Taiwan Withholding Tax Guide For Non-Resident Payees

Taiwan, also known as the Republic of China, is one of the most popular and most visited places in Asia. This country is found in East Asia and has a reasonable population of 23.7

Undoubtedly, Taiwan has maintained its reputation as one of the best hubs to start and run a business in Asia. While most business owners are concerning about the benefits of owning a Taiwanese business, they often fail to review the country’s taxation system. However, the taxation system of this country will affect its business activities. According to local legislation, Taiwan’s income tax system is based on the income earned within the territory of Taiwan and income tax rate. This also includes a withholding tax system where Taiwan companies withhold the income tax from its foreign counterparties and pay them to the tax authority later. But what exactly is the withholding tax, and how does it affect businesses? Keep reading to learn more.

Withholding Tax Rate In Taiwan

The Taiwan withholding tax rates for the payments made to non-resident payees for its Taiwan sourced income are as below:

• Service – 20%
• Salary – 18%
• Dividend – 21%
• Others – 20% (e.g. commission, rental, royalty)

Now, let’s examine the withholding tax rate for Taiwan businesses. When a Taiwan company make the payment for the service provided by a foreign company, a withholding tax of 20% will be charged on the income. The tax amount will be charged on the income of the foreign company. However, the withholding tax will be kept with the Taiwan company. This tax payment will then be remitted to the Taiwan Tax Authority within 10 days after the payment was made.

For instance, if a Taiwan company purchases a service worth $5,000 from a foreign entity, the withholding tax will be $1,000 (20% of $5,000). The foreign entity will receive $4,000, while $1,000 will be remitted to the tax authority within 10 days by the Taiwan company. The Taiwan company will also file a tax return for the collected amount.

Consideration of Payment Term

When signing a contract between a Taiwan and foreign companies, you need to be wary of payment terms. The payment amount should be considered as net of tax or before tax. It is also recommended to add the term for the liability of withholding tax. For example, if the Taiwan company agrees to pay the foreign company $5,000 which is net of tax in the contract, then it usually means that the withholding tax will be borne by the Taiwan company. When calculating the 20% withholding tax, the Taiwan company need to gross up from $5,000 to $6,250 and pay the $1,250 difference (20% of $6,250) to the tax authority.

If you want to shift the tax liability to the foreign company, you need to revise the payment term from “net of tax” to “before tax”. It is also better to add a term mentioning that the foreign company should bear the withholding tax. In the above example, if we change the term to $5,000 before tax and mentioned the foreign company will bear the withholding tax, thus, the Taiwan company will only need to pay $4,000 to the foreign company and the deducted $1,000 (20% of $5,000) should be paid to the tax authority.

How to Reduce the Withholding Tax Rate

There are several ways to reduce the withholding tax levied on the payments made to non-resident payees. If the government of payee’s home country has signed a tax treaty with Taiwan government, the payee can apply for the reduced withholding tax rate based on the rates in the tax treaty. An approval must be gotten from the tax authority before you proceed the reduced rate.
You can also consider to apply for Article 25 application if you are engaging in international transport, construction contracting or providing technical services. The withholding tax rate can be reduced to 3% of contract price.

How Can We Help?

Taiwan remains one of the best places to start a business in the Asian market. The economic climate in Taiwan is favorable and you’d enjoy several benefits. Most business owners are thrilled about the taxation system that’s been adopted in Taiwan. However, they struggle with handling their tax returns while running the business simultaneously.

The concept of withholding tax could be clearer, especially for laymen. But there are sanctions for businesses that fail to charge it correctly. Are you struggling with charging and recording WHT? Why don’t you hire Premia TNC to help you out? We’re a top-rated business consultancy firm. We have numerous years of experience in servicing clients and know everything it takes to run a business successfully. At Premia TNC, several professionals are ready to help you record your WHT. Our job is to ensure that you stay on the right side of the law, and set.