Reduced Withholding Tax ("WHT") Rate
Green Reefs, Shimen, New Taipei City
Payments to an offshore company for technical services provided to a Taiwan entity are subject to a 20% withholding tax if the payment is considered Taiwan-source income. It may be possible to obtain an "apportionment treatment", with only part of the income deemed to be derived from Taiwan and subject to 20% withholding tax. The approval from National Taxation Bureau is required in the case of the apportionment treatment. The time or effort for such an application can be varied case by case.
The most frequently used apportionment treatment is regulated under Article 25 of Income Tax Act. If the costs associated with the provision of the services are difficult to calculate, the service provider can request a hypothetical taxable income of 15% of total revenue for services provided, which will be taxed at the 20% rate, resulting in an effective withholding tax rate at 3%. Under Article 25, this reduced effective tax rate rule not only applies to technical service provision, but also applies to international transport (for which a deemed profit rate of 10% is used) , construction contracting, or machinery/equipment leasing.
Starting from 2017, income derived by foreign entities from providing cross-border electronic services ("e-service") to buyers in Taiwan should be deemed Taiwan-source income and subject to income tax. If the Taiwan buyers are responsible for withholding tax on payments to a nonresident e-service provider, they must withhold tax at the normal 20% rate on the gross amount. However, if a foreign e-service provider obtains the approval from the tax authority to adopt the prescribed profit rate (i.e., 30%) and contribution rate (i.e., 50%) according to the MOF ruling dated January 2, 2018, the effective withholding tax rate can be reduced to 3% (= 30% x 50% x 20%). In addition, the aforementioned ruling also allows foreign e-service providers to apply for using an actual basis or industry standard profit rates to calculate taxable income subject to the withholding tax.
Non Taiwan-source income assertion or business profit exemption may also be possible under tax rules or tax treaties.
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