Taiwan Tax Benefit application on Article 15-1

If your country have not signed DTA (Double Taxation Agreement) with Taiwan  “or”  you  are considered as PE in Taiwan, when your Taiwan clients(as a Payer) or your Taiwan subsidiary(as a Payer) pay service fees to  you (as a Payee), you might be able to use the formula (Deemed profit ratio * Contribution ratio * 20%) as  withholding tax rate, instead of 20%, upon approval of  Taiwan Tax Benefit Application on Article 15-1  from Tax bureau.

E-mail: tpe4ww@evershinecpa.com
or
Contact us during office hours  (Taipei and China Time Zone)
Director Jerry Chu, USA Graduate School Alumni and a well-English speaker
Mobile: +886-939-357-735
Tel No.: +886-2-2717-0515 ext. 103

Client ask:
When non-tax residents of Taiwan have Taiwan domestic sourced income ，what is the withholding tax rate according to Taiwan tax regulations excluding DTA?

Evershine RD Answer:
Generally, a Taiwanese resident making payments for services to a non-resident service provider (whether corporate or individual) is required to withhold income tax at the rate of 20% where the payments constitute TSI.
However you can though two   kinds of Tax Benefit application  services to significantly reduce  withholding rate:
(1)Taiwan Tax exemption application sere vices on  TSI  Article 15-1  and  (2)Taiwan Tax benefit application services on article 25 .

Taiwan Tax exemption application sere vices on  TSI  Article 15-1
Article 8 of Income Tax Law and Article 15-1 of Taiwan Sourced Income (TSI) Guidance, foreign companies without permanent establishment (PE) derived income in Taiwan are subject to WHT.
Amendment for Article 15-1 has applied deemed profit ratio method to calculate the WHT rate.
WHT rate = Deemed profit ratio * Contribution ratio * Corporate income Tax 20%
Deemed profit ratio can be obtained from accounting records or similar contracts or industry comparable.
Contribution ratio has to be certified by COA or from a similar approved contract or 100%.

Taiwan Tax benefit application services on article 25  < click me

Client ask:
What  are major contents on TSI Principles 15-1 in Taiwan?
Evershine RD Answer:
Withholding tax rate=
Deemed Net Profit * Contribution Ratios *Corporate Income tax rate

Taiwan’s Ministry of Finance has issued TSI Principles 15-1 for the taxation of non-residents without a PE(permanent establishment) in Taiwan, which are effective from 26 September 2019.

The rules provide that non-residents may apply with the Taiwan tax authority for pre-approval of a deemed net profit ratio and a domestic profit contribution ratio for the taxation of income payments from Taiwan.

If approved, tax may be withheld by the withholding agent by applying the net

profit ratio and contribution ratio instead of withholding tax on the gross amount.

Client ask:
What does industry net profit ratio mean?
Evershine RD Answer:
For the net profit ratio, there are three main options under the new rules:
-Where the relevant accounting records and documentation are available, the profit ratio for a transaction may be determined based on the actual cost and expense information provided to the tax authority.
-Where the records and documentation are not available but the net profit ratio for similar transactions have been approved by the tax authority in the previous three years, a profit ratio may be determined based on the average ratios approved in the previous three years; and
-Where the records and documentation are not available and there are no previous transactions, a prescribed deemed profit ratio for a specific business category may be used if sufficient documentation is provided to determine the main business category of the transaction.
-In any event, the tax authority reserves the right to use the actual net profit ratio if higher than the rates determined based on previous transactions or business category.

Client ask:
What does contribution ratio mean?
Evershine RD Answer:
The contribution ratio determines how much income is attributed to onshore and offshore activities.
For the contribution ratio, non-residents may either seek to apply the actual contribution ratio based on supporting documentation or, similar to the second option for the profit ratio, may apply an average ratio based on similar transactions approved in the past three years.
If neither option applies, the contribution ratio is deemed to be 100% (wholly attributed to Taiwan).

Client ask:
what are required  Documents when applying Tax benefit on TSI Principles 15-1 in Taiwan?
Evershine RD Answer:
*The relevant signed underlying contracts (including Chinese translation).
*Explanation of main business operation and onshore and relevant offshore transaction flow/stages.
*Documents illustrating applicant’s main business operation.
*Previous approval letter (within the three most recent years) issued by the tax authority on the use of deemed profit and contribution ratio (if previously granted).
*Letter of authority (if applicant is appointing an agent to file the application).
*Other relevant documents.
Ministry of Finance, R.O.C. -Content (mof.gov.tw)
Please be aware  the required documents  are  without  any standard template forms.

Please notice another zero tax  rate scenario:
If your country have signed DTA (Double Taxation Agreement) with Taiwan and you  are considered as non-PE in Taiwan, when your Taiwan clients(as a Payer) or your Taiwan subsidiary(as a Payer), pay service fees (with zero  withholding tax rate)  to  you (as a Payee).
You need to apply zero tax rate exemption under DTA.
Evershine can provide the application services to you.
Please refer below two webpages:
Taiwan zero tax exemption application services under DTA
Taiwan Tax treaties with other countries

Contact us:
E-mail: tpe4ww@evershinecpa.com
or
Contact us during office hours  (Taipei and China Time Zone)
Director Jerry Chu, USA Graduate School Alumni and a well-English speaker
Mobile: +886-939-357-735
Tel No.: +886-2-2717-0515 ext. 103

Additional Information

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(version: 2024/07)
Please contact us by email : HQ4TPE@evershinecpa.com

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