Huge Loss for Enterprises! Overdue Tax Returns Are Subject to a 10% Overdue Fine CbC Report - Safe Harbor Rules - Taiwan
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

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