TAIWAN Law and Practice Contributed by: Jaclyn Tsai, Aaron Chen, Teresa Huang and Jaime Cheng, Lee, Tsai & Partners
of Finance (MOF) identifying taxable targets in the digital domain as follows: • digital goods or services requiring online downloads, such as e-books and standard - ised software; • services not requiring downloads, such as online games, advertisements and streaming services; and • other services provided digitally, such as online booking for accommodation. Taxation on cross-border transactions is more complex; thus, we discuss it below. Taxation of Cross-Border Transactions (a) Income tax: For cross-border transactions, determining the portion of income generated within Taiwan is critical for tax purposes. The MOF specifies income tax calculations based on the formula below: Income (domestic source income) × Net Profit Ratio × Domestic Profit Contribution × Withhold - ing Rate • Income: Refers to “domestic source” income, which determines the scope of taxation. For example, for platform service providers, if one party involved in the transaction is a person located in Taiwan, the service fees collected are considered Taiwan-sourced income. • Net Profit Ratio: Refers to the income remain - ing after deducting costs. If proof of actual costs cannot be provided, the standard profit ratio in the same industry as determined by MOF or a 30% net profit ratio applies, subject to the tax bureau’s discretion. • Domestic Profit Contribution Ratio: Refers to the allocation of taxes based on the portion of profits attributable to activities within Taiwan. If all activities occur within Taiwan, a 100%
contribution is assumed; otherwise, 50% applies. • Withholding Rate: 20%. (b) Business tax: To determine the scope of busi - ness that should be subject to Taiwan’s busi - ness tax, the MOF classifies cross-border sales of digital goods and services into six categories based on factors such as: • whether the sales are conducted through digital platforms; • whether the platforms collect payments on behalf of sellers; and • the presence or absence of a “physical usage location” (eg, remote monitoring systems in buildings or physical equipment) or “non- physical usage” (eg, online video streaming or cloud software subscription services) and whether such physical usage location is in Taiwan. Virtual Currency Transactions The MOF announced plans to introduce tax regulations for virtual currency transactions by 2025, signalling an increased focus on this emerging sector. Regulatory Compliance Regulatory compliance is a major challenge for businesses. • Tax audits and documentation: Income tax involved in the sales of digital goods and ser - vices requires the determination of costs (and by extension, the net profit). Businesses may need to provide detailed transaction records or supporting materials to justify the costs. • Adapting to tax systems: Given the differ - ences in tax systems across countries, busi - nesses must understand Taiwan’s income and business tax regulations.
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