TAIWAN Law and Practice Contributed by: Lihuei Mao, Dennis Yu and David Tien, Lee and Li Attorneys-at-Law
9.3 Tax Mitigation Strategies A withholding tax of 20% is generally charged on Taiwan-sourced income of foreign companies that have their head office located outside Taiwan. Article 25 of the Income Tax Act states that when a com - pany that has its head office outside Taiwan and that provides certain services (eg, technical services or equipment rental) within the territory of Taiwan has difficulty calculating and apportioning costs, it may file an application with the Ministry of Finance to treat 15% of its Taiwan-sourced income as its deemed tax - able income. The corporate income tax rate of 20% is then applied to the deemed taxable income. In other words, with proper authorisation, the withholding tax rate for a foreign company in Taiwan may – under certain specific conditions – be effectively reduced to 3% through the tax incentive scheme. Prior approval should be acquired in order to be eligible for the tax benefit. 9.4 Tax on Sale or Other Dispositions of FDI Capital Gains Tax No capital gains tax is currently imposed on the sale of Taiwanese securities under the Taiwan Income Tax Act. Nonetheless, the sale of shares (or capital contribu - tion) – where a company holds the majority of shares (more than 50%) – of directly or indirectly held foreign or domestic profit-seeking enterprises where more than 50% of the value of the shares (or capital con - tribution) comprises building and land within Taiwan acquired after 1 January 2016 is subject to the Joint Property Tax System 2.0 (excluding the sale of listed/ OTC or emerging stock). Securities Transaction Tax Transfers of shares of listed and unlisted companies are subject to the securities transaction tax. The transferor will be liable for securities transaction tax at 0.3% of the transfer price. This is usually deducted from the purchase price and paid by the transferee/ buyer to the appropriate revenue authority on the date of transfer or the next day.
Stamp Duty Stamp duty is levied on various types of documents, such as: • contractual agreements executed to perform a specified job or task; • specified monetary receipts; • contracts for the sale of movable property; and • contracts for the sale, transfer and partition of real estate. Stamp duty rates vary depending on the type of instru - ment being stamped. As an example, stamp duty on a contract for the sale, transfer and partition of real estate is 0.1% of the transfer value. 9.2 Withholding Taxes on Dividends, Interest, Etc Withholding tax is imposed on certain types of pay - ment made by Taiwanese corporations (including salaries, dividends, interest and royalties), with tax rates varying depending on whether the recipient is a Taiwan-resident corporation, a Taiwan-resident individual, a non-resident individual or a non-resident corporation. The withholding tax rates for Taiwan-resident corpora - tions paying certain types of income are as follows: • resident corporations pay no withholding tax on dividends, 10% on interest and 10% on royalties; • non-resident corporations (non-treaty) pay 21% withholding tax on dividends, 15% or 20% on interest (the 15% rate applies to interest paid on bonds, short-term bills and certificates, as well as to interest derived from repurchase transactions for these bonds or certificates) and 20% on royalties; and • treaty corporations incorporated in the UK pay 10% or 15% on dividends (the 15% rate applies to dividends paid on a real estate investment trust), 10% on interest and 10% on royalties. Although double taxation agreements are available for transaction counterparties from several countries, applications for the adoption of such double taxation agreements are subject to the principal purpose test.
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