Taiwan Pocket Tax Book 2011

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Introduction to

Taiwan tax rules

Taiwan Pocket Tax Book 2011

www.pwc.com/tw


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FOREWORD

Welcome to Taiwan Pocket Tax Book 2011. This booklet

provides quick and easy access to information on various tax

rules in Taiwan. The information in this booklet is based on

current taxation regulations and practices, including certain

legislative proposals and measures as at 28 March 2011, unless

otherwise specified.

This booklet is intended to provide a general guide and is not

aimed to provide a comprehensive understanding of Taiwan’s

prevailing tax system. Readers should not act on the basis of

this publication without seeking formal professional advice.

We have also included for your reference a list of some of ourkey specialists at the back of this book as a quick guide to help

you locate the right person for your questions.

We hope you find this book useful and handy!

Steven Go

Leader – Tax and Legal ServicesPwC Taiwan

May 2011


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BUSINESS INCOME TAX 02

Taxpayers and tax rates 02Corporate tax system 03

Tax return filing requirements 09

Withholding taxes 15

Double taxation agreements 18

Tax incentives 21Transfer pricing rules 23

Alternative minimum tax 28

Taxation of shareholders 30

PERSONAL INCOME TAX 32

General overview 32Residency 33

Personal income tax rates 33

Exempt income 35

Exemptions and deductions 37

Fringe benefits 42Incentive compensation plans 42

Capital gains 43

Dividends 43

Filing 44

Payment of taxes 45 Alternative minimum tax 45

CONTENTS


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VALUE ADDED TAX 47

General overview 47

Tax rates 48

Zero-rated goods and services 49

Exempted goods and services 50

Filing and payment of taxes 55

Introduction to selective goods and services tax 56

SECURITIES TRANSACTION TAX 57

General overview 57

Tax rates 57

STAMP TAX 58

General overview 58

Scope of taxation 58

Tax rates 60

CUSTOMS DUTIES 61

Duty rate 61

Customs duties exemptions 61Declaration 61

COMMODITY TAX 62

General overview 62

Commodity tax exemptions 62

Filing and payment of taxes 63Commodity tax rates 63

PwC IN TAIWAN 65


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1 PwC Taiwan

Significant changes in Taiwan tax laws:

Corporate tax

rate reduced to

17% effective

from 1 January

2010.

Tonnage tax

effective from2011 onwards.

Thin capitalisation

rules effective from

2011 onwards.


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BUSINESS INCOME TAX

Taxpayers and tax rates

Business income taxpayers are classified as follows:

Profit-seeking enterprises: This refers to enterprises operated

by public, private, or joint public and private interests that

have a registered business name or place of business and are

organised in the form of a sole proprietorship, partnership,company, or any other form of organisation. Profit-seeking

enterprises in Taiwan are divided into two categories:

• Prot-seeking enterprises with head ofces within

Taiwan; and

• Prot-seeking enterprises with head ofces outside

Taiwan but having income derived from sources in

Taiwan.

For Taiwan income tax purposes, a permanent establishment

(“PE”) refers to a foreign enterprise which has a fixed place of

business or business agent in Taiwan.


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Business income tax

Corporate tax rates

With effect from 1 January 2010, profit-seeking enterprises

are taxed at the following:

The corporate income tax rate prior to 1 January 2010 was

25%. In addition to regular tax calculations, Taiwan profit-

seeking enterprises and foreign companies with a PE in

Taiwan are subject to a separate alternative minimum tax

calculation in accordance with the Income Basic Tax Act.

In addition, a 10% profit retention tax is imposed on anycurrent earnings that remain undistributed by the end of the

following year.

Corporate tax system

Resident enterprises are taxed on worldwide income.

Non-resident enterprises are taxed on income derived from

Taiwan sources.

Taxable income

The taxable income of a profit-seeking enterprise is calculated

from net income, which is defined as gross annual revenues

after the deduction of costs, expenses, losses and taxes.Except for certain exempt items, income from all sources

Taxable income Tax rate

Up to NT$120,000 0%

NT$120,001 and above 17%


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Business income tax

(business income, rents, interest, royalties, and capital gains

realised from property sales, etc) is subject to income tax. To

determine a company’s taxable income, its accounting income

is adjusted by taking into account non-taxable income, non-

deductible expenses, allowable provisions, and losses carried

forward, etc.

Certain income are taxed separately on a final withholdingtax basis, these include interest income on short-term bills,

beneficiary certificates from financial asset securitisation

and real estate securitisation, prize money obtained from

government lotteries, and reward money obtained from

informant activities, etc. Other income is included in taxable

income and subject to final tax assessment.

There is no separate capital gains tax in Taiwan. Gains or

losses on the disposal of capital assets are included in the

taxable income of the enterprise. However, gains from the

sale of land as well as gains from sales of Taiwanese securities

and futures are exempt from income tax. The losses and

expenses incurred in the sale of land, securities and futuresare accordingly not tax deductible.

However, Taiwan resident companies and foreign companies

with a PE in Taiwan are required to include any tax exempt

gains arising from securities and futures transactions in their

alternative minimum tax calculation in accordance with the

provisions of the Income Basic Tax Act.


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Business income tax

Exempt income

Categories of income exempt from income tax include, but are

not limited to:

• Capital gains from the sale of land;

• Capital gains derived from securities and futures

transactions;

• Dividends received by a Taiwan company from another

domestic prot-seeking enterprise;

• Certain technical service fees received by foreign entities

for construction of power plants, subject to government

approval;

• Business income obtained within Taiwan by a foreignenterprise engaged in international transportation,

provided reciprocal treatment is granted by the home

country of the foreign enterprise to a Taiwan-based

transportation enterprise operating in its territory.

Capital gains derived from sale of land,securitiesand futures transactionsare exempt from regularincome tax assessment.


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Business income tax

Deductions

In general, expenses or losses incurred in the ordinary course

of business are tax deductible, except where these are not

substantiated by adequate and acceptable documents.

The main documentation requirements for tax deductions are

as follows:

• Overseas purchases: Required evidence includes

commercial invoices from foreign suppliers, customs duty

receipts, import declarations, and remittance

documentation, etc; and

• Domestic purchases: Except for small-scale business

enterprises whose monthly sales do not exceed

NT$200,000 and certain professional practitioners, allprot-seeking enterprises are required to use government

unied invoices (“GUIs”). These invoices are the

predominant form of documentation necessary to support

deductions of local expenditures.

For other deductible expenses supported by receipts from

small-scale business enterprises, the total claimed asdeductions may not exceed 3% of total manufacturing and

operating expenses.

For payments made to professional practitioners, the required

withholding tax must be applied to such payments, and

receipts or remittance slips must be obtained accordingly.


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Business income tax

Non-deductible items

Expenses and losses incurred that are unrelated to the

operations of a company are not tax deductible. Except

for provisions for labour retirement funds, allowances for

doubtful accounts or provisions for foreign investment

losses, etc, as specified in the provisions of related laws,

or specially approved by the Ministry of Finance (“MOF”),unrealised expenses and losses may not be claimed as

tax deductible expenses. The deductible provisions and

allowances mentioned above must be recorded on the books

at the balance sheet date in order to qualify for deductibility,

i.e., these provisions cannot be made off the books for tax

purposes only.

Thin capitalisation rule

In January 2011, Taiwan introduced a new thin capitalisation

rule. From 2011 onwards, deductible interest expense on

inter-company loans is capped at a prescribed debt-to-equity

ratio to be determined by the MOF.

The new rule generally applies to profit-seeking enterprises,

except banks, credit cooperatives, financial holding

companies, bills finance companies, insurance companies and

securities companies.


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Business income tax

Tonnage tax system

In January 2011, Taiwan introduced a new tonnage tax regime.

From 2011 onwards, a qualifying enterprise engaged in

maritime transportation having its head office in Taiwan may

apply to re-base the taxation of their maritime transportation

income from the regular income tax system to a lump sum tax

calculated on the net tonnage of their fleet.

Once the application is approved, the qualifying enterprise

must remain under the tonnage tax system for 10 consecutive

years and cannot elect to switch to the regular income tax

system at its discretion. Furthermore, loss carry forwards and

tax incentives are not eligible under the tonnage tax system.

The tonnage tax will be computed with reference to an

assumed “daily profit” multiplied by 365 days and the

prevailing corporate income tax rate (currently 17%). The

“daily profit” is assessed as follows:

Net tonnage Daily profit

For each complete 100 net tons up to 1,000 NT$67For each complete 100 net tons from 1,001 to 10,000 NT$49

For each complete 100 net tons from 10,001 to 25,000 NT$32

For each complete 100 net tons above 25,000 NT$14


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Business income tax

The tonnage tax will only apply to income from maritime

transportation. However, if the qualifying enterprise

has income other than income derived from maritime

transportation, such income will still be taxed pursuant to the

relevant rules of the Income Tax Act.

Tax return filing requirements

The tax year in Taiwan generally runs from 1 January to31 December. Profit-seeking enterprises must obtain prior

approval to adopt a fiscal year other than the calendar year.

Tax payments are filed on a self-assessment basis.

All Taiwan resident profit-seeking enterprises, as well as

foreign companies with a PE in Taiwan, must file annual

returns with the tax authority no later than five months after

the end of the tax year (no extension is permitted). Penalties

are imposed for late filing and failure to file a return, and

interest is charged on late payments.

The income tax returns of a business enterprise must include

the forms prescribed by the National Tax Administration(“NTA”) and relevant supporting documents.


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Business income tax

Types of returns

Profit-seeking enterprises must file one of the following

income tax returns:

• Blue return – Used by prot-seeking enterprises duly

authorised by the tax authorities and designed to

encourage honest reporting of their income.

• Ordinary return – Used by all prot-seeking enterprises

not entitled to use a blue return.

Taxpayers that file blue returns are able to carry forward

losses for a period up to 10 years for losses incurred from 2003

onwards even without a CPA’s certification of their income tax

returns. Additionally, the tax limit for entertainment expenses

is higher than that for an ordinary return.

Certification

Submission of audited financial statements with tax returns is

not required. Certain companies must have their income tax

returns certified by licensed CPAs, including:

• Banks, credit cooperatives, insurance, investment trustcompanies, short term bill and nance companies, capital

leasing companies, and companies engaged in securities

and futures;

• Public companies;


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Business income tax

• Companies that have received approval for corporate

income tax exemption in accordance with the Statute for

Encouragement of Investment or the Statute for

Upgrading Industries and have annual net revenues and

non-operating income in excess of NT$50 million;

• Companies that have led a consolidated income tax

return in accordance with the Financial Holding Company

Act or Business Mergers and Acquisitions Act; and

• Companies other than those listed above whose annual

net revenues and non-operating income are in excess of

NT$100 million.

In addition, taxpayers may volunteer to have their income tax

returns certified. The following benefits are offered to profit-

seeking enterprises that have their tax returns certified by a

licensed CPA:

• They may receive all benets given to prot-seeking

enterprises ling a blue return, including carrying

forward prior year tax losses.

• The tax ofce will rst direct inquiries to the CPA whocertied the return and review the CPA’s working papers

rather than the company’s records.

If a non-resident corporate taxpayer has or is deemed to have

a PE within the territory of Taiwan, the PE will need to keep

separate accounting books as well as file income tax returns

and pay income tax on the non-resident corporate taxpayers’behalf.


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Business income tax

Assessments

The tax authorities conduct tax audits by examining the

tax returns, accounting books and supporting documents

according to the “Assessment Rules for Income Tax Returns

of Profit-Seeking Enterprises”. After a tax audit has been

completed, the taxpayer may be called upon to explain

questionable items and present additional supporting

documents to the tax authorities. If the tax authorities come

up with a different assessment, they will issue a formal

assessment notice to the taxpayer, who then has the option

of paying the tax as assessed or undergoing a tax appeal

procedure provided under the relevant tax provisions.

Assessment periodIf a taxpayer has filed an income tax return within the time

limit prescribed, and has not evaded tax by fraud or any other

improper means, the tax authority may examine the return

at any time within five years after the filing date, even if it

had already confirmed the assessment. This period can be

extended by 2 additional years in cases of fraudulent filing.


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Business income tax

Consolidated returns

Group enterprises meeting certain criteria under the Financial

Holding Company Act and Business Mergers & Acquisitions

Act may file consolidated tax returns for the Taiwan parent

and its first tier Taiwan subsidiaries. For other enterprises,

group returns are not filed. Consequently, the losses of one

affiliate cannot be used to offset the profits of another.

Enterprises with foreign branches should include branch

operations in their returns. However, credit for the income tax

paid on income derived from sources outside Taiwan can be

claimed to the extent allowed by the tax laws, but normally

not to exceed the income tax payable in Taiwan as a result of

inclusion of this offshore income.Payment

Tax is paid on a self-assessment basis in two instalments. A

company with a calendar year end must pay provisional income

tax equal to 50% of the tax liability declared for the previous

year between 1 September and 30 September. However, if

the taxpayer meets certain requirements, it can opt to pay the

provisional tax based on its taxable income for the first six

months of the current tax year. The second payment is made

when filing the annual return. The return is then reviewed by

the tax authority and a final assessment is issued.


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Business income tax

Penalties are imposed for late filing and failure to file a return.

The taxpayer is also required to pay interest on any unpaid

taxes from the date following the original due date to the date

of payment. The interest charge is based on the prevailing

one-year time deposit interest rate set by the Directorate

General of the Postal Remittances & Savings Bank each year.

Interest may be waived if the amount is under NT$1,500.

Branch versus subsidiary

In general, taxable profits of branches and subsidiaries

of foreign companies are computed in a similar fashion.

However, whilst withholding taxes are levied on dividends

distributed by subsidiaries, there is no withholding tax on the

remittance of after-tax profits by a branch to its foreign headoffice. The withholding tax levied on dividends paid to foreign

shareholders is 20% absent any tax treaties. Consequently,

a branch structure is currently tax-effective for trading and

service industries, but it should be noted that a branch cannot

enjoy any tax incentives.

Losses As a general rule, companies which keep a complete set of

accounting books and records that are in order, use blue

returns, or have their returns certified by a CPA may carry

losses forward for 10 years for tax losses incurred from 2003

onwards. Losses may not be carried back.


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Business income tax

Substance-over-form rules

Although Taiwan does not have a codified general anti-

tax avoidance rule, Taiwan has formalized the concept of

substance-over-form under Article 12-1 of the Tax Collection

Act on 13 May 2009, where the economic substance of the

transaction shall be considered.

The onus is on the tax authorities to ascertain the facts and

substance of the transaction, as well as its tax effect. The

taxpayer, on the other hand, is obligated to provide relevant

assistance required by the tax authorities.

Withholding taxes

Withholding taxes on wages, interest paid to non-financial

institutions, rentals, commissions, royalties, cash awards,

and professional fees, etc must be paid to the tax authorities

within ten days after the close of the month in which the

payment was made to resident individuals or corporates (if

necessary). The withholders should prepare withholding

certificates and submit them to the collection authority for

verification by the end of January of the following year. If thetaxpayer is not a resident individual or is a foreign enterprise

with no PE in Taiwan, the tax withholder should submit

the taxes withheld and prepare the withholding certificates

within 10 days from the date the payment is made.

The table in the next page summarizes withholding tax rates

in Taiwan.


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Business income tax

Type of income Residentindividuals (%)

Residentcompanies(%)

Non-residentindividuals andcompanies (%)

Dividends N/A N/A 20

Commissions 10 N/A (1) 20

Rentals 10 N/A (1) 20

Interest 10 10 15, 20 (2)

Royalties 10 N/A (1) 0, 20 (3)

Technical fees 10 N/A 0, 3, 20 (4 & 5)Prizes/Awards (6) 10, 20 10, 20 20

Professional fees 10 N/A 20

Notes:

1. Commissions, rentals, and royalties received by resident enterprisesthat issue GUIs are exempt from withholding tax.

2. For non-resident enterprises, a 15% withholding tax applies to interest

income derived from short-term bills, securitised certificates, corporatebonds, government bonds or financial debentures, as well as interestderived from repurchase transactions involving these bonds orcertificates. The rate in all other cases is 20%, unless reduced under atax treaty.

3. Royalties received by foreign enterprises with IPs registered in Taiwanthat are specially approved in advance by the government are exemptfrom income tax.

4. A 3% withholding tax may be applicable if approved by the tax authority.5. Technical service fees received by foreign enterprises in relation to

the construction of power plants for power generating companies andapproved by the government are exempt from income tax.

6. For prizes or awards from contests and games won by chance, thewithholding tax rate is 10% for resident individuals and enterprises and20% for non-resident individuals and enterprises. However, cash awardsless than NT$2,000 from lottery tickets issued by the governmentare not subject to withholding tax. Whereas, cash awards more than

NT$2,000 from lottery tickets issued by the government are subject to20% withholding tax. This applies regardless whether resident or non-resident individuals and enterprises are involved.


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Business income tax

According to the MOF Guidelines For Determining Taiwan

Sourced Income under Article 8 of the Income Tax Act issued

in September 2009, fees for services rendered exclusively

offshore by foreign enterprises with no PE in Taiwan are

regarded as non Taiwan-sourced income which shall not

be subject to withholding tax. On the other hand, a foreign

enterprise with no PE in Taiwan is subject to withholding tax

if it receives Taiwan-sourced income from service fees, rental

income, business profits, awards/grants and other income.

However, the foreign enterprise may appoint a tax agent

in Taiwan to claim a tax deduction for costs and expenses

incurred (supported by evidentiary documents), and it may

apply for a tax refund within five years from the payment date.

Foreign operations

Income tax is levied on the total income of profit-seeking

enterprises that have their head office in Taiwan, regardless

whether that income was derived inside or outside of Taiwan.

If a company pays income tax on income derived outside

of Taiwan by the foreign branch in accordance with the tax

laws of the country from which that income was derived,

the amount of such tax paid may be deducted from its profit-

seeking enterprise income tax, provided that such deductions


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Business income tax

cannot exceed the amount of tax which, if computed at the

applicable domestic tax rate, is increased by the inclusion of

income from abroad. Any profit-seeking enterprise whose head

office is outside of Taiwan but which maintains a fixed place of

business or business agent in Taiwan must pay income tax on

income derived from sources in Taiwan.

Double taxation relief

Certain taxes imposed by foreign governments on income

recognised by a domestic taxpayer are allowed as a credit

against income taxes to be paid in Taiwan. Credit for foreign

taxes will be allowed provided the domestic taxpayer can

present evidence of the tax payment from the tax authorities

of the foreign government and evidence of attestation by the

Taiwanese diplomatic representative office or other approved

organisation in the foreign country.

Double taxation agreements

Taiwan has currently entered into bilateral double taxation

agreements with 20 countries. These treaties generally follow

the Organisation for Economic Co-operation and Development

(“OECD”) model and their contents are summarised in the

following table:


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Business income tax

Withholding taxes under double taxation agreements

Country Dividends (%) Interest (%) Royalties (%)

Non-treatycountries

20 15, 20 20

Australia 10, 15 (1) 10 12.5

Belgium 10 10 10

Denmark 10 10 10

France 10 10 10

Gambia 10 10 10

Hungary 10 10 10

Indonesia 10 10 10

Israel 10 7, 10 (5) 10

Macedonia 10 10 10

Malaysia (4) 12.5 10 10

Netherlands 10 10 10

New Zealand 15 10 10

Paraguay 5 10 10

Senegal 10 15 12.5

Singapore 40 (2) N/A 15

South Africa 5, 15 (3) 10 10


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Business income tax

Country Dividends (%) Interest (%) Royalties (%)

Swaziland 10 10 10

Sweden 10 10 10

United Kingdom 10 10 10

Vietnam 15 10 15

Notes:

1. 10% for shareholders that are companies (other than partnerships) withat least a 25% shareholding.

2. The total tax burden of corporate income tax and dividend withholdingtax must not exceed 40% of the total profits of the company.

3. 5% for shareholders with at least a 10% shareholding.

4. The withholding tax rate on technical service fee is reduced to 7.5%.

5. 7% of the gross amount of the interest arising in a territory and paid onany loan of whatever kind granted by a bank of the other territory.

The MOF has issued the Assessment Rules Governing

Applicability of Double Taxation Agreements (“DTA

Assessment Rules”) on 7 January 2010, replacing the previous

Guidelines for the Application of Double Taxation Agreements.

The DTA Assessment Rules introduced more stringentmeasures to verify whether applicants of tax treaty benefits

are tax residents of treaty countries and bona fide beneficial

owners of Taiwan-sourced income.


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Business income tax

In addition, the MOF also issued Tax Ruling Tai-Tsai-Shuei No.

09604506050 on 11 January 2007 which provides guidance

on assessment and income attribution rules of PEs defined

under DTAs. The ruling also specifies how taxes should be

paid (i.e. via withholding tax or filing of tax return) where

remuneration is received by a foreign entity located in a treaty

country with a PE in Taiwan.

Tax incentives

Certain tax incentives are provided to investors if they are

located in prescribed areas such as science parks, economic

processing zones, free trade zones and so on.

Most tax breaks were previously offered under the Statute

for Upgrading Industries (“SUI”), which expired at the end of

2009 and is currently replaced by the Statute for Innovating

Industries (“SII”) issued on 12 May 2010.

Additional tax incentives are available under the Business

Mergers and Acquisitions Act, the Financial Institutions

Merger Act and other laws and regulations.

Notwithstanding the expiry of the SUI, companies can

still apply for tax incentives under the SUI if the requisite

approvals had already been obtained from the government

before the expiry date. On the other hand, the main tax

incentive offered under the SII consists of R&D investment


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Business income tax

tax credit (“ITC”). The key differences between the R&D ITC

offered under the SII and the expired SUI are summarized

below:

Statute for Innovating

Industries

Statute for Upgrading

Industries (expired on 31

December 2009)

Creditable

amount

15% of qualified R&D

expenditure of thecurrent year.

35% of R&D expenditure of

the current year, and 50% ofthe portion in excess of theaverage R&D expenditure ofthe prior two years.

Deadlinefor applyingtax credit

Current year 5 consecutive years fromthe current year

Tax creditceiling Not exceeding 30% ofthe tax payable in thecurrent year. UnutilisedR&D credits will beforfeited, and cannot becarried back or carriedforward.

Together with other types ofITCs, the total ITC appliedshall not exceed 50% of thetax payable in the currentyear. However, the ceilingis not applicable in the lastyear.


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Business income tax

Transfer pricing rules

The key legislation on related-party transactions in Taiwan,

dating from December 2004, is "Regulations Governing

Assessment of Non-arm's Length Transfer Pricing of Profit-

Seeking Enterprises".

The types of transactions are:

• transfer or use of tangible or intangible property;

• rendering of services;

• use of funds; and

• other types of transactions assessed by the MOF.

Arm’s length principle

Transactions concerning revenue, cost, expenses, profit or loss

allocations between an enterprise and other local and foreign

businesses that it is associated with, and those between an

enterprise and another enterprise by which it is directly or

indirectly owned or controlled, must conform to the arm's

length principle.

Related-party definitions

The TP Assessment Rules provide specific definitions of

related parties. In addition to a 20% equity ownership

threshold, the MOF has adopted the “substantive management


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Business income tax

and control” and “material influence” concepts in defining

what constitute a related party.

Previously, the burden of proof in showing that a transaction is

not conducted at arm’s length rested with the tax authorities.

Under the current rules, the burden of proof has been placed

on the taxpayer, who is obligated to disclose information on

related party transactions and prepare certain documents tocomply with the relevant laws and regulations when filing

their tax return.

Pricing methods

As an indication, we provide the applicable methods for

pricing the transfer and use of tangible property, which

includes the following:

• comparable uncontrolled price method (“CUP”);

• resale price method (“RPM”);

• cost plus method (“CP”);

• comparable prots method (“CPM”);

• prot split method (“PSM”); and

• other methods approved by the MOF.

The profit level indicators (“PLI”) of the CPM include:

• Return on Operating Assets (“ROA”);

• Return on Sales (“ROS”);


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Business income tax

• Berry Ratio (“BR”); and

• Full Cost Mark-up.

Documentation requirements

The disclosure of related party transactions in annual tax

returns and the preparation of transfer pricing reports

are required if certain thresholds are met. The following

documents should be prepared:

• A comprehensive business overview;

• A description of the organisation structure;

• A summary of related party transactions;

• A transfer pricing report;

• A statement of afliation (in the case of a subsidiary) and

consolidated business report of afliated enterprises (of a

parent company), as stipulated in Article 369-12 of the

Company Act; and

• Other documents concerning related parties or controlled

transactions that may affect pricing.

The transfer pricing report should include the following items:

• Industry and economic analysis;

• Functional and risk analysis of all the participants in the

controlled transactions;


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• A description of compliance with the arm’s length

principle;

• A description of the search for comparables;

• Description of the selected transfer pricing method and

the related comparability analysis;

• Transfer pricing methods adopted by the other related

participants; and

• A description of the most appropriate method used to

evaluate whether the result of the controlled transactions

is at arm’s length and also its conclusion, including

selected comparables, difference adjustments and their

assumptions, arm’s length range, the conclusion of the

evaluation, and the transfer pricing adjustment if thecontrolled transactions are not at arm’s length.

In general, all required documents should be provided in

Chinese, though English documentation may be acceptable if

approved by the tax authorities.

Safe harbour rules

The MOF established a safe harbour rule in December 2005

(revised in November 2008) to help alleviate taxpayers’

compliance costs. Companies which have controlled

transactions below certain thresholds may replace their


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transfer pricing report with other evidentiary documents to

prove that the results of such transactions are consistent with

arm’s length results.

Penalties

The tax authorities can adjust the income of taxpayers whose

controlled transactions fall outside the arm’s length range,

and penalties may be imposed for failure to comply with thearm’s length principle.

Advance pricing agreements

If the transactions undertaken by a business with related

parties satisfy the following criteria, the taxpayer may apply

for and establish an advance pricing agreement (“APA”) with

the tax administration:

• The total amount of the transactions covered under the

APA is at least NT$1 billion, or the annual amount of such

transactions is at least NT$500 million;

• No signicant act of tax evasion has been reported in the

past 3 years;• The required documentation for APA application has been

well prepared; and

• Other criteria specied by the MOF are satised.


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Taxpayers deemed qualified to apply for an APA should file an

application before the end of the first fiscal year to be covered

by the APA. The tax authorities will notify the taxpayer in

writing within one month whether the application is accepted.

Once the application is accepted, the taxpayer must provide

all required documents and reports within one month from

the date the notification is received.

In general, an APA is valid for three to five years. Where an

enterprise’s business nature has not materially changed, a

one-time extension of up to five years can be requested.

Alternative minimum tax

Taiwan imposes a so-called alternative minimum tax (“AMT”)

under the Income Basic Tax Act, effective from 1 January

2006. There are two AMT systems, one for companies and one

for individuals.

The AMT applies to all Taiwan resident companies, as well as

foreign companies with a PE in Taiwan, if they earn certain

income that is tax exempt, or if their annual basic income (that

is, income subject to AMT) exceeds NT$2 million.


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Business income tax

The following entities are not subject to AMT:

• Sole proprietors and partnerships;

• Non-prot organisations;

• Government-owned enterprises;

• Foreign enterprises with no PE in Taiwan; and

• Businesses undergoing a liquidation ling or declared

insolvent.

If the regular income tax is greater than the AMT, no special

action is required. If the AMT is greater than the regular

income tax, taxpayers have to calculate and pay AMT based

on the following formulae:

• Income subject to AMT = Regular taxable income +

add-back items

• AMT = (Income subject to AMT - NT$2 million) x 10%

The add-back items include approved exempt income

under tax incentive schemes, tax exempt capital gains fromsecurities and futures transactions, and tax exempt offshore

branch profits of banking institutions.


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Business income tax

Taxation of shareholders

Domestic shareholders

- Dividends

The so-called imputation tax system was introduced to

eliminate double taxation on earnings of a corporation.

Profits of resident corporations are currently taxed at 17%

(effective from 2010 onwards). This tax can be distributed

to resident individual shareholders to offset their individual

income tax.

The dividends received by a resident corporation from its

investment in another resident corporation are not included

in its taxable income.

If a Taiwan enterprise invests in foreign corporations,

dividends declared by the invested foreign corporations must

be included in taxable income, and any related foreign tax

credits may be used within prescribed limits.

- Capital gains

Gains from the sale of Taiwanese securities are exempt from

income tax assessment.


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Business income tax

Foreign shareholders

- Dividends

Dividends paid to foreign shareholders are subject to

withholding tax at 20%, unless reduced under double taxation

agreements.

- Capital gains

Although gains from the sale of securities are exempt from

income tax, under the Income Basic Tax Act, companies (i.e.,

resident companies in Taiwan and foreign companies with a

PE in Taiwan) who sell domestic marketable securities have

to calculate an income basic tax amount and compare such

tax amount with the regular income tax amount, then pay the

higher of the two taxes calculated. Please refer to the formulae

laid out under “Alternative Minimum Tax” section for more

information on the AMT calculations.


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PERSONAL INCOME TAX

General overview

Individual income tax is levied on the Taiwan-sourced income

of both resident and non-resident individuals, unless exempt

under the provisions of the Income Tax Act and other laws.

Income received for services rendered in Taiwan is considered

to be Taiwan-sourced income subject to tax regardlessof whether such income is paid by a local or an offshore

employer. However, income received for services rendered

in Taiwan is not considered Taiwan-sourced income if a non-

resident individual resides in Taiwan for less than 90 days in

a calendar year and the compensation is paid by an offshore

employer.

Starting from 1 January 2010, the alternative minimum

tax, based on the Income Basic Tax Act, will apply to the

overseas income of resident individuals, including qualifying

expatriates.

The tax year in Taiwan is on a calendar year basis. Individual

taxpayers should file an annual income tax return with the

Taiwan tax authority before 31 May of the following year,

with no extensions allowed.


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Personal income tax

Residency

An individual is considered resident in Taiwan for income tax

purposes if the individual domiciled or ordinarily resided in

Taiwan; or if not domiciled but resided in Taiwan for 183 days

or more in a taxable year. Residents are taxed at progressive

rates from 5% to 40% and are entitled to claim certain

exemptions and deductions.

Non-residents, or foreigners who stay in Taiwan for less

than 183 days in a calendar year, are in general subject to

withholding tax on their Taiwan-sourced income. A non-

resident alien is subject to 18% or 20% withholding tax on

remuneration related to services rendered in Taiwan received

from a Taiwan-registered entity.

Personal income tax rates

The following table summarises residency conditions and

personal income tax rates in Taiwan:

Non-resident Resident

Length of stay Less than 183 days 183 days or more

Personal exemption No Yes

Deductions No Yes


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Personal income tax

Non-resident Resident

Tax rates

In general15% ~ 20%,depending onincome type

Progressive tax rates for 2011 tax year:

Net TaxableIncome (NT$)

Tax Rate (%) ProgressiveDifference(NT$)

0 ~ 500,000 5 0

500,001 ~1,130,000

12 35,000

1,130,001 ~2,260,000

20 125,400

2,260,001 ~4,230,000

30 351,400

4,230,001 orhigher

40 774,400

Non-resident individuals who reside in Taiwan for less than183 days are subject to withholding tax at a rate of 18% on

wages and salaries, 20% on dividends, commissions, rental

income, royalties, professional fees and prizes and awards

obtained from contests or lotteries. From 1 January 2010, a

15% withholding tax applies to interest income derived from

short-term bills, securitised certificates, corporate bonds,

government bonds or financial debentures, and interest from

repurchase transactions involving these bonds or certificates.

The rate in all other cases is 20%.


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Personal income tax

Exempt income

Income which are exempted from income tax include, but are

not limited to the following:

• Compensation for death or injury and that obtained

pursuant to the National Compensation Act.

• Pension or compensation for death received in accordance

with applicable acts or regulations by the bereaved family

of a person who died in performing ofcial duties.

• Payment for special disbursement, allowance in kind or

cash in lieu thereof, and housing allowances received

from the government by public servants, teachers,

military personnel, policemen and labourers; and that

portion included in the uniform-scale salary receivedby employees of state-run organizations representing

allowance in kind and housing allowance.

• Compensation payment made under life insurance, labour

insurance and insurance for public servants, military

personnel and teachers.

• Scholarships and subsidies granted by governments

of Taiwan or foreign governments, international

institutions, educational, cultural, and scientic research

organizations or associations, and other public or private

organizations for encouragement of advanced studies,

research or participation in scientic and professional

training, except for the scholarships or subsidies receivedas remuneration for services rendered to the grantors.


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Personal income tax

• Income, derived by virtue of ofce, of foreign diplomatic

ofcials, consular ofcials and other persons entitled to

treatment accordable to diplomatic ofcials in the service

of foreign embassies, legations and consulates in Taiwan.

• Income, derived by virtue of ofce, of employees, other

than diplomatic ofcials, consular ofcials and persons

entitled to diplomatic treatment, who, being nationals of

a foreign country, are employed by the embassy, legationor consulate of their country or by subsidiary agencies

thereof in Taiwan; provided, that reciprocal treatment is

accorded by the foreign country concerned to employees

of Chinese nationality employed by the embassy, legation

or consulate of Taiwan or by subsidiary agencies thereof,

in the foreign country concerned.

• Salaries paid by foreign governmental agencies,

organizations or educational and cultural institutions

to foreign technicians and professors of universities

and colleges for services rendered within Taiwan under

technical cooperation or cultural and educational

exchange agreements made by and between such foreign

governmental agencies, organizations or educational andcultural institutions and those of Taiwan.

• Income earned by an individual from the sale of land, or

by an individual from the sales of apparel or furniture for

household use.


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Personal income tax

• Individual income derived from written articles,

copyright, musical compositions, musical productions,

dramas, cartoons, or remuneration for speeches and

lectures on an hourly basis. However, the total amount

of such income for the whole year shall not exceed NT$

180,000.

• Various payments paid to personnel engaged in handling

various kinds of examinations held by governmentalagencies or academic organizations as commissioned by

such agencies and entrance examinations held by public

and private schools of various levels.

Exemptions and deductions

Exemptions are available for a resident taxpayer, his/her

spouse and dependents. A resident taxpayer also has the

option to claim either a standard deduction or itemised

deductions and may claim additional special deductions.

Eligibility for and limits on itemised deductions are subject

to change, so it is wise to seek up-to-date guidance before

filing your return. Non-residents are not eligible for the above

exemptions and deductions.


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Personal income tax

Exemptions

Exemption item Exemption amount Supporting documents

Taxpayer NT$82,000 None

Spouse NT$82,000 Copy of marriage certificate.

Dependents notover 20 years of

age

NT$82,000 Copy of birth certificate.

Dependentsover 20 yearsof age and stillstudying in anapproved collegeor university

NT$82,000 1. Copy of birth certificate.

2. Copy of tuition receipt andvalid student ID.

Dependents over60 years of age

NT$82,000 1. Copy of the birth certificateof the taxpayer / spouse.

2. Document certifying theparent is supported by thetaxpayer / spouse.

Dependents over70 years of age

NT$123,000 1. Copy of the birth certificateof the taxpayer / spouse.

2. Document certifying theparent is supported by thetaxpayer / spouse.

3. Documents evidencingthe parent’s livingarrangements.


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Personal income tax

Deduction item Maximum deduction Supporting documents

Charitable donations Limited to donationsto Taiwan-registered non-profitorganizations of20% of annual grosstaxable income.

Original receipts.

Insurance premiums Limited toNT$24,000 for eachperson per year forlife insurance andlabour insurancepremiums. There is

no ceiling for healthinsurance premium.

Original receipts.

Medical andmaternity expenses

No limit. Original receipts issuedby a qualified hospitalor clinic.

Itemised deductions

Taxpayer status Deduction amount Supporting documents

Single taxpayer NT$76,000 None

Married, filing jointly NT$152,000 Copy of marriagecertificate

Standard deductions

Note: A taxpayer can claim either the standard deduction or itemized

deductions, depending on whichever gives a higher total deduction amount.

There is no ceiling on the itemised deduction total.


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Personal income tax


Calamity losses No limit. Certificate issued bylocal tax office.

Interest paid on loansfor the purchase ofan owner-occupiedresidence in Taiwan.*

Limited toNT$300,000 for atax filing unit.

• Interest paymentreceipt.

• Title deed.

• Documents

evidencing theresidence was owneroccupied in the taxyear.

Rental expense forthe lease of a self-use residence inTaiwan.*

Limited toNT$120,000 for atax filing unit.

• Rental contract withthe name of thetaxpayer as lessee.

• Rental payment

receipt issued by thelandlord.

• Documentsevidencing theresidence was forself-use in the taxyear.

* Either “interest paid on loans” or “rental expense” is to be claimed.


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Personal income tax


Salaries and wages Limited toNT$104,000 perperson, or actualsalary and wageincome received,whichever is lower.

None.

Property transactionlosses

Limited to propertytransaction gainsfor the same taxyear. Any residualbalance may becarried forward forthree years.

• Certificate issued bylocal tax office.

• Purchase and salescontracts showingthe purchase andsales price andother relevantdocumentationdetailing the relevantcosts and expensesincurred.

Savings andinvestment

Limited toNT$270,000 per taxfiling unit.

None.

Disability (mental orphysical) NT$104,000 pertaxpayer, spouse,and dependent, ifhandicapped.

Copy of a psychiatrist’sdiagnosis certificateor copy of DisabilityIdentification.

Dependent childtuition

NT$25,000 perdependent childif studying in anapproved college oruniversity.

Student certificate ortuition receipts issuedby the dependent child’scollege or university.

Special deductions


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Personal income tax

Fringe benefits

Fringe benefits are considered part of salaries and wages

under Taiwan income tax law. Fringe benefits to individual

taxpayers in the form of cash allowances are generally taxable

regardless of the nature of the benefits. Fringe benefits

provided directly by the employer without cash payment

to the employee are also taxed unless the recruitment ofa foreign employee satisfies certain criteria for special tax

incentives applied to foreign professionals.

Incentive compensation plans

Common incentive compensation plans are stock bonuses,

stock options, restricted stocks/units, and employee stock

purchase plans. For an individual who is assigned by a foreign

company to work in its subsidiary, branch or representative

office in Taiwan, and who exercises stock options issued by the

foreign company, the other income derived from exercising

those options will not be considered Taiwan sourced income

if he/she does not render any services in Taiwan during the

period from the date the options are granted to the date they

are vested. However, as of this writing, there is no specific tax

ruling for restricted stocks/units. Taxpayers are advised to

contact their tax consultants regarding equity compensation

received.


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Personal income tax

Capital gains

Taiwan does not impose a separate capital gains tax, as all

gains, unless specifically exempt by law, are assessed as

ordinary income and subject to regular income tax. Gains

from the sale of land, and Taiwan securities and futures,

are currently exempt from income tax. However, resident

individuals must include any gains attributable to sales of

unlisted securities in Taiwan in their alternative minimum tax

calculation.

Gains on sale of other properties are subject to regular

income tax but gains on sale of land are subject to Land Value

Incremental Tax rather than income tax.

Dividends

Taiwan operates an imputation tax system to ensure that

dividends received by resident individual shareholders are

taxed only once, as part of individual income.

For resident individuals, dividends received are not subject to

withholding tax. The gross dividend received is included in anindividual’s taxable income, and the associated imputation tax

credit (for the corporate tax paid by the company distributing

the dividend) can be used to offset its income tax liability. Any

excess credit is refundable to resident individuals.


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Personal income tax

For non-resident individuals, dividends received are subject to

20% withholding tax, absent any available tax treaty.

Filing

Resident individuals are required to report all of their Taiwan-

sourced income, irrespective of the payment location of

such income, and to file an annual income tax return with

the Taiwan tax authority between 1 May and 31 May of thefollowing year, with no extension allowed.

For resident individuals, a consolidated individual income

tax return must be filed with respect to Taiwan-sourced

income. Husbands and wives must file joint returns if both

have resided in Taiwan for more than 183 days in a taxable

year. However, a spouse can opt to calculate taxes due on

that spouse’s salaries or wages separately. The income of any

dependents for whom the taxpayer has claimed a personal

exemption must also be included in the joint tax return.

An individual has no filing obligation if he/she resides in

Taiwan for less than 90 days in a calendar year, and receivesincome from a Taiwan-registered entity which has been

subject to withholding tax, or income from an offshore

employer.


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45 PwC Taiwan

Personal income tax

Payment of taxes

Taiwanese employers are required to withhold income tax on

locally paid monthly salaries. Any additional tax due must

be paid before the actual return is filed. Thus, a tax payment

receipt must be obtained before filing a return.

Alternative minimum tax

In addition to regular tax calculations under the Income Tax

Act, Taiwan also imposes AMT on individuals who are tax

residents in Taiwan (including expatriates who stay in Taiwan

for 183 days or more in a tax year). Effective from 1 January

2010, the overseas income of resident individuals will be

included in the AMT calculation.

Resident taxpayers with AMT taxable income of more than

NT$6 million may be subject to AMT at the current rate

of 20%. Under the Income Basic Tax Act, a taxpayer must

calculate the amount of AMT due on income subject to AMT

after adding back certain items and compare the result with

the regular income tax amount. If the AMT tax payable isgreater than the regular tax payable, the taxpayer has to

calculate and pay AMT based on the following formulae:

• Income subject to AMT = Regular taxable income + add-

back items

• AMT = (Income subject to AMT - NT$6 million) x 20%


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Personal income tax

The add-back items include qualified insurance benefits,

capital gains from unlisted securities or beneficiary

certificates, non-cash charitable donations, and foreign-

sourced income totalling NT$1 million or more.

Except for overseas income, the other items have been

included in the AMT calculations since 1 January 2006.

Although the inclusion of foreign-sourced income will

increase the AMT burden, any foreign taxes paid on offshore

income may be credited against AMT payable, with certain

limitations.

Resident foreignersmay be subject to AMTon worldwide income ,

with foreign tax creditsavailable subject to a limit.


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VALUE ADDED TAX (VAT)

General overview

Business tax generally applies on the sale of goods and

services within Taiwan as well as the importation of goods

into Taiwan. Business tax consists of valued-added tax (“VAT”)

and non-VAT:

• VAT – applicable to general industries. The current rate is5%. The seller collects VAT from the purchaser at the time

of sale (output tax), deducts from that amount any VAT

paid on purchases (input tax) and remits the balance to

the government. Thus, the VAT in most cases does not

represent an additional cost to the enterprise; rather, the

cost is passed on to the end consumer.

• Non-VAT (also known as gross business receipts tax or

GBRT) – applicable to nancial institutions, special

vendors of beverages and food, and small scale business

enterprises. Their sales, based on gross receipts, are

subject to various business tax rates.


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Value added tax

Tax rate Goods/Services

0% This rate applies to exported goods, goods sold by duty-free shops, goods sold to enterprises inside exportzones, science-based industrial parks, bonded factoriesor bonded warehouses, services relating to exports orservices supplied within the territory of Taiwan but used in

foreign countries, and certain international transportationoperation. Effective from January 2011 onwards, the scopeof “bonded areas” is expanded to include agriculturalbiotechnology parks, free trade zones, logistics centresand other government-approved areas administered bycustoms.

0.1% This rate applies to consignees of agricultural wholesalemarkets and small scale business entities which sellagricultural products.

1% This rate applies on reinsurance premiums of insuranceenterprises. This rate also applies to small scale businessentities and other businesses approved by the MOF.

2% This rate applies to financial institutions engaged inbanking, insurance, investment trust, securities, futures,commercial paper and pawnshops.

3% This rate applies on payments made by a Taiwanesefinancial institution for purchase of services exclusivelyfor their authorized businesses from a foreign financialinstitution with no fixed place of business in Taiwan.

Tax rates


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Value added tax

Tax rate Goods/Services

5% This standard rate applies generally on all domestic salesof goods and services, and importation of goods. This ratealso applies on transactions not connected exclusivelywith financial institutions’ core business.

15% This rate applies to night clubs or restaurants providingentertainment show programs.

25% This rate applies to saloons, tea rooms, coffee shops and

bars providing hostesses to entertain customers.

Zero-rated goods and services

The following are the goods and services which are zero-

rated:

• Export of goods.

• Services provided in connection with exports or services

provided within Taiwan but used in foreign countries.

• Goods sold by duty-free shops.

• Sales of machinery and equipment, materials, supplies,

fuel and work in process to export enterprises inside the

export processing zone, to enterprises inside the Science-based Industrial Park, or to bonded factories or bonded

warehouses supervised by the Taiwan customs authority.

• International transportation, provided reciprocal tax

treatment is granted by the home country of the foreign

international transportation company.


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Value added tax

• Vessels and aircrafts used in international transportation

and deep-sea shing boats.

• Sale of goods or maintenance services to vessels and

aircrafts used in international transportation and deep-

sea shing boats.

• Sales of goods or services to enterprises located within

bonded areas for their business operation.

• Goods sold by enterprises located in bonded zones to

enterprises located in taxable zones, where the goods are

exported directly instead of delivered to taxable zones.

• Goods sold by enterprises located in bonded zones to

enterprises located in taxable zones, where the goods

are delivered to and stored by enterprises located in free

trade zones, bonded warehouses, or logistics centres, for

subsequent export.

Exempted goods and services

The following are goods and services which are exempted

from business tax:

• Sale of land.

• Water supplied to farmland for irrigation.

• Medical services, medicine, ward lodging and meals

provided by hospitals, clinics and sanitariums.


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Value added tax

• Rearing and nursing services offered by the nursing

homes for children, the elderly or handicapped.

• Education services offered by schools, kindergartens,

other educational and cultural institutions, including

cultural services offered under government’s

consignment.

• Textbooks authorised by education authorities for use at

various levels of schools and important specialised

academic writings awarded by the government according

to the law.

• Goods or services sold by student-run shops of vocational

schools which do not serve outsiders.

• Newspapers, magazines, newsletters, advertisements,television and broadcasting programs produced and sold

by legally registered newspaper and magazine publishers,

news agencies, television and broadcasting stations,

excluding the advertisements sold by newspaper

publishers and advertisements broadcasted by television

stations.

• Goods or services sold to their members by cooperatives

managed in accordance with the law; and business

consigned by government to said cooperatives.

• Goods or services sold to their members by farmers’,

shermen’s, workers’, commercial and industrial

associations in accordance with the law, business


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Value added tax

consigned by the government to said associations, and the

management fee charged in accordance with Article 27 of“The Agricultural Products Market Transaction Act” for

the use of an agricultural products wholesale market and

in which the share ownership of farmers’ associations,

shermen’s associations, cooperatives and government

institutions accounts for more than 70%.

• Proceeds from goods sold in tenders, charity sales andcharity shows held by charity and relief institutions

organised according to the law, provided that the total

proceeds are solely used by said institutions after

deducting the necessary expenditures for the tenders,

charity sales and charity shows.

• Goods or services sold by employee welfare organisationsof government bodies, state enterprises and social

organisations which are organised and operated under

relevant laws and are not open to the public.

• Goods or services sold by prison workshops and their

nished goods stores.

• Services rendered by post and telecommunication ofcesin accordance with the law; and business consigned under

government mandate.

• Monopoly goods sold at statutory prices by state-owned

monopoly industries and by business entities which are

authorised to sell the monopoly goods.


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Value added tax

• Service of consigned sale of stamp tax tickets and postage

stamps.

• Goods or services sold by peddlers or hawkers.

• Feed and unprocessed raw agricultural, forestry, shery

and livestock products, and by-products; the agricultural,

forestry, shery and livestock products, and by-products

of farmers’ and shermen’s harvests sold by farmers andshermen.

• Fish caught and sold by shermen.

• Sales of rice and wheat our and the service of husking

rice.

• Sales of xed assets which are not regularly traded by

business entities which compute their business tax

according to Section II of Chapter 4, i.e. nancial

institutions, etc.

• Insurance policies accepted by insurance enterprises for

insurance promoted by the government, covering

military, government and education entities’ employees

and their dependents, labourers, students, farmers,shermen, exports, compulsory automobile third party

liability insurance, and reinsurance premiums paid out by

insurance enterprises from premiums received by the

same, and life insurance policy reserves, annuity

insurance policy reserves and health insurance policy

reserves, provided, however, that this does not include


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Value added tax

income, other benets and return of policy reserves

received on termination of life insurance, annuity

insurance and health insurance.

• Bonds issued by all levels of government and securities

upon which a securities transaction tax has been imposed

in accordance with the law.

• Residual or obsolete goods sold at tenders by all levels ofgovernment.

• Sales of weapons, warships, aircraft, tanks and

reconnaissance communication equipment for military

use to defence agencies.

• Fertilizer, pesticides, veterinary drugs, agricultural

machinery, transportation equipment for farmland, andfuel and electricity used by such machinery and

equipment.

• Fishing boats for coastal or inshore shery and machinery,

equipment, shing nets and fuel used by shing boats.

• Interest on the ow of funds between head ofce and

branch ofces of banking enterprises, the revenue ofinvestment trust enterprise derived from trust funds in

the manner designated by the settler, provided the settler

bears the risk of loss and enjoys the proceeds, and

unredeemed items where the proceeds arising from their

sale by pawnshops does not exceed the aggregate of

principal and interest receivable.


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Value added tax

• Gold bars, gold bricks, gold foil, gold coins and gold

ornaments, excluding the processing fee.

• Research services supplied by academic, scientic

research institutions which are established under the

approval of the government.

• Sales amount of enterprises operating nancial

derivatives products, corporate bonds, nancial bonds,

New Taiwan Dollar interbank call loans and foreign

currency call loans, excluding commissions and service

charges of these products.

Any business entity which sells the aforementioned exempt

goods or services can apply to the MOF to waive the

exemption and compute its business tax according to the

provisions of Section I of Chapter 4, i.e. taxes payable or

deductible / refundable is based on the difference between

input VAT and output VAT. However, once approved, no

changes can be made within three years.

Filing and payment of taxes

An enterprise, whether or not it has sales, must generally file

a bi-monthly VAT return with the collection authority by the

15th day of each odd month for the two preceding months.

The tax payable must be paid before filing the return.


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Value added tax

The head office and other fixed place of businesses of the

same enterprise located in Taiwan must file separate bi-

monthly returns to the local tax authorities. However,

enterprises may apply for approval from the MOF to file a

consolidated VAT return if they compute their business tax

according to the provisions of Section I of Chapter 4.

An agent of a foreign transport enterprise which has no fixedplace of business in Taiwan must file VAT returns and pay VAT

for outbound passengers and cargo.

With an aim to curb real estate speculation, the

government is currently reviewing a draft bill for

selective goods and services tax of 10% to 15% to be

applied on real estate properties purchased not for

self use and sold within 2 years, as well as various

luxury products such as upscale automobiles, yachts,

private jets, fur, ivory, high-end furniture and golf

club membership. The tax bill will also include tax

exemptions, for example sale of first house for self use.

The new law is expected to be implemented as early as

June 2011.

Introduction to selective goods and services tax

(“luxury tax”)


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SECURITIES TRANSACTION TAX

General overview

Trading of Taiwanese securities shall be subject to securities

transaction tax and is payable by the seller of securities.

Chargeable securities include shares issued by companies,

corporate bonds and other securities offered to the public

with government approval.

Trading of corporate bonds and financial bonds issued by

Taiwanese issuers or companies are temporarily exempt from

securities transaction tax assessment until 31 December 2016.

Tax rates

The applicable securities transaction tax rates are as follows:

• 0.3% on gross proceeds from the sale of shares issued by

companies.

• 0.1% on gross proceeds from trading in corporate and

nancial bonds (temporarily exempt) and other securities

approved by the government.


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STAMP TAX

General overview

Stamp duty is chargeable on certain documents drawn up

within the territories of Taiwan and not on transactions.

Scope of taxation

The types of documents subject to stamp tax include:

• Receipts for monetary payments.

• Contracts or deeds for the purchase and sale of movable

properties.

• Contractual agreements for the completion of specic

tasks.

• Contracts for the sale, transfer and partition of real estate.

The following documents are exempted from the levy of stamp

tax:

• Documents executed by all levels of government agencies

and townships (at town, city and district levels).

• Monetary receipts executed by public or private schools.

• Documents executed by government-owned or private

enterprises internally and not involved in rights or

obligations with third parties, including those issued for

internal use between the head ofce and branches.


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Stamp tax

• Debit notes sent out for claim of payments or audit

purposes.

• Duplicates or transcripts where a tax stamp has been

afxed to the original document.

• Bus tickets, train tickets, boat tickets, air tickets and other

tickets for carriage of passengers or cargo.

• Receipts issued for the sale of self-grown agriculturalproducts (including agriculture, forestry, sheries and

livestock) by farmers, or receipts issued by farmer's

associations or wholesalers at the rst wholesale level on

behalf of farmers.

• Receipts identifying payment of salaries or wages.

• Receipts identifying payment of social benets, payments

to the family of a deceased person, or pensions.

• Receipts for taxes or donations to the government issued

by collecting agencies.

• Receipts issued by voluntary handlers of government

grants at the time of reimbursement.• Receipts identifying tax refunds.

• Receipts issued for the sale of tax stamps.

• Receipts for donations received issued by entities

organised for educational, cultural, public/ social

welfare, or for charitable purposes.


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Stamp tax

• Receipts issued by the Agricultural Land and Water

Association to its members for payment of irrigation

services.

• Contracts for the construction or repair of ships or boats

engaged in international transport.

Tax rates

• Receipts for monetary payments:

- 0.4% of the amount received per piece, with revenue

stamp to be affixed by the issuer.

- 0.1% of the money deposited by the bidder, with revenue

stamp to be affixed by the issuer.

• Contracts or deeds for the purchase and sale of movableproperties: NT$12 per piece with revenue stamp to be

afxed by the contractor or issuer of the deed.

• Contractual agreements: 0.1% of the contract price, with

revenue stamp to be afxed by the contractor or issuer of

the deed.

• Contracts for the sale, transfer and partition of real estate:

0.1% of the contract price, with revenue stamp to be

afxed by the contractor or issuer of the deed.


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CUSTOMS DUTIES

Customs duties are levied on imported goods. The customsduty is payable by the consignee or the holder of the bill of

lading for imported goods, and is based on the dutiable value

or the volume of goods imported.

Duty rate

Customs duty rates fall into three categories:

• MFN rate - for all WTO members and other countries with

a reciprocal relationship with Taiwan.

• Preferential rate - for specied underdeveloped or

developing countries and those countries which have

signed a free trade agreement with Taiwan (namely El

Salvador, Guatemala, Honduras, Nicaragua, Panama) andother developing countries.

• General rate - applied to jurisdictions other than the

above.

Customs duties exemptions

Certain goods are exempt from customs duty as provided

in the Customs Act. Customs duty and VAT exemptions also

apply to goods imported into designated bonded areas as

highlighted in “Value Added Tax” section.

Declaration

The duty payer must declare the imported goods to the

Customs within 15 days following the arrival date of the

transportation carrier on which the goods were carried.


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COMMODITY TAX

General overview

Commodity tax (excise duty) is levied under the Commodity

Tax Act on goods listed in the Act when manufactured

domestically or imported from abroad. The taxpayers are as

follows:

• manufacturer of commodities produced domestically;

• manufacturer of commodities manufactured under a

consignment contract; or

• importer of commodities.

The taxable value of a taxable commodity includes related

packing costs. The taxable base for imported commodities istheir customs duty paying value plus import duty and dues.

For domestically produced commodities, the taxable value

is the manufacturer’s selling price less the commodity tax

included in the price.

Taxable commodities include rubber tires, cement, beverages,

flat glass, oil and gas, electric appliances and vehicles.

Commodity tax exemptions

Commodity tax is exempt in the following circumstances:

• raw materials used for manufacturing other taxable

commodities.

• export goods.


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Commodity tax

• goods for exhibition but not for sale.

• goods supplied for troop morale.

• goods supplied directly for military use with the approval

of the Ministry of National Defence.

Filing and payment of taxes

The commodity tax is payable by the 15th of the next monthfor goods shipped from the factory in the current month.

Manufacturers should set up and keep accounting books,

documents of evidence and accounting records for accurate

calculation of the commodity tax. For imported taxable

commodities, the importer shall file with the Customs office,

and the commodity tax is collected by the Customs officetogether with customs duties.

Commodity tax rates

Type of commodity %

Rubber tyres (other than those for large buses and trucks) 15

Rubber tyres for large buses and trucks 10Non-alcoholic beverages (other than fruit and vegetable juices) 15

Fruit and vegetable juices 8

Cement (a)

Plate glass 10

Oil and gas (b)


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Commodity tax

Type of commodity %

Refrigerators 13

Electric ovens 15

Television sets (colour) 13

Air conditioners – controlled by centralised system 15

Air conditioners – powered by electricity 20

Dehumidifiers 15 (c) Videotape recorders 13

Phonographs 10 (d)

Tape recorders 10

Audio equipment combination sets 10

Cars with engines under 2000 c.c. 25

Cars with engines above 2000 c.c. 30

Motorcycles 17

Trucks 15

Notes:

(a) NT$280-600 per ton.

(b) NT$110–6,830 per kiloliter or NT$690 per ton depending on the oil or gastype.

(c) Dehumidifiers used in factories are exempt from commodity tax.

(d) Portable phonographs less than 32cm are exempt from commodity tax.


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PwC in Taiwan

PwC Taiwan, with the largest tax practice in Taiwan, hasbeen well-regarded as a leading tax and legal firm in Taiwan.

We have received various awards and recognition, including

International Tax Review’s Awards for Taiwan Transfer Pricing

Firm of the Year (2008) and Taiwan Tax Firm of the Year

(2009 and 2010). Blending our skills of tax specialists with

our associate law firm, PwC Legal, PwC Taiwan is able to actas a one-stop service provider offering comprehensive tax and

legal services.

Our industry specialization enables us to identify trends and

customise solutions for your sector of interest. Each line of

service is staffed with qualified experienced professionals and

leaders in our profession. These resources, combined with ourstrong global network of member firms, allow us to provide

the support you need in Taiwan and other foreign countries.

7 offices in Taiwan

2,400 people


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PwC in Taiwan

Our services include the following:

• International tax consultation and planning services

• Merger & acquisition services

• Global transfer pricing services

• Financial industry tax consultation services

• China investment and tax consultation services

• Domestic tax consultation and planning services

• International assignment solutions

• Personal tax services

• Shareholder equity and investment services

• Tax and business litigation services

• General accounting and relevant outsourcing services

• Corporate income tax and VAT compliance services

• IP legal and tax consulting services

• U.S. tax services


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PwC Taiwan offices

Contacts for enquiries:

Name Title E-mail Address

Corporate Income Tax / Other Tax

Elliot Liao Partner [email protected]

Rosamund Fan Director [email protected]

Taipei

27F, 333 Keelung Rd., Sec. 1Taipei, Taiwan 11012

Tel: +886 2 2729 6666

Fax: +886 2 2757 6371

Chungli

22F-1, 400 Huanbei Rd.

Chungli, Taiwan 32070

Tel: +886 3 422 5000

Fax: +886 3 422 4599

Hsinchu

5F, 2 Industry East 3 Rd.

Hsinchu Science Park

Hsinchu, Taiwan 30075

Tel: +886 3 578 0205

Fax: +886 3 577 7985

PwC Legal, Hsinchu Office

E-1, 1 Lising 1st Rd.

Hsinchu, Taiwan 30078

Tel: +886 3 500 7077

Fax: +886 577 3308

Taichung

31F, 345 Taichung Port Rd., Sec. 1Taichung, Taiwan 40309

Tel: +886 4 2328 4868

Fax: +886 4 2328 4858

Tainan

12F, 395 Linsen Rd., Sec. 1

Tainan, Taiwan 70151

Tel: +886 6 234 3111

Fax: +886 6 275 2598

Southern Taiwan Science Park

Room 2C, 2F-1, 17 Nan-ke 3rd Rd.

Tainan, Taiwan 74147

Tel: +886 6 234 3111

Fax: +886 6 505 0808

Kaohsiung

22F, 95 Minzu 2nd Rd.

Kaohsiung, Taiwan 80048

Tel: +886 7 237 3116

Fax: +886 7 236 5631


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Name Title E-mail Address

Worldtrade Management Services

Yishian Lin Partner [email protected]

Jay Lin Senior Manager [email protected]

International Assignment ServicesLucy Ho Partner [email protected]

Susan Teng Senior Manager [email protected]

Indirect Tax

Lily Hsu Partner [email protected]

Li-Li Chou Director [email protected]

Transfer Pricing

Wendy Chiu Partner [email protected]

Violet Lo Director [email protected]

Financial Services

Richard Watanabe Partner [email protected]

Kuan-Pin Chang Director [email protected]

M&A Tax

Elaine Hsieh Partner [email protected] Liu Senior Manager [email protected]

Legal Services

Eric Tsai Partner [email protected]

Ross Yang Partner [email protected]

China Tax

Elliot Liao Partner [email protected]

Patrick Tuan Senior Manager [email protected]

U.S. Tax

Wendy Chiu Partner [email protected]

Albert Chou Director [email protected]

Japanese Business Development

Richard Watanabe Partner [email protected]

Kenji Okuda Director [email protected] Business Development

Taewoo Kim Consultant [email protected]


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