Jul 08

The Act for the Development of Biotech and New Pharmaceuticals Industry which is set to expire on December 31, 2021 is scheduled to be extended for another ten years by the government. The scope of application of the Act originally included New Drugs, High-risk Medical Devices, and Emerging Biotech and Pharmaceutical Products used by human beings, animals and plants. The new amendment plans of the Act will also cover eHealth and National Strategic Development of Biotech Products.

Tax Benefits:

Article 5

A Biotech and New Pharmaceuticals Company may, for a period of five years from the time it is subject to corporate income tax, enjoy a reduction in its corporate income tax payable for up to 35% of the total funds invested in R&D and personnel training each year.

Article 6

A profit-seeking enterprise that subscribes for the stock issued by a Biotech and New Pharmaceuticals Company and has been a registered shareholder for a period of three years or more, may, for a period of five years from the time it is subject to corporate income tax, enjoy a reduction in its corporate income tax payable for up to 20% of the total amount of price paid for the subscription of shares in such Biotech and New Pharmaceuticals Company.

written by Good Earth

Jun 29

Currently, there are still many ambiguities in terms of taxation regulations for virtual currencies. The Taiwan Financial Supervisory Commission has not yet proposed any regulation for various coins. However, virtual currency trading platforms are an intermediary service provider for buyers and sellers, and the main income of such platforms is primarily through transaction fees, and the “listing fee” of the virtual currency issuer.

A virtual currency exchange operator provides a matching service between buyers and sellers. The main income of the transactions include handling fees (buy, sell, and receive currency) paid by both parties for the transaction, as well as the listing fee paid by the currency issuer. Some foreign exchange operators have also launched their own platform coins, for example: Binance launched BNB, Huobi has HT.

Taiwan’s taxation regulations for virtual currencies are still unclear. For example, the nature of various virtual currencies has not yet been confirmed. However, the taxation method for platform service fees charged from buyers and sellers by platform operators are as follows:

1. Business operation: Regardless of whether the trading platform is foreign or domestic, the income from transaction fees is considered sales of labor services in Taiwan and is subject to Value Added Tax (VAT). However, if it is a domestic platform business, the VAT can be calculated on a net service income basis.

2. Profit-seeking Enterprise Income Tax (Corporate Income Tax):

i. The income from service fees charged by a Taiwan virtual currency trading platform from buyers and sellers inside and outside of Taiwan should be included in the income of the current year, and file for income tax in May of the following year.

ii. For foreign companies that provide a trading platform for domestic and foreign buyers and sellers in Taiwan, if the buyer and seller, or one of them is an individual or profit-seeking enterprise in Taiwan, the platform service fee is also considered a source of income in Taiwan, and taxes are withheld in accordance with the relevant regulations from Income Tax on the sales income of cross-border electronic services. After withholding according to the total amount, companies may apply to claim related costs or expenses, or claim tax refund based on the assessed net profit rate and contribution.

Issues regarding virtual taxation may be due to the fact that servers, transaction parties and platform operators may be located in different taxation areas, which in turn lead to disputes over tax jurisdiction between countries. Virtual currencies keep relevant transaction records through decentralized ledgers, and transaction locations may add more variables.

The establishment of foreign virtual currency exchanges in countries that have not yet signed a tax treaty with Taiwan may add to the difficulty of correct tax filing and tax payment. There are still many tax issues that need to be addressed, discusses, and regulated in the era of crypto economy.

written by Good Earth

Jun 04

Officials reminded that if an overseas e-commerce company has cross-border sales of electronic services to individual consumers in Taiwan in 2019, even if the e-commerce company has applied for cancellation of tax status, it is still required to file corporate income tax this year.

The sales methods of overseas e-commerce in Taiwan can be categorized into two types. If the overseas e-commerce directly sells electronic services to consumers, it is in the form of B2C, but if it is sold to enterprises and then resold to consumers, it is a B2B form.

If it is B2B, business tax should be declared within two and a half months after the remuneration is paid by the Taiwan merchants. Corporate income tax is a type of withholding mechanism, and tax is deducted in advance according to the net profit ratio and contribution.

According to the “Levying of the Income Tax on Cross-Border Electronic Services by a Foreign Profit-Seeking Enterprise”, when filing tax, overseas e-commerce companies must provide proof documents including contracts, business scope, and domestic and foreign transactions to the National Taxation Bureau. Generally speaking, the net profit ratio of overseas platforms is mostly 30%, and the contribution degree is determined by the transaction model. If the transaction is mostly in Taiwan, the contribution rate is mostly 100%. If there is a cross-border situation, it may be 50%.

As for foreign e-commerce sales revenue in B2C, like domestic enterprises, business tax should be filed every two months, and corporate income tax in May every year. Officials reminded that if foreign e-commerce companies still had B2C income in 2019, they must declare corporate income tax this year.

官員提醒,如果境外電商在2019年有跨境銷售電子勞務給我國境內個人消費者,即使該電商已申請註銷稅籍、今年還是要申報營所稅。

境外電商在我國銷售方式可分成兩種,如果是境外電商直接把電子勞務銷售給消費者個人,即為B2C形式, 但如果是銷售給企業、再轉賣給消費者,則屬於B2B方式。如果是B2B型態,營業稅是以我國商家給付報酬後2個半月內申報,營所稅則式扣繳機制,依照是用淨利率及貢獻度先行扣繳稅款。依照我國「外國營利事業跨境銷售電子勞務課徵所得稅制度」規定。境外電商在報稅時,必須檢附合約、營業項目、境內外交易流程等證明文件供國稅局認定。一般而言,境外平台商淨利率多為30%,而貢獻度則是交易模式判定,如果交易多在我國,貢獻度多半是100%,若有跨國情況,則可能為50%。至於境外電商在B2C銷售收入則與國內企業一樣,都是維持每兩個月申報營業稅與每年5月申報營所稅。官員提醒,如過境外電商去年仍有B2C收入,今年須申報營所稅。

written by Good Earth

Jun 02

The Semiconductor Industry Association (SIA) is asking for $37 billion in federal funding to support the US chip sector. In the midst of the trade war between the US and China, on May 15, TSMC has announced to invest $12 billion on a wafer fab in Arizona. On the same day, the US announced to restrict China’s leading telecommunications company Huawei and its semiconductor subsidiary HiSilicon to use U.S. technology and software.

The Taiwanese government does not currently have a subsidy plan to aid TSMC and boost the semiconductor industry in the current situation. However, for the purpose of improving industrial innovation and optimizing industrial structure, the Statute for Industrial Innovation by Taiwan Ministry of Finance in 2019 provides preferential tax incentives to local industries, including the semiconductor industry.

written by Good Earth

May 18

May and June are the peak season for shareholders meetings. National Taxation Bureau of the Northern Area, Ministry of Finance reminded on the 12th that from 2018, companies distributing dividends to overseas individuals or enterprises are subject to a withholding tax rate of 21% in accordance with Taiwan’s income tax law. In addition, as the old system provisions no longer apply, companies are not able to offset half of the undistributed surplus earnings tax.

Withholding tax rates on dividends
Category Year
Before 2018 From 2018
General foreign investment 20% 21%
Countries in agreement with the tax treaty 19 countries including Japan, France, UK, The Netherlands, Belgium, etc. 10%
Malaysia, India 12.5%
Vietnam, New Zealand 15%

Officials have pointed out that before 2018, the withholding tax rate for foreign-funded dividend was 20%, where foreign investments also enjoyed the old system provisions of Article 73-2 of the Income Tax Law. That is, the total dividend already covers 10% of the undistributed surplus earnings tax, where foreign investments can use half of the undistributed surplus earnings tax to offset the deductible tax on the net dividend.

Officials have indicated that, for example, if company A was to pay a total of TWD150 million in dividends to foreign legal person, i.e. shareholder B in 2017, the foreign capital withholding rate for the year was 20%, which is TWD300 million.

In addition, according to the old provisions of the income tax law, TWD150 million in the said year already covered TWD13 million of undistributed surplus earnings tax, therefore, shareholder B can use half of the undistributed surplus tax to offset foreign capital dividend withholding tax of TWD6.5 million (TWD13M / 2), which is equal to shareholder B’s actual withholding tax of TWD293.5 million (TWD300M – TWD6.5M).

However, from 2018, Taiwan has cancelled the policy for foreign shareholders to use half of the undistributed surplus tax to offset foreign capital dividend withholding tax. If company A pays TWD150 million in dividends to shareholder B, shareholder B will be subject to a foreign dividend withholding rate of 21%, therefore, the actual tax withholding is TWD31.5 million (TWD150 million x 21%).

Furthermore, in order to eliminate the double taxation problem, Taiwan has signed comprehensive income tax agreements with 32 countries such as Japan, the Netherlands, and the United Kingdom. The income tax on business profits for companies from either country can be reduced and exempted as long as they apply in advance. The actual tax payable can be effectively saved in accordance with the agreement between the two parties.

The same withholding tax rates apply to Taiwanese business individuals and enterprises in the treaty country and vice versa. For example, the dividend withholding tax rate is 10% for Indonesia, France, United Kingdom, Netherlands, Austria, Belgium, Japan, Denmark, etc. 12.5% for India and Malaysia, and 15% for Vietnam and New Zealand.

Taking French businesses in Taiwan as an example, as long as they apply to the Taiwan National Taxation Bureau for approval, they can use the 10% withholding rate. Taiwan tax authorities will first collect 21% withholding tax from the French businesses and refund 11% tax afterwards.

written by Good Earth

May 18

In response to the COVID-19 pandemic, the Ministry of Finance has extended the tax return period to June 30th this year to reduce the risk of group infections, a first for the country. However, the National Taxation Bureau reminded on the 12th that if enterprises fail to declare corporate income tax within the prescribed time limit, they are liable for a 10% “delayed declaration fee”, and cannot benefit from the loss carry forward tax privilege.

In order to encourage sustainable operation for enterprises, the country’s income tax law stipulates that enterprises can use the losses of the previous decade as a deduction. As many companies need to invest large sums of money in the initial stage of entrepreneurship, considering the severity of initial losses, the country has set up a profit and loss offset method to reduce the burden on enterprises.

However, if an enterprise wants to apply for the loss carry forward tax privilege, their accounting books must comply with the regulations of the Business Entity Accounting Act, and the enterprise’s loss and revenue must be filled with the blue form return or be audited by an accountant. The enterprise must also complete the tax return within the prescribed time period.

Officials have indicated that failure to file a tax return within the prescribed time period, but within 15 days of supplementary filings, enterprises shall be subject to a late surcharge of 10%. Taking this year as an example, the tax filing period is until June 30th. If an enterprise makes a return before July 15th, in addition to the corporate income tax payable, they are also liable for a late surcharge (up to TWD30,000).

If an enterprise delays reporting 15 days after the prescribed time period, using this year as an example, after July 16th, the enterprise will be liable for an additional 20% “delayed declaration fee” (up to TWD90,000) in addition to the assessed tax payable.

Officials have emphasized, if an enterprise files tax return after the prescribed time period, not only can they not benefit from the loss carry forward tax privilege, if there is an under-reporting of taxable income, the National Taxation Bureau may impose a fine of less than three times the amount of tax evaded by the enterprise.

For example, company A had an annual income of TWD3 million in 2018, which can be reported after deducting the previous year’s loss of TWD1 million, which is equal to a taxable income of TWD2 million. Generally speaking, company A only needs to pay TWD400,000 for corporate income tax (2 million x 20%).

However, the accounting staff of company A failed to report within 30 days due to negligence. The National Taxation Bureau determined that company A could not apply for the loss carry forward tax privilege, and the income tax payable was increased to TWD600,000 (3 million x 20%). Officials have pointed out that, according to calculations, the late surcharge was TWD120,000 (600,000 x 20%), but as the legal limit had been reached, and the final penalty was TWD90,000.

written by Good Earth

May 08

The due date for the year of 2019 Income Tax filing and tax payment has been fully extended. The Ministry of Finance has announced the due date will be extended from May 31 to Jun 30. The extension is effective automatically and is applied to every tax payer, Individual as well as business entity, no need to file extension.

written by Good Earth

May 21

Taiwan Branch of a Foreign Multinational Corporation applying for and signing APA may reduce the taxation risks from a post-tax review

According to National Taxation Bureau of Taipei, MOF, a worldwide frequently seen Transfer Pricing System is established to ensure the taxing powers, preventing corporate tax avoidance or reduction from unconventional business arrangements. Due to a usual huge amount of money and complexity of transactions among multinational corporations and their affiliates, the both parties of the taxpayer and the tax imposer must contribute costs and workloads to the post tax review. To avoid tax related disputes and administrative burdens aroused from the post tax review, businesses may apply for Advance pricing agreement (APA) with the taxation bureau to reach an agreement on the result of conventional transactions.

The Bureau goes on to elaborate that APA allows the taxpayer to negotiate with the taxation bureau to discuss, according to a comparable party, the transaction results, hypothetical conditions, pricing principles, calculation methods, applicable periods, and other main concerns and to reach an agreement. The agreement is applicable for 3 to 5 years and can be extended for another 5 years under the both parties’ consensus if there are no substantial changes on the environment and the facts related to the agreement. Submitted by the Taiwan branch of a well-known international brand the other day, an APA application has been successfully reviewed by the Bureau and signed by the both parties. This has created a double-win situation for both the taxpayer and the tax imposer.

The Bureau appeals for signing an APA to not only ensure a multinational corporation’s obligation as a taxpayer but reduce the taxation risks derived from the post tax review.

written by Good Earth

Aug 27

The 11th round of Preparatory talks between Taiwan’s Straits Exchange Foundation and China’s Association for Relations across the Taiwan Straits was held on August 24th. Both parties had double-checked and verified the draft of agreements on double taxation avoidance and aviation safety. These two draft agreements were submitted to the chiefs of both sides (Lin Join-sane, chairman of Taiwan’s semi-official Straits Exchange Foundation and Chen Deming, president of China’s Association for Relations Across the Taiwan Straits) for discussion and would be signed officially in the afternoon on August 25th.

written by Good Earth

Nov 10

According to Tax Collection Act, a taxpayer who voluntarily makes tax payment covering the tax amount which he or she has failed to declare shall be liable for paying interest on the late tax payment. Nevertheless, the taxpayer is exempt from the penalty of one fold of the tax withheld under the circumstances that it is neither a case brought by an informant, nor a case under investigation by an investigator appointed by any tax collection authorities.

Aaccording to Article 92 of Income Tax Act, a tax withholder, who files the withholding and non-withholding tax return after the due date January 31, 2011, is subject to the applicable punishment at the rate of 20 percent of the tax withheld. The maximum penalty, however, shall not exceed NT$ 20,000 or be less than NT$ 1,500. Even though a taxpayer pays off a tax withheld, he or she is subject to pay the penalty.

written by Good Earth