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Doing Business in Taiwan
2011
Contents
1. Introduction ......................................................................................... 1
2. Business environment ........................................................................ 2
3. Foreign investment ............................................................................. 4
4. Setting up a business .......................................................................... 8
5. Labour .................................................................................................. 9
6. Taxation .............................................................................................. 13
7. Accounting & reporting ................................................................... 23
8. UHY firms in Taiwan ....................................................................... 26
9. UHY offices worldwide ................................................................... 26
© Copyright 2011 UHY International Ltd -1-
1. Introduction
UHY is an international organisation providing accountancy, business
management and consultancy services through financial business centres
in over 80 countries throughout the world. Business partners work
together through the network to conduct trans‐national operations for
clients as well as offering specialist knowledge and experience within their
own national borders. Global specialists in various industry and market
sectors are also available for consultation.
This detailed report providing key issues and information for investors
considering business operations in Taiwan has been provided by the office
of UHY representatives:
UHY L&C Company, CPAs
Suite 2, 2 nd Floor
No. 20, Beiping East Road
Taipei 100
Taiwan
Phone: +886 2 2391 5555
Email: [email protected]
Website: www.uhy-taiwan.com.tw
You are welcome to contact Lawrence Lin for any inquiries you may have.
Information in the following pages has been updated so that they are
effective at the date shown, but inevitably they are both general and
subject to change and should be used for guidance only. For specific
matters, investors are strongly advised to obtain further information and
take professional advice before making any decisions. This publication is
current at July 2011.
We look forward to helping you do business in Taiwan.
UHY L&C Company, Certified Public Accountants is a member of UHY, an international
association of independent accounting and consultancy firms, whose organising body is
Urbach Hacker Young International Limited, a UK company. Each member of UHY is a
separate and independent firm. Services described herein are provided by UHY L&C
Company, Certified Public Accountants and not by Urbach Hacker Young International
Limited or any other member of UHY. Neither Urbach Hacker Young International Limited
nor any member of UHY has any liability for services provided by other members.
© Copyright 2011 UHY International Ltd -2-
2. Business environment
Taiwan located in the East China Sea some 100 miles from the Chinese
mainland is the 17th largest economy in the world. While Taiwan is also
known as Formosa, its formal name is Republic of China. The current
President, Ma Ying-Jeou, has been in power since 2008.
Highlights to attract investors doing business in Taiwan include:
Superior geographic location
World’s 16th largest trading nation
World’s No. 1 key industries supplier
Silicon island innovations
World's 4th in patent applications
High-tech innovation
Research & development epicentre
Stimulating economic growth
Strategic growth roadmap
Global logistics development plan
World's 4th in growth competitiveness.
In the last 50 years Taiwan has transformed itself from an agrarian
economy to one of the world’s leading producers of mass-produced goods.
Agriculture accounts for only 4% of GDP. Since the 1990s Taiwan has
undergone further transformation into the world’s largest producer of IC
and LCD.
Taiwan is a member of the WTO and APEC.
Taiwan’s economy is highly dependent on international trade and export.
General
Population ± 22.7 million
Area 36,188 sq km
Civilian working population around 7 million
Main trading nations (areas) % of 2010 total trade (import and export)
China 22
Japan 13
USA 11
Hong Kong 7
Korea 5
Singapore 4
Europe 9
© Copyright 2011 UHY International Ltd -3-
Currency
Local currency is New Taiwan Dollars (NT$). Exchange rate between US$
and NT$ ranges approximately from US$1 : NT$28 to US$ 1: NT$30
© Copyright 2011 UHY International Ltd -4-
3. Foreign investment
Taiwan welcomes foreign business investors, especially those with a high-
tech focus.
Taiwan is strategically located at the crossroads of three leading Asian
economic regions:
North East Asia
Greater China
The ASEAN nations.
In terms of shipping, the average time from Taiwan to five major regional
harbours (Singapore, Hong Kong, Tokyo, Shanghai, and Manila) is 53
hours. The average flight time from Taiwan to seven major cities in the
western Pacific is less than three hours.
Certain selected benefits and tax incentives (exemptions and credits)
prescribed by related codes and laws are as following.
Income tax exemption for enterprises outside Taiwan territory
Following Taiwan source income are income tax exempted for enterprises
outside Taiwan territory and are not subject to withholding:
Subject to advanced approval by related governing authorities, royalty
paid to a foreign enterprise for the use of its patent rights, trademarks,
and/or various kinds of special licensed rights in order to introduce
new production technology or products, improve product quality, or
reduce production cost.
Subject to advanced approval by related governing authorities,
remuneration paid to a foreign enterprise for its technical services
rendered in construction of a factory for an important productive
enterprise.
Interest derived from loans offered to Taiwan government or legal
entities within Taiwan territory by foreign government or
international financial institutions for economic development.
Interest derived from the financing facilities offered to their branch
offices and other financial institutions within the territory of the
Taiwan by foreign financial institutions.
Interest derived from loans extended to legal entities within Taiwan
territory by foreign financial institutions for financing important
economic construction projects under the approval of the Ministry of
Finance.
© Copyright 2011 UHY International Ltd -5-
Interest derived from favourable-interest export loans offered to or
guaranteed for the legal entities within Taiwan territory by foreign
governmental institutions and foreign financial institutions which are
specialized in offering export loans or guarantees.
Import Tariff and VAT exemptions for science-based Industries Park
Import tariffs and VAT is exempted for imported machinery and
equipments by enterprises locate inside Science-based Industries Park
upon approval from MOEA if:
The imported machinery and equipments are for an enterprise’s own
use, and
The imported machinery and equipments have not been
manufactured domestically.
Import tariffs are levied upon said imported machinery and equipments
are sold or whose usage being changed within five years since imports.
Import tariffs and VAT are still exempted if machinery or equipments are
sold to companies that operate within Science-based Industrial Parks,
Duty-Free Export Processing Zones, or other companies with science-
based industries.
Raw materials that are imported by bonded factories are exempt from
import tariffs and VAT. Import tariffs and VAT are levied upon such raw
materials shipped outside the bonded area.
Income tax credit for R&D expenditure
For an enterprise’s spending in R&D, 15% of the spending is entitled to the
income tax credit. The credit can be used to deduct an enterprise’s income
tax payable, subject to 30% of the income tax payable of the year of R&D
expenditure incurrence, while the unused credit becomes ineffective and is
not allowed for deductions in the following year.
R&D credits are required to go through advance approval from authority,
and have to be evidenced by required supporting documents together
with return filing materials; and are subject to Tax Authority’s assessment
after filings.
A branch office is not eligible for R&D credits.
Mergers and Acquisitions
According to Business Mergers and Acquisitions Act:
In a merger or acquisition while the newly issued voting shares issued
by acquiring entity consists of no less than 65% of the total
© Copyright 2011 UHY International Ltd -6-
consideration for acquiring the shares or assets of the acquired entity,
following exemptions apply:
a. Stamp duty and deed tax incurred by contracting and real estate
transfers are exempt.
b. Security transaction tax derived from the shares exchange is
exempt.
c. Inventory transfer is not subject to VAT.
d. Land value increment tax incurred by land deeded to the
acquiring entity is assumed by the acquiring entity and payment
is procrastinated to next transfer.
The amount for unused loss carry forwards of extinguished entities
are inherited by the surviving entity or the newly-established entity of
the merger, subject to following limitations:
a. The surviving/newly-established entity and extinguished entities
are all qualified for net loss carry forward before and after the
merger.
b. The amount for an extinguished entity’s unused loss carry
forward be inherited by the surviving/newly-established entity is
subject to a ratio of issued shares held by extinguished entity’s
shareholders to the total issued shares of the surviving/newly-
established entity.
The amount for exemptions or unused income tax credits of
extinguished entities inherited by the surviving/newly-established
entity are subject to following limitations:
a. The surviving/newly-established entity engages in those
extinguished entities’ businesses on which exemptions are
originally granted, and the exemptions are limited to the taxable
income generated from those businesses.
b. The extinguished entity’s unused income tax credits are totally
inherited by the surviving/newly-established entity, but those
credits can only deduct against income tax payable generated by
segments descend from the extinguished entities.
Success stories
As a result of these advantages, many multinational enterprises have set
up their operation centres in Taiwan. UPS, FedEx and DHL have set up
Asian transportation hubs at the Taoyuan International Airport. NYK,
which operates Japan's largest merchant shipping fleet, has signed a
contract with the Kaohsiung Harbour Bureau to lease a wharf and
container centre. NYK plans to use Kaohsiung as its main East Asian hub
and is considering moving its container trans-shipment base from
Singapore to Kaohsiung.
© Copyright 2011 UHY International Ltd -7-
Among multinational enterprises, the American-based company, Applied
Materials, has set up its first logistic centre for the distribution of
semiconductor equipment, parts and components for the Asia-Pacific
region in Taoyuan. Aware of the strength of Taiwan's IT industry, Intel
has also decided to build its first Asia-Pacific warehousing centre on the
island.
Research and development centres based in Taiwan have been set up by
many multinational enterprises.
© Copyright 2011 UHY International Ltd -8-
4. Setting up a business
The following types of business entities are generally recognised in
Taiwan by foreign investors:
Subsidiaries – the company name needs to be approved and registered
by the MOEA (Ministry of Economic Affair, the Economy Ministry)
before the subsidiary can be formally registered.
Branches – the foreign company needs to apply with MOEA for
official recognition and establishment of a branch in Taiwan. Then the
registration must be completed with local and municipal authorities.
Representative office – A representative office works for a foreign
company needs to be registered with the MOEA.
A non-Taiwan citizen can be appointed as the Responsible Person of a
Taiwan registered company, but such Responsible Person should have
residence registered in Taiwan.
It can take up to three weeks to register a company in Taiwan. There is no
minimum initial capital requirement for all kinds of business entities,
branch office and representative office.
© Copyright 2011 UHY International Ltd -9-
5. Labour
General descriptions
The Taiwanese have a strong work ethic. A typical working week in
Taiwan is 40 hours and foreign workers are expected to put in similar
hours. Many Taiwanese work a five-day week. Annual leave varies from
7-30 days and entitlement depends on seniority. Unemployment stands at
6%.
Foreign workers can take up employment in Taiwan on a work visa
(ARC—Alien Residence Certificate). The working conditions of foreign
workers are not different from those of Taiwan nationals.
Foreign labours (approximately 630,000) from neighbouring south-east
Asian countries, including China, Philippines, Thailand and Indonesia, are
legally employed; and contribute a lot in industries and fields like
manufacturing, construction, nursing/caring and house-keeping.
Cultural notes
Most people working for international businesses in Taipei speak
English.
Taiwan is a religion free nation without restriction on religions.
Taoism and Buddhism are the most prevalent religions.
Taiwanese government always emphasizes the importance of
education. Taiwanese are in-average well educated and highly
disciplined.
Mandarin and Taiwanese are the most prevalent spoken languages in
Taiwan.
Chinese Lunar new-year holidays is the main holiday session in
Taiwan, which is approximately seven days (Saturday and Sunday
included) and locates in the second half of January to the first half of
February in general.
Standard Labour Law and Labour Pension Act
Standard Labour Law was promulgated in 1984. Under the Law,
employers are enforced to establish a Defined Benefit Pension Plan
covering all employees. According to the Law:
A retired employee is entitled to a one lump-sum pension payment
calculated based on the average monthly salary of the last six months
before retirement, multiplied by gained points calculated based on the
number of service years. An employee gains two points for one year
© Copyright 2011 UHY International Ltd -10-
of service for the first to 15th year and one point for the years after, and
subject to an upper ceiling of a total of 45 points.
Employers are required to make a monthly contribution based on a
certain percentage of paid salaries and wages to an independent
pension fund deposited with the Bank of Taiwan or an approved
financial institute.
An employee can apply for retirement upon:
a. Work for same employer continuously for more than 15 years and
reaches an age of 55.
b. Work for same employer continuously for more than 25 years.
c. Work for same employer continuously for more than 10 years and
reaches an age of 60.
The Labour Pension Act was promulgated on July 1, 2005. The Act
enforces a Defined Contribution Pension Plan. Under the Act:
Employers make a monthly contribution based on at least 6% of paid
financial reward to accounts of individual employees deposited with
Bureau of Labour Insurance. Employees can choose to make monthly
mutual contributions for up to 6% of financial reward, and are free to
change their decision at anytime.
Employees can apply for a lump sum pension or for monthly pension
payments dependent on certain number of years of service or reaching
certain ages.
The account belongs to the employee and employee’s entitlement to
the pension is not harmed by employment interruption.
The Defined Contribution Pension Plan under the Labour Pension Act
is not applied to non-Taiwan Citizens.
New entities established after 1 July 2005, and employees employed after 1
July 2005, are enforced to adopt new plan (Defined Contribution Pension
Plan prescribed by Labour Pension Act). Those employees employed
before the promulgation of Labour Pension Act have to make decision for
shifting to new plan or adhering to old plan (a Defined Benefit Pension
Plan under the Standard Labour Law), and their seniority accumulated
before 1 July 2005 is maintained if new plan is chosen.
Labour Insurance
The Labour insurance system has been in existence in Taiwan since the
1950s. The system is handled by Bureau of Labour Insurance and is
enforcing for almost all employees and employers. Foreigner-employees
are also applicable. The Insured is limited to employee himself/herself, and
additional coverage over co-insured or dependents is not allowed.
Premium is determined mainly by the basic salaries/wages, charge rates
and days of employments. Insurance premium is paid in monthly basis
© Copyright 2011 UHY International Ltd -11-
and is contributed by insured, employer and government; respectively, on
percentages depending on the type of insured items; and employers are
generally responsible for 70% of the premium. The effectiveness of an
employee’s insured number-of-years is intact upon employment
discontinuity.
The following benefits are available for the insured employee:
Medical Therapy benefits.
Injury benefits
Disability benefit
Survivors benefit
Maternity benefit
Non-voluntary Unemployment benefit
Old Age benefit for insured employees:
a. For those who have been insured accumulatively for 15 years.
b. For those who have been continuously insured and employed by
the same employer for 25 years.
c. For those who have worked in certain dangerous and laborious
works for 5 years and reach 55 years of age.
National Health Insurance
The National Health insurance project has been promulgated in Taiwan
since 1994. The project is handled by Bureau of National Health Insurance
and is enforcing for all Taiwan citizens reside in Taiwan for over four
months and foreigners with an Alien Resident Certificate. Dependent
relatives of the insured can participate in the insurance. Insurance
premium is determined mainly by the total financial reward, charge rates
and headcounts of the insured. Premium is paid on a monthly basis and is
contributed by the insured, employer and government; respectively, on
percentages depending on the type of insured items; and employers are
generally responsible for 60% of the premium. The project is enforcing
regardless of the insured is employed or not. The insured is eligible for
free or low medical therapy expense for the prescribed treatment items.
Employee Fringe Benefit Committee
According to Employee Fringe Benefit Statute, employees of a profit
seeking enterprise are obliged to organize an Employee Fringe Benefit
Committee. Employers and employee are required to make contribute to
fund of the Committee based on:
Up to 5% of registered share capital upon incorporation
0.05-0.15% of monthly gross operating revenue
0.5% of employee monthly payroll
20-40% of the revenue from sales of scrape.
© Copyright 2011 UHY International Ltd -12-
The fund is reserved for fringe benefit expenditures. Employee Fringe
Benefit Committee is defined as an Organization for educational, cultural,
public welfare or charitable purposes, and is subject to income tax filing.
Committee is income tax exempt if its total expenditure, spent exclusively
for fringe benefit purposes, exceeds 70% of its total contribution income.
© Copyright 2011 UHY International Ltd -13-
6. Taxation
Profit-seeking enterprise income tax
Profit-seeking enterprise Income Tax Rates in 2010 and after
Range Taxable Income Rate Progressive Difference
1 Below NT$ 120,000 - -
2 Over NT$ 120,000 17% -
Note: The income tax rates listed in above are independent from the 10%
sur-tax. 10% sur-tax is described below.
10% sur-tax for undistributed earning
A 10% income tax is imposed on undistributed net earnings generated in
every year since 1998. Paid income taxes (including both 17%-rated and
10%-rated ones) are accumulated in an ICA (Imputation Credit Account).
The “Credit” is to be imputed to shareholders upon earning distribution
and can be used to deduct the respective shareholders’ individual
consolidated income tax payable.
10% income tax and ICA are enforced for all profit-seeking enterprises
except for branches, partnership, proprietorship, non-for-profit
organizations and certain other entities restricted by related statues from
distributing (for example, government owned entities). Only paid 10%
income tax can be imputed to non- Taiwan resident shareholders or to
entity shareholders who have no fixed operating premise located in
Taiwan by means of offsetting the withholding upon remitting earning
distribution.
Transfer pricing
A profit-seeking enterprise which has an affiliated relationship with, or is
directly or indirectly owned or controlled by another enterprise within or
outside ROC territory, whereof, if it is found that the transactions between
the parties not conforming with the regular business practices in respect of
income, cost, expense and income/loss allocation for the purpose of
avoiding its income tax obligations, taxation body can apply for Ministry
of Finance (MOF) approval for effecting adjustments to its taxable income.
© Copyright 2011 UHY International Ltd -14-
The statute governing transfer pricing stipulates:
Transactions with related parties are defined by the statute as
“Controlled Transactions”, which are subject to evaluation and
income tax adjustments.
Usages and transfers of tangible and intangible assets, service
provisions and financings are the regulated transactions.
General procedures and principles for evaluation includes:
a. Selecting “Comparing Transactions”, which are uncontrolled
transactions with non-related parties and whose general terms are
equivalents or similar to those of the controlled transactions.
Results of comparing transactions (for example, the gross margin
rates) are the factors in applying many “Pricing Methods”.
b. “Pricing Methods” pertained to different types of transactions are
prescribed by the statute for deciding “Arm Length Transaction
Result”, based on which to evaluate whether or not controlled
transactions conforming regular business practices.
c. To determine best Pricing Methods for different types of
transactions based on the “Degree of Comparability” of
comparing transactions.
d. Applying best Pricing Methods on controlled transactions by an
individual transaction basis.
e. Selecting comparing transactions from current year. Selecting
from preceding years’ average is allowed under certain
conditions.
f. Figuring out “Ranges” for “Arm Length Transaction Result” by
applying one best Pricing Method on more than two comparing
transactions.
g. Adjustment is required when the result of controlled transactions
locate outside the Range and when adjustment increase income
tax payable.
Profit-seeking enterprises engage in controlled transactions
amounting over NT$ 1,000 million can apply tax authority for an
“Advance Pricing Agreement”, which settles “Pricing Methods” for
figuring out “Arm Length Transaction Result” up to for each
application 5 years.
Information of related parties and related-party transactions are
required to be disclosed in income tax return filing.
Followings are required to be prepared by enterprises engage in
“Controlled Transactions” in yearly basis and be submitted upon
request from tax authority:
a. General descriptions for the filing enterprise, including history,
engaged ordinary course of business and an analysis of factors in
regards of economy, legality and all the others affecting transfer
pricing.
© Copyright 2011 UHY International Ltd -15-
b. Chart of holding structure, related parties and affiliates for both
domestic and in abroad, listings of directors, supervisors and
managers and the changes from preceding year.
c. Summary of controlled transactions, including types of
transaction, dates, flows, quantities, prices, terms, objects and the
usages for the objects been transacted.
d. A “Transfer Pricing Report” comprises at least the following:
1. An analysis for economy and industry.
2. An analysis for the risks and functions of parties participate
in the controlled transactions.
3. The result of applying procedures and principles referred to
in above.
4. The unrelated parties selected for comparing purposes and
results of like-kind transactions with those unrelated parties
undergone in an arm-length manner.
5. An analysis for the “Degree of Comparability” between the
controlled transactions and the comparing transactions.
6. The adopted best Pricing Methods and the reasons for
adopting them. The reasons for not adopting other
prescribed Pricing Methods.
7. The pricing policies and other useful information of parties
participate in the controlled transactions.
8. The result of evaluation by applying best Pricing Methods.
e. Other documents which is competent in supporting filing
enterprises’ conformation with regular business practices.
Deemed Profit
A Profit-seeking enterprise whose head office locates outside ROC
territory and runs business in Taiwan can apply with MOF (Ministry of
Finance) for “Deemed Profit”, subject to two conditions:
The enterprise runs business of international transportation,
construction contracting, machinery/equipment leasing and technical
assistance in Taiwan;
The allocation of cost and expenses of the business in Taiwan are
difficult to calculate.
“Deemed Profit” is calculated as follows regardless whether a branch
office or an agent has been established in Taiwan or not:
The enterprise’s taxable income equates 10% of its gross operating
revenue for international transportation business.
The enterprise’s taxable income equates 15% of its gross operating
revenue for construction contracting, machinery/equipment leasing
and technical assistance business.
© Copyright 2011 UHY International Ltd -16-
Accordingly, loss carry forward is not applicable if “deemed profit”
applied.
Enterprises’ Taiwan source income
The income earned both within and outside Taiwan territory by a profit
seeking enterprise, whose head office locates in Taiwan, is subject to
Taiwan profit-seeking enterprise income tax. The withholdings or income
tax imposed by income originated nations can be used to deduct Taiwan
income tax payable, if following two conditions been met:
The paid income tax is required to be supported by evidence issued by
income originated nation’s authorities and be attested by Taiwan
embassy, consulate or Taiwan government authorized representative.
The deduction is subject to an upper limit amounted to the increased
Taiwan income tax payable caused by adding income earned in
abroad.
The income earned within Taiwan territory by a branch office or
representative office is subject to Taiwan profit-seeking enterprise income
tax; income of its head office locates outside Taiwan is not Taiwan source
income.
Withholding tax
For non-Taiwan residents who stay in Taiwan for less than 183 days
accumulatively in one year, or profit-seeking enterprises that have no fixed
operating premises located in Taiwan:
Withholding rate is 20% for income such as commissions, rentals,
royalties and service fees earned in Taiwan.
Withholding rate is 15% for the interest of short-term commercial
paper, corporate bond, government bond and securities issued based
on Financial Asset Securitization Act and Real Estate Securitization
Act. Withholding rate is 20% for other kinds of interest.
Withholding rate is 20% for non-Taiwan residents who have dividend
income from Taiwan registered profit-seeking enterprises,
partnerships and Sole-proprietorships.
Withholding rate is 20% for dividend distributed from Taiwan
registered profit-seeking enterprises to entities that have no fixed
operation premises located in Taiwan.
Withholding rate is 18% for non-Taiwan residents who have salary
income from Taiwan.
Lower withholding rates for dividend, interest and royalty income
range from 5% to 15% for those nations with which Taiwan has signed
Tax Treaty.
© Copyright 2011 UHY International Ltd -17-
Loss Carry-forward
Net loss can be carried forward for 10 consecutive years following the
years of losses; whereas carry-backward is not allowed. Profit-seeking
enterprises are eligible for net loss carry forward in compliance with the
followings:
The taxpayers keep complete sets of accounting records and vouchers
as required by the related regulations;
The taxpayers are eligible for using the “Blue Return Filing Form”,
which is required to be applied for ratification from tax authority; and
use said Form in the years of losses and offsets; or
The income tax filings for the years of losses and offsets are all
certified by Certified Public Accountants.
Non-deductibles and exemptions for profit-seeking enterprise income
tax filing purpose
Special rules regarding a branch of overseas head office:
a. A branch of overseas head office can recognize either the interest
on loans due to overseas head office or the Management Fee
Allocation, but is not allowed to recognize the both;
b. Recognition of interest on loans due to overseas head office
should be approved by Authority in advance;
c. Recognition of Management Fee Allocation from overseas head
office is required to be supported by report detailing the
calculation, certified by a CPA practices in place where head
office locates, and attested by Taiwan embassy, consulate or
Taiwan government authorized representative.
Interest on loan due to non-financial institutes for the part calculated
on interest rate in excess of the maximum rate prescribed by Authority
is not deductible.
Allowances & returns, operating cost & expenses and non-operating
losses are not deductible if not supported by required vouchers,
documents or other evidential matters.
Certain expenses and losses are subject to recognition limitation
prescribed by related regulations; such as entertainment, depreciation
of luxury sedan, fringe benefit expenditure, donation, meal allowance,
bad debt provisions, etc.
Valuation provisions and treatments required by financial reporting
standards but are unrealized within the income tax perspective, such
as exchange differences, investment gain or loss of equity method,
asset impairment loss provision, value decline provision o financial
instruments, pension provision, etc, are deferred for income tax
purposes until realized.
Exemptions stipulated by Tax Laws or related regulations, such as
gain or loss incurred by sales of land, securities and futures, earning
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distribution from domestic investee, etc., are exempted from income
tax.
Exemptions stipulated by Incentive Statutes or related regulations,
such as five-year exemption for taxable income generated by incentive
and encouraged business, are exempted from income tax.
Fines, penalties, other expenditures unrelated to the taxpayers’
ordinary course of business, are non-deductible.
Note: Tax adjustments are numerous and are stipulated in a variety of
sources including income tax law, related regulations, rulings, statutes,
implementation guidance’s, etc; and are not limited to the ones
enumerated in above. Regulations listed in above are only for general
reference purpose.
VAT (Value Added Tax)
Standard VAT is 5% for a majority of business.
VAT rate is 0% for exports, goods sold to bounded area and to Science-
based Industry Park and for international transportation.
VAT is exempt for certain transactions, such as sales of land; sales of raw
agricultural harvests, cattle raising and fishing; activities of public welfare,
culture, education and charity, etc.
VAT rate is 2% for enterprises engage in banking, insurance, investment
trust, securities, futures, commercial paper and pawnshops.
VAT rates are 15% and 25% for certain entertaining businesses.
Profit-seeking enterprises applicable for 0%-rate VAT can file for VAT-in
return. VAT exempt profit-seeking enterprises are obliged to calculate
“non-deductible ratio” and to replenish government of over-deducted
VAT-in.
Other enterprises applicable taxes
Stamp duty is levied on certain types of agreements, receipts,
vouchers and documentations with rates ranging from 0.1%-0.4%. A
fixed duty of NT$12 per contract is levied on usual non real estate
transactions.
Deed tax is levied on real estate transactions (land is excluded)
involving sale, creation of lien, exchange, bestowal, partition, or
acquisition of ownership by virtue of possession. Deed tax rates range
from 2% to 6% of the contract amount.
Commodity tax is levied on the manufacturers and importers of
certain type of goods including cement, rubber tire, beverage, flat
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glass, fuel and gas, electronic appliance and vehicle & motorcycle.
Commodity taxes for cement and fuel & gas are levied based on the
quantity, and the others are levied based on their wholesale prices.
Taxes related to land as regulated by Land Tax Act:
a. Gain from sales of land is income tax exempt, but is subject to
“Land Value Increment Tax”. Said tax is progressively imposed
on value increment, defined as the difference between the decreed
land value at the time of sales and its original decreed land value
or the previous transfer value, based on rates as followings:
1. 20% for total value increment less than 100%.
2. 30% for total value increment over 100% and less than 200%.
3. 40% for total value increment over 200%.
For land that has been held for over certain period of time before
transfer, its land value increment tax on the portion exceeding the
first bracket listed in above shall be reduced by certain percentage
as followings:
1. Reduce 20% for holding more than 20 years.
2. Reduce 30% for holding more than 30 years.
3. Reduce 40% for holding more than 40 years.
b. Land value tax:
1. The land value tax rate on self-used residential land is in
general 0.2%.
2. The land value tax rate is 1% for land earmarked for industry,
mining, private park, zoo, sports stadium, temple, church, or
government-designated scenic spot or historical sites.
3. For the other land, the land value tax rates progressively
range from 1% to 5.5%.
Gain from sales of marketable securities and futures is income tax
exempt, but the sales are subject to transaction tax :
a. Transaction tax rate is 0.3% for exchanging shares or share
certificates embodying the right to shares issued by companies.
b. Transaction tax rate is 0.1% for trading corporate bonds or other
government approved securities, however, this tax is exempted
for seven years from January 1, 2010.
c. For stock index futures contracts, transaction tax is levied per
transaction at a rate of not less than 0.0000125% and not more
than 0.06%, based on the value of the futures contract.
d. For interest rate future contract, transaction tax is levied per
transaction at a rate of not less than 0.0000125% and not more
than 0.00025% based on the value of the contract.
e. For option contracts on stock index futures or equity related
option contracts, transaction tax is levied per transaction at a rate
of not less than 0.1% and not more than 0.6%, based on the
premium paid.
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Note: Taxes, duties, tariffs are numerous and are stipulated in a variety of
sources, and are not limited to the ones enumerated in above. Taxes listed
in above are only for general reference purpose. Stamp duty, Deed taxes,
land related taxes and security transaction taxes are also applied to
individual.
Individual Income Taxes
Individual Consolidated Income Tax Rates in 2010
Range Taxable Income Bracket
Rates for
2010 and
after
1 NT$ 0 - NT$500,000 5%
2 NT$500,001 - NT$ 1,130,000 12%
3 NT$1,130,001 - NT$2,260,000 20%
4 NT$ 2,260,001 - NT$4,230,000 30%
5 Over NT$4,230,001 40%
Note: The bracket is subject to adjustment every year.
Non-Taiwan resident’s Taiwan source income
A non-Taiwan citizen stays in Taiwan for 183 days accumulatively within
one year is deemed as a Taiwan-resident, and is required to file individual
consolidated income tax return for Taiwan source income in compliance
with the same rule applied to Taiwan citizens.
The individual consolidated income tax for Taiwan source income earned
by a non-Taiwan resident, who stays in Taiwan for less than 183 days
accumulatively within one year, is collected by means of withholdings.
The reward paid by employers outside Taiwan territory to a non-Taiwan
resident, who stays in Taiwan for less than 90 days accumulatively within
one year, for whose services provided in Taiwan is not a Taiwan source
income, and is not subject to Taiwan individual consolidated income tax.
Other individual applicable taxes
Estate tax rate is a flat rate of 10% after deductions and an exemption
of NT$ 12,000,000 prescribed by Estate and Gift Tax Act.
Gift tax rate is a flat rate of 10% after deductions and an exemption of
NT$ 2,200,000 prescribed by Estate and Gift Tax Act.
Note: Taxes, duties, tariffs are numerous and are stipulated in a variety of
sources, and are not limited to the ones enumerated in above.
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Treaty network
As of 1 January 2011, the ROC has concluded tax treaties with 30 countries
(including comprehensive income tax treaties and international
transportation income tax agreements). Twenty income tax treaties have
been concluded, including treaties with Australia, Gambia, Indonesia,
Macedonia, Malaysia, New Zealand, Netherlands, Singapore, South
Africa, Vietnam, Swaziland, UK, Senegal, Sweden, Belgium and Denmark
have been signed and are now effective.
International transportation income tax agreements have been signed and
are now effective with Canada, the European Union, Germany, Israel,
Japan, Korea, Luxembourg, Netherlands, Norway, Thailand, Sweden, the
United States and Macau.
Please refer to Withholding Tax for the withholding rates for various
incomes. However, with respect to dividends, interest and royalties,
reduced withholding tax rates ranging from 5-15 per cent are provided for
by treaty.
Alternative Minimum Income Tax System
For the purpose of eliminating tax base erosion and imparity among
taxpayers resulted from numerous credits, exemptions and incentives been
granted exclusively to enterprises and shareholders within certain
industries, a “Basic Income Tax Act” has been promulgated since 2006.
The Basic Income Tax Act stipulates that:
Enterprises and individuals with annual “Basic Income” in excess of
NT$ 2 million and NT$ 6 million; respectively, are subject to the
System.
The “Basic Income” is calculated by adding back certain exemptions,
as prescribed by the Act, to the taxable income figured out in
compliance with existing Income Tax Act, related regulations and
statutes. For individual taxpayers, income derived from sources
outside Taiwan was excluded from taxable income according to
existing Income Tax Act, but is to be added back for calculating the
“Basic Income” since 2010.
The “Basic Income Taxes” are calculated by imposing 10% on “Basic
Income”, after subtracting an exemption of NT$ 2 million, for
enterprise taxpayers; and by imposing 20% on “Basic Income”, after
subtracting an exemption of NT$ 6 million, for individual taxpayers.
Taxpayers are obliged to pay “Basic Income Taxes” if it is higher than
“Regular Income Tax Payable” calculated based on existing Income
Tax Act, related regulations and statutes. The difference between the
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“Basic Income Taxes” and the “Regular Income Tax Payable” is not
allowed to be deducted by income tax credit.
Act Governing Relations between Peoples of Taiwan Area and of the
Mainland Area
This Act is mainly applied to regulate relations between the people or
entities of Taiwan Area and of the people or entities of Mainland China
Area in respect of business transactions, investments, financings, agencies,
cooperation, negotiations, attestations & notaries, transportations,
employments, migrations, residences, inheritance, civil rights, etc; and the
arise legal issues relating to afore-mentioned interactions.
Any individual, juristic person, organization, or other institution of the
Taiwan Area having income derived from sources in the Mainland Area
shall pay income tax thereon together with the income derived from
sources in the Taiwan Area; provided, however, that the amount of the
income tax already paid in the Mainland Area may be deducted against
the income tax payable of Taiwan Area. The total amount to be deducted
may not exceed the increment of the income tax payable computed, after
including the income derived from sources in the Mainland Area, at the
applicable income tax rate of the Taiwan Area.
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7. Accounting & reporting
The financial statements are required to be reported in local currency
(New Taiwan Dollar) and are required to be prepared in accordance with
GAAP (Generally Accepted Accounting Principles).
The annual financial statements of a company having paid-in capital more
than NT$30,000,000 or bank facilitates more than NT$30,000,000 are
required to be audited by a CPA.
The financial report is to be approved in an annual regular shareholders’
meeting to be held within 6 months subsequent to the end of accounting
period.
GAAP is a conglomerate concept includes “Statements of Financial
Accounting Standard” (SFAS), rulings, imperatives and related
guidance/statute/regulations/acts; among them SFAS is the main basis.
SFAS are announced by “Accounting Research and Development
Foundation”, and SFAS are constantly undergoing amendments to
conform to “International Financial Reporting Standards” (IFRS). IFRS
applies for those transactions whose accounting treatments have not been
regulated by GAAP, and US GAAP applies while there is no applicable
IFRS.
Taiwan authority has announced enforcing adoption of IFRS for listed
companies starting on 2013, and for non-listed public companies starting
on 2015.
Unique regulations and practices in Taiwan
Legal Reserve
Taiwan Company Law stipulates that net after-tax earning of a company
should be:
Firstly offset its accumulated deficit, if any.
For the remaining balance after offsetting deficit, if any, 10% of it
should be set aside as “Legal Reserve” (an account under
shareholders’ equity) to be resolved by the regular shareholders’
meeting. (In general, legal reserve is appropriated at annual Regular
Shareholders’ Meeting).
However, Company Law exempts a company from the obligation upon its
“Legal Reserve” reaches its total issued share capital.
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“Legal Reserve” appropriation is enforced while an earning distribution is
resolved, whereas the appropriation is not enforced if there is no
distribution; notwithstanding, the accumulated amount not been
appropriated for past earning years is required to be replenished upon
current distribution resolution.
“Legal Reserve” is “earning” in nature, but it is restricted from distribution
except for certain situations as prescribed by the Company Law:
“Legal Reserve” can be used to offset “Accumulated Deficit” upon
shareholders’ meeting resolution.
Up to 50% of the “Legal Reserve” of a company can be used to
recapitalize (transferred from “Legal Reserve” to “Issued Share
Capital” by issuing stock dividends) when said company’s “Legal
Reserve” reaches one-half of said company’s total “Share Capital”,
and said recapitalization is deemed as earning distribution by local
laws and regulations.
Capital Surplus
Under Statements of Financial Accounting Standard and Accounting Law,
following items are accounted for as “Capital Surplus” (an account under
shareholders’ equity):
Paid-in capital in excess of par value
Donated assets
Gain from treasury stock transactions
The fair value of share-based compensation
Correspondent recognition of “Capital Surplus” of an equity method
accounted investee
Surplus of the acquired net asset in excess of the par value of shares
issued in exchange during a merger.
“Capital Surplus” is not “earning” in nature and distribution from which
is not allowed. Company Law and related regulations stipulates that:
“Capital Surplus” can be used to offset “Accumulated Deficit” upon
an annual regular shareholders’ meeting resolution.
“Capital Surplus” derived from “paid-in capital in excess of par
value” and “donated assets” can be used to recapitalize, and said
recapitalization is not an earning distribution.
Employee Bonus
It is Taiwan practice that employee can participate in earning distribution.
“Employee Bonus” has to be stipulated in the Article of Incorporation as a
distribution item; the accounting treatment over which in Taiwan is
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treated as compensation to employee be charged to profit and loss
accounts.
Assets Revaluation
Government allows Profit-seeking enterprises to apply for revaluing their
fixed assets, deletion assets and intangible assets upon when the price
indexes become more than 125% of the ones prevailed at assets
procurements or at previous revaluation. The revaluation increments are
recognized as an “Unrealized revaluation increment” under Owner Equity
section of the Balance Sheet.
Note: There are numerous unique practices pertained to Taiwanese
business environment, and are not limited to the ones enumerated in
above. Those ones listed in above are the major ones for general reference
purpose.
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8. UHY firms in Taiwan
UHY L&C Company, CPAs
Suite 2, 2 nd Floor
No. 20, Beiping East Road
Taipei 100
Taiwan
Contact:
Lawrence Lin [email protected]
Phone: +886 2 2391 5555
Website: www.uhy-taiwan.com.tw
9. UHY offices worldwide
For contact details of UHY offices worldwide, or for details on how to
contact the UHY executive office, please visit www.uhy.com