The Taiwan tax treaty is designed to provide a solution for multinational enterprises doing its global business. The development of globalization and digitalization has enabled multinational enterprises to distribute their goods and services, as well as corresponding logistics and manpower across various regions in order to integrate resources.
Under this trend, the operational activities of multinational enterprises have significantly deviated from the previous single-location operation, giving rise to the multinational model and complicated cross-border tax issues.
Benefits of Tax Treaty
To promote economic development, the Taiwan government has signed tax treaties with countries. Countries that have signed the tax treaties with Taiwan can enjoy preferential withholding tax rates for dividends, interest, royalties, etc., and can apply for various taxes exemptions and reductions under the regulations for profit seeking enterprise income tax, such as exemption from business profits.
This system allows companies from both countries to effectively avoid double taxation, thereby promoting mutual investment in both countries. Further, it can also enhance the exchange of tax information in order to prevent tax evasion activities.
What are the Countries Signed the Tax Treaties with Taiwan?
As of 2023, Taiwan has signed 34 comprehensive income tax agreements and 13 international transportation income tax agreements. The tax treaty countries are listed as follows:
– Europe (16): Austria, Belgium, Denmark, France, Germany, Hungary, Luxembourg, Macedonia, Netherlands, Slovakia, Sweden, Switzerland, Italy, United Kingdom, Poland, Czech Republic
– Asia (9): Indonesia, Malaysia, Singapore, Thailand, Vietnam, India, Israel, Saudi Arabia, South Korea
– Africa (4): South Africa, Gambia, Eswatini, Senegal
– Oceania (3): Australia, New Zealand, Kiribati
– Americas (2): Canada, Paraguay
In order to stimulate the economy and expand the international business opportunities for Taiwan companies, the Taiwan government is actively continuing to negotiate the comprehensive tax treaty with more countries.
How to Apply for Tax Treaty
According to the Taiwan taxes laws, Foreign companies who want to enjoy the applicable tax rate must submit a tax treaty application to the National Taxation Bureau, Ministry of Finance. The officers will determine the applicable period for tax treaty based on the nature of the services provided in the bilateral contract.
For example, if the contract states a service period of three years, it will generally be approved for a three-year effective application period. If the contract does not specify a period, the National Tax Bureau usually grants a period of three to five years. Please remember to reapply before the expiration date.
The review time for the National Tax Bureau is about three to six months. After receiving the approval letter, all payments covered by the contract are applicable to the approved preferential tax rate.
Applicable Income for Tax Treaty
As long as the requirements of the tax treaty are met, eligible parties in both countries can apply for tax reduction or exemption for the taxable income sourced from Taiwan. The common reduction and exemption items include:
– Investment income (including dividends, interest, and royalty income)
– Technical service income
– Business profits (need to comply with the requirement of no permanent establishment in Taiwan)
– Related party transactions (transfer pricing adjustments, bilateral advance pricing agreements)
– Tax disputes (apply for mutual agreement with the competent authorities within a certain period)
Example of tax treaty application:
Company A is registered in France and sent its engineers to Taiwan to provide the technical service to a Taiwan client. The Taiwan client paid the service fee and royalty for the use of experiment equipment and design.
Under the situation without tax treaty application, the payments for service and royalty fees will both be subject to 20% of withholding tax. After applying for the Taiwan-France tax treaty and getting the approval, the withholding tax rate for royalty will be reduced to 10%. Further, the service fee will also be exempted for withholding tax if the number of days for Company A’s engineers stayed in Taiwan is within 183 days in a year.
What can PREMIA TNC Help you?
PREMIA TNC offers tax services, including free tax consultation services, and assists you in applying for tax treaty with the National Tax Bureau. The entire process is handled by our professional consultants, not only saving your time but also ensuring a smoother application process. All the inquiry from the tax officer will be well communicated and additional documents will be properly reviewed before the submission. We would be happy to answer any questions you might have! We are happy to answer any of your questions! Feel free to contact us now!
Conclusion
The application of a tax treaty can provide you the flexibility in the segregation and operational models between parent companies and overseas subsidiaries of multinational enterprises. It also allows enterprises to determine their investment structure and resource allocation within the group based on tax consideration.
For foreign investors who want to incorporate in Taiwan, most investors only focus on the tax benefit of the after-investment stage, e.g. dividend. In fact, the application of a tax treaty can also provide benefits at each stage of investment. Since the application of a tax treaty involves a wide range of issues, it is recommended to consult with a professional tax advisor before making decisions to effectively reduce the tax costs incurred in your international trade.
Q1: Can I apply for a tax refund for the tax paid for the payments made before the issuance date of approval letter?
A: Yes, as long as the payments are made during the contract period, it can be applied to the preferential tax rate of the tax treaty.
Q2: Is there a deadline for applying for a tax refund?
A: The deadline for applying for a tax refund is within 10 to 15 years after the payment was made. For example, the tax refund can be applied within five years after the invested Taiwan company pays the dividends to you.
Q3: What documents are required for applying for the tax treaty?
A: The documents required for applying for the tax treaty are as follows:
- A photocopy of the contract (with a Mandarin transcript)
- A Certificate of Residence (Resident Certificate) issued by the tax authority of the other contracting party
- Relevant documents providing information of the business profits
- The original power of attorney (if the case was applied for by an agent)
