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Business Taxation in Taiwan


Taxes in Taiwan are classified into national taxes and local taxes. National taxes include individual income tax, profit-seeking enterprise (PSE) income tax, value-added and non-value-added tax (business tax), estate and gift tax, customs duties, commodity tax, tobacco and liquor tax, securities transaction tax and futures transaction tax. Local taxes consist of stamp duty, land value tax, agricultural land tax, land value incremental tax, house tax, deed tax and entertainment tax.

Taxable Income

In principle, income of a PSE is computed by subtracting costs, expenses, losses and taxes from the current year’s gross income. Gross income includes gross sales/revenues from business, dividends, service fees, interest, rent, gains from disposal of properties, royalties, prizes and winnings.

To determine the taxable income, the accounting income of a PSE is adjusted by taking into account (1) tax exempt income, (2) excluded income, (3) non-deductible expenses and allowable provisions, and (4) losses carried forward.

Special Determination on Certain Income

Where the related costs and expenses are difficult to ascertain, a foreign PSE may seek approval for calculating its income tax liability on a deemed profit basis if it engages in international transportation, construction contracting, provision of technical services or machinery and equipment leasing within the territory of Taiwan. The deemed profit ratios are 10% for an international transportation business and 15% otherwise.

Corporate Income Tax Rate

Taxable Income                           Tax Rate

Up to NT$50,000                   :       Exempt

NT$50,001 – NT$71,428      :       50% of taxable income less NT$25,000

NT$71,429 – NT$100,000    :       15% of taxable income

NT$100,001 and over            :       25% of taxable income less NT$10,000

Capital Gains

Gains on disposal of properties are taxable, with the exception of gain from sale of land, where land value incremental tax is levied instead. Capital gain on sale of securities is currently also tax exempt, and securities transaction tax is levied instead.


Dividend Imputation System

The dividend imputation system affects earnings accumulated and distributed by Taiwanese PSEs beginning from 1997 tax year. The main features of the dividend imputation system are:
• the maintenance of an imputation credit account by domestic companies to record any income tax and surtax paid and the distribution to shareholders of imputation tax credits for such taxes paid;
• the provision of an imputation tax credit to domestic shareholders for any underlying income tax and surtax paid at the corporate level on the dividends received;
• the provision of imputation tax credits to foreign shareholders to the extent of the surtax paid on dividends received;
• the imposition of a 10% surtax on undistributed earnings.

Treatment of Dividends
The treatment of dividends under the imputation system to PSEs with headquarters in Taiwan and foreign PSEs is as follows:

• where the investor is a PSE with headquarters in Taiwan, it is not required to report the dividends received from other domestic companies for income tax purposes;
• if the investor is a foreign PSE, the dividends are subject to withholding tax and only the portion of imputation credit which is attributed to the 10% surtax paid may be used to reduce the withholding tax on dividends.

Exempt Income

Article 4 of the Income Tax Act deals with exempt income and the following are among the main exempted items:

• proceeds from sale of land and qualified securities;
• income of an international transportation company where reciprocal treatment is granted to the Taiwan enterprise;
• interest income derived by a foreign financial institution from loans granted to its branch in Taiwan or other financial institutions located in Taiwan;
• certain qualified royalty income received by foreign entities from Taiwan Important Producing Enterprises where approval from the government is obtained.

Excluded Income

Under the imputation system, a PSE with headquarters in Taiwan is no longer required to include dividends received from a domestic company for income tax purposes and interest income arising from certain short-term instruments and asset-based securitisation is excluded for taxable income calculation purposes.


The general principle for deduction is that an expense or loss incurred by a PSE is deductible if it:

• is incurred in the normal course of business for the purpose of revenue production;
• is supported by adequate and acceptable documents; and
• is reasonable in amount, necessary and related to the gaining of revenue.

Hence, expenses and losses incurred that are unrelated to the business operations of an enterprise are not deductible.

Certain expenses are disallowed by specific provisions of the income tax law, and these include, but are not limited to:

• penalties prescribed by the laws;
• personal and domestic expenses;
• excess raw materials used in production not supported by proper documents;
• interest on capital distributed as dividends;
• expenses in excess of allowable limits (e.g. entertainment expenses, interest on loans extended by non-financial institutions, cost of automobiles and donations);
• outlays for asset improvement with service life longer than two years and cost over NT$60,000 shall be capitalised and depreciated.


The assessed losses of a company can be carried forward for five consecutive years provided:

• the company has maintained a comprehensive set of books, accounts and supporting documents in accordance with tax regulations;
• the company has been approved by the tax authority to file a “blue tax return” or has engaged a certified public accountant to certify its tax return for the loss year and for the year in which the loss is deducted; and
• the company’s tax return has been filed within the prescribed period for the loss year and for the year in which the loss is deducted.


Financial holding companies that hold 90% or more shares in a subsidiary may elect to file consolidated income tax returns starting from the tax year when the 90% or more holding is for the whole 12 months.

Furthermore, a company limited by shares that holds 90% or more shares in a subsidiary as a result of engaging in the mergers, spin-offs or acquisitions pursuant to the Business Mergers and Acquisitions Act may also elect to file consolidated income tax returns starting from the tax year when the 90% or more holding is for the whole 12 months.

The consolidated income tax returns shall include all eligible domestic subsidiaries. No prior permission is required for electing to file the consolidated returns.

Tax Depreciation/Capital Allowances

With the exception of land, tax depreciation is allowed on all tangible assets used for the production of income. However, if the total service life of an asset is less than two years or the cost of the asset is less than NT$60,000, the asset may be expensed in the year of acquisition.


No definition is provided by the Income Tax Act as to what constitutes interest. In practice, tax classification would refer to the financial accounting treatment, unless any specific ruling is available. Generally, interest paid on loans from financial institutions or other parties is deductible if it is incurred in the course of a company’s business. However, where the loans are from non-financial institutions, the interest deduction is limited to the ceiling rates published by the MOF.

For Taiwanese tax purposes, interest is allowed as a deduction on an accruals basis. However, if the accrued interest is not paid within two years from the accounting period in which it is accrued, the accrued interest shall be reversed into other income for the third year.

The Income Tax Assessment Rules for Profit-seeking Enterprises (Guidance on the application of the Income Tax Act) specifically provide that interest payments to shareholders are not deductible where that interest is deemed to be a return on capital invested, i.e. the interest is in the nature of a dividend.

Moreover, the following types of interests are subject to capitalisation rules:

• interest incurred for the period before obtaining the property on loans borrowed for purchasing fixed assets shall be capitalised;
• interest incurred for the holding period on loans borrowed for the purpose of purchasing land that is not classified as fixed asset shall be capitalised;
• interest, incurred for the construction period, on loans borrowed for constructing facilities shall be capitalised.

There are no thin capitalisation rules in Taiwan.

Withholding Tax

Generally, all Taiwan source income derived by a non-resident with no permanent establishment in Taiwan will be subject to withholding tax assessments in Taiwan at 20% standard rate. Withholding tax rates may be reduced under Double Taxation Agreements.

Other Taxes

Value Added & Non Value-added Business Tax

Transactions (including sale of goods or services) incurred within the territory of Taiwan and importation of goods are generally subject to a 5% business tax, unless provided otherwise. The taxpayer is generally classified as a value-added type entity (VAT entity), a non value-added type entity (non-VAT entity) or a dual tax entity. As a general rule, most non-financial-institution business entities are VAT entities. The current VAT rate is 5%. Export sales and services are subject to 0% VAT.

In general, VAT returns shall be filed bi-monthly and submitted to the tax authority within 15 days of the following odd month.

Stamp Duty

According to the Stamp Tax Act, stamp tax shall be levied on the following documents drawn up in Taiwan: monetary receipts, movable property sales contract, contracting agreement, contracts for the sale, transfer, and partition of real estate.

Securities Transaction Tax

Transactions of securities are subject to a security transaction tax of 0.3% of the gross price from the sale of stocks and 0.1% on the gross proceeds from sale of debenture and government bonds.

Custom Duties

Custom duties are levied on the value of imported commodities. The customs duty rate will depend on the types of goods being imported.

Imputation Tax System

The imputation tax system is designed to reduce overlapping tax payments by shareholders facing both corporate income tax at company level and individual income tax at individual level. Under this system, the resident individual shareholder is allowed to offset the corporate income tax paid against individual income tax liabilities. On the other hand, dividends paid to non-resident shareholders shall be subject to 20% withholding tax. The new system also allows the government to levy a 10% profit retention tax on undistributed earnings.

Alternative Minimum Tax (AMT)

The law governing the AMT system is called the Statute of Income Basic Tax Amount (IBTA Statute), which took effect on January 1, 2006. Since the AMT was introduced, taxpayers would be required to pay the regular income tax and the difference between the BTA and the regular tax. This difference mentioned above cannot be reduced by investment tax credits (ITC).

The “basic income” is calculated as the sum of the taxable income calculated in accordance with the Income Tax Act plus various categories of tax exempt income. The “basic tax” shall be the amount of “basic income” with a deduction of NT$2 million, multiplied by the applicable tax rate of 10%. PSEs shall pay the higher of regular taxable income subject to 25% corporate income tax or basic income subject to 10% tax.

The IBTA does not apply to foreign enterprises which do not have a fixed place of business or business agent in Taiwan.




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