May 19

On 10 December 2019, the Ministry of Finance (MOF) issued Administrative Decree No. 10804651540 providing exemption from CbC reporting for Taiwan entities under a MNE Group headquartered outside Taiwan. The new safe harbor rules prescribe that the Taiwan entity will not be required to submit a CbC report if it meets either one of the following:
• total annual turnover (include operating and non-operating) has not exceeded TWD3 billion, or
• total cross-border controlled transaction amount has not exceeded TWD1.5 billion.

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