due is less than the minimum amount assessed, the deduction is not applicable. If the deduction exceeds the business turnover tax due, the excess may be carried forward and is deductible in subsequent periods. 21

24 DOING BUSINESS IN TAIWAN 2017 CORPORATE TAXATION Exemptions from tax are the same as for VAT (see section 8.5.). However, enterprises that sell exempt goods or render exempt services may apply to the MOF for approval to waive the exemption and be subject to tax. The election for a waiver is irreversible for at least 3 years Tax rates Type of business/service Rate (%) Banks and financial institutions: investment trusts, securities, futures, commercial papers and pawnshops 2 banking and insurance businesses 5 operations not connected exclusively with the authorized business 5 reinsurance by insurance companies 1 Nightclubs, entertainments, etc. 15 Saloons, tea rooms, coffee shops and bars where services provided by female companions are available 25 Small-scale enterprises 1 Wholesale of agricultural products and small businesses selling agricultural products Retained earnings tax If the retained earnings of any year (since 1998) are not distributed by a profit-seeking enterprise in the next fiscal year, an additional retained earnings tax of 10% is levied on such retained earnings. Due to the introduction of International Financial Report Standards (IFRS) from 2013, the retained earnings may be adjusted due to the revaluation of assets. The retained earnings tax is, however, generally not applicable if the adjustment is due to changing the accounting rules from GAAP to IFRS Tonnage tax With effect from 2011, a qualifying enterprise engaging in maritime transportation with its head office located in Taiwan may apply to be taxed under the tonnage tax system. Once approved, the enterprise must remain under the tonnage tax system and may not elect to switch to the regular corporate income tax system at its discretion for 10 consecutive years. Loss carry-forwards and tax incentives are not eligible under the tonnage tax system. 4. Taxes on Payroll 4.1. Payroll tax There is no payroll tax Social security contributions There is no general government scheme for the provision of social security benefits. However, the government has enacted a number of laws for the provision of specific benefits funded by contributions from employers and employees Labour insurance The following rates apply: ordinary accident insurance programme and employment insurance programme: respectively 9.5% and 1% of the insured person s monthly insurance salary (up to a maximum monthly salary of TWD 43,900). The funding of the scheme is shared 70% by the employer, 20% by the insured and 10% by the government; and 22

25 CORPORATE TAXATION DOING BUSINESS IN TAIWAN 2017 occupational injury insurance: paid entirely by employer. The rates vary for different industries and range from 0.1% to 1.06% of the monthly salary based on a prescribed table Pension Businesses must establish an employer-controlled pension scheme for their staff. Under a pension system applicable to employees who have taken up new employment since July 2005, the employer is required to contribute at least 6% of an employee s monthly wages. An old pension system applies to persons who were employed before July 2005, under which an employer is required to make monthly contributions between 2% and 15% of the monthly payroll. Employees who are on the old pension system may switch to the new system in Employee Welfare Funds Businesses in the field of factories, mines, public and private sectors and other enterprise organizations are required to contribute to a welfare fund for their employees. Compulsory or voluntary contributions to a welfare fund are based on the following: an allocation of 1% to 5% of capital at the time of establishment (for income tax purposes, such contributions may be amortized at a rate not exceeding 20% per annum); an allocation of 0.05% to 0.15% of total monthly business income; an allocation of 0.5% of the monthly salary or wages of each staff member or worker; and an allocation of 20% to 40% of the proceeds from the sale of scrap or waste materials at the time of each sale National Health Insurance Participation in the National Health Insurance is compulsory for all resident individuals (excluding those in military service), foreign employees and their dependants. With effect from 1 January 2011, the National Health Insurance system was changed from a single track to a dual-track system with a supplementary premium that is calculated monthly on the basis of income alone. The regular premium is based on the employee s monthly salary up to a maximum insured salary (TWD 182,000 in 2017) and varies according to the number of dependants. The supplementary premium is payable at the rate of 2% on additional earnings (i.e. other than insured salary) exceeding TWD 2,000, including interest income, professional practice income, rental income, stock dividends and bonuses exceeding the equivalent of 4 months wages. The employer s portion is calculated as follows: Regular premium = insured payroll-related amount of each insured person x premium rate x contribution rate x (1 + number of dependants) where: Premium rate = 4.91%; and Contribution rate = 60% Supplementary premium = (total payroll expenses by the employer total insured payrollrelated amount for the employees) x 2% 23