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Taxation of Foreign Airlines Branches in Taiwan QA

Among Taiwan and 13 countries, they have mutual exemption for corporate income tax (CIT) on international transportation business income; Asia: Japan, South Korea, Macau, Thailand Europe: European Union, Germany, Luxembourg, Netherlands, Norway, Sweden America: Canada, the United States.
In addition, Taiwan has reciprocal agreements on business tax(VAT) exemptions and reductions with 19 countries .

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Q&A on foreign airlines applying for branch offices in Taiwan


DTA-tw-010
What is the definition of international transportation business in Taiwan’s Income Tax Law?

Answer:
**According to Article 25, Paragraph 2 of the Income Tax Law, the definition of international transportation business:
1. International transportation business refers to the carriage of passengers and cargo from the territory of the ROC Taiwan to the territory of the Non-ROC Taiwan or from outside the territory of the ROC Taiwan by aircraft, ships or other means of transportation to ROC Taiwan. Passenger and cargo inbound transportation business.
2. Operating income from international transportation business refers to the fares or freight charges for transporting passengers and cargo, as well as other income related to the transportation business.
3. Operating income from international transportation business, which belongs to those operating international transportation business, shall be subject to the following provisions:
3.1 Maritime transportation industry: refers to all fares or freight charges obtained from the carriage of exported passengers and cargo from the territory of the ROC Taiwan.
3.2 Air transportation:
3.2.1 Passenger transportation: refers to the fare between the starting station within the territory of the ROC Taiwan and the first station outside the ROC Taiwan.
3.2.2 Freight: refers to the full freight for transporting goods.
4. The source of income from international transportation shall be based on the place of departure and landing of the aircraft , not the place of payment .
Therefore, if the aircraft of a foreign-owned Taipei branch takes off or lands from Taiwan, its international transportation income is deemed to be Taiwan-source income; if the aircraft of a foreign-owned Taipei branch takes off or lands from other countries or regions, its international transportation income is deemed to be income from Taiwan. Income from foreign sources.

**Other income related to international transportation business mainly includes the following categories: Download
5. Agency fees: refers to the handling fees charged by the shipping agency or air freight agency industry for providing related services in Taiwan to foreign transportation companies, such as Agency fees for ships entering and exiting ports, agency fees for loaning out crew members, agency fees for import and export of foreign ships , etc.
6. Rent: refers to the rental income collected by a shipping company by leasing the space of its ships or container ships to foreign transportation companies or international transportation companies on a time-based or metered basis, such as the regular commission fee of China Lines, the space rental of China Lines container ships, etc. .
7. Additional freight: refers to the additional costs incurred by ships due to delayed loading and unloading of import and export goods in Taiwan, such as demurrage fees for tramp ships unloading goods in Taiwan , delay fees for container use , etc.
8. Other income: refers to other income related to international transportation business, such as income from price allocation materials , technology transfer, ground transportation income, income from words and deeds, etc.

**Non-international transportation business (transportation business within the ROC Taiwan + non-transportation business)
9. Non-international transportation business refers to the carriage of passengers and cargo out of the territory of the ROC Taiwan or from outside the territory of the ROC Taiwan, except by aircraft, ships or other means of transportation. Transportation business other than the transportation business of carrying passengers and cargo into the country. For example:
9.1 Domestic land transportation, railway transportation, road transportation, MRT transportation, etc.
9.2 Domestic water transportation, port transportation, river transportation, etc.
9.3 Domestic air transportation, air transportation, helicopter transportation, etc.
9.4 Domestic pipeline transportation, electric power transportation, communication transportation, etc.
10. Operating income from non-international transportation business refers to the fares or freight charges for transporting passengers and goods, as well as other income related to the transportation business. Operating income from non-international transportation business, which belongs to those who operate non-international transportation business, shall follow the left Listed provisions:
10.1 Land transportation business: refers to all fares or freight charges obtained from transporting passengers and cargo within the territory of the ROC Taiwan.
10.2 Water transportation industry: refers to all fares or freight charges obtained from transporting passengers and cargo within the territory of the ROC Taiwan.
10.3 Air transport business:
10.3.1 Passenger transport: refers to the fare between the departure station in the territory of the ROC Taiwan and the terminal station in the territory of the ROC Taiwan.
10.3.2 Freight: refers to the full freight for transporting goods.

DTA-tw-020
In general in Taiwan how to decide whether foreign investors are subject to Corporate income tax ?

Answer:
The judging steps to foreign taxation and tax treaties In Chinese
Step 1: Determine whether it is income from sources in the ROC Taiwan?
According to Article 8 of the Income Tax Law and related letters, if the income is not from sources in the ROC Taiwan, you do not need to pay income tax for profit-making enterprises ; if
it is income from sources in the ROC Taiwan , then enter the second step of judgment.
Step 2: Determine whether the exemption provisions apply?
Judging if applying Article 4, Paragraph 1, 20-22 of the Income Tax Law, and if the minimum tax burden (AMT) and tax agreement (DTAA), then the corporate income tax (CIT) will be confirmed to be exempted or not? and then go ahead the third step of judgment;
if no exemption or reduction regulations apply, go directly to the third step of judgment.
Step 3: Determine whether the foreign businessman’s status is PE(Permanent Establishment)?
According to the definition of fixed business place in Article 10 of the Income Tax Law, the fixed business place.
in this law refers to the fixed place where the business is operated, including management offices, branches, offices, factories, workplaces, Warehouses, mines and construction engineering sites.
However, this does not apply to warehouses or maintenance places that are used exclusively for purchasing goods and are not used for processing and manufacturing goods.
According to the definition of business agent in Article 10 of the Income Tax Act, if the status of PE or business agent applies, the declaration shall be made by the PE or business agent.
If the PE or business agent status does not apply, the payment will be withheld by the payer.

DTA-tw-030
How do Foreign Airlines Branches in Taiwan define “income from foreign sources” and “income from Taiwan sources”?

Answer:
Step one: Determine whether it is income from sources in the ROC Taiwan?
The source of income from international transportation shall be based on the place of departure and landing of the aircraft , not the place of payment .
Therefore, if the aircraft of a foreign-owned Taipei branch takes off or lands from Taiwan, its international transportation income is deemed to be Taiwan-source income; if the aircraft of a foreign-owned Taipei branch takes off or lands from other countries or regions, its international transportation income is deemed to be income from Taiwan. Income from foreign sources.
The Taiwan Taxation Bureau’s Article 8, Paragraph 1, Item 3 of the Income Tax Law only imposes corporate income tax (CIT)on Taiwan-source income.

DTA-tw-040
Does the Taiwan branch of a foreign airline have an agreement to reduce or reduce corporate income tax (CIT)?

Answer:
Step 2: Determine whether the exemption provisions apply?
Article 4, paragraph 1, item 20 of the Income Tax Law:
The following types of income are exempt from income tax:
20. Income from foreign international transportation enterprises within the territory of the ROC Taiwan.
However, this is limited to those countries that grant the same tax-free treatment to the international transportation industry of the ROC Taiwan.
Taiwan and 13 countries have mutual exemptions from corporate income tax on international transportation business income.
Taiwan has entered into reciprocal agreements with the following 13 countries or regions to exempt each other from income tax on international transportation businesses.

  • Asia: Japan, South Korea, Macau, Thailand
  • Europe: Europa League, Germany, Luxembourg, Netherlands, Norway, Sweden
  • Americas: Canada, United States

The purpose of these agreements is to promote sea and air transportation business between Taiwan and these countries or regions, reduce double taxation on the same income by both parties, and prevent tax evasion.
The content of these agreements is that income from sea and air transportation business between Taiwan and these countries or regions will only be taxed in the country or region where the operator belongs, and not in another country or region.
However, you must apply to Taiwan Tax Bureau for Taiwan DTA zero withholding tax exemption application service in accordance with the tax agreement.

DTA-tw-050
If a foreign airline has a branch in Taiwan, if the country where the parent company is located is no longer on the list of 13 countries that have signed contracts with Taiwan, what are the regulations for exempting corporate income tax (CIT)?

Answer:
Step 2: Determine whether the exemption or reduction regulations apply?
If a foreign Airline in the international transportation business has a branch in Taiwan, if other countries do not have a mutual income tax exemption agreement for international transportation business with Taiwan and operate international transportation business, they can also use Article 25, item 1, of the Income Tax Law. A profit-seeking enterprise income tax (CIT) of 10%*20%=2% is applicable.
Application service for technical service fee discount under Article 25, Paragraph 1, Taiwan Income Tax Law

DTA-tw-060
Foreign airline branch in Taiwan, a fixed place of business PE?

Answer:
Step 3: Determine whether the status of the foreign businessman is PE?
According to the definition of fixed business place in Article 10 of the Income Tax Law.
The branch is a fixed location for foreign investors in the international transportation business in Taiwan. The Taiwan branch is responsible for the withholding & tax declaration of foreign investors in the international transportation business in Taiwan.
The settlement declaration shall be made in accordance with the provisions of Article 49, Item 2 of the Enforcement Rules of the Income Tax Law.
Income calculated in accordance with the technical service fee discount in Article 25, Paragraph 1 of the Income Tax Act.

DTA-tw-070
Does a foreign airline’s branch in Taiwan have an agreement to exempt or reduce VAT business tax?

Answer:
Determine whether the exemption or reduction regulations of Business Tax (VAT) apply?
Article 7 of the Business Tax (VAT)Law:
The business tax rate for the following goods or services is zero:
5. International transportation.
However, foreign transportation enterprises operating international transportation business within the territory of the ROC Taiwan shall be limited to those countries that provide equal treatment to the international transportation enterprises of the ROC Taiwan or are exempt from similar taxes and fees.
Current status of business tax exemptions imposed by foreign governments or regions on Taiwan’s international transportation and air transport industry as shown in the Taiwan Tax Bureau Letter No. 851901086, issued at April 8, 1985.
Attachment

CountryImposition and exemption of business tax or similar taxesCountryImposition and exemption of business tax or similar taxes
JapanConsumption tax: 0%FranceVAT:0%
South KoreaVAT (Value Added Tax): 0%GermanyVAT:0%
HongkongBusiness tax: 0%SwitzerlandVAT:0%
VietnamUndecidedItalyVAT:0%
ThailandVAT:0%NetherlandsVAT:0%
the PhilippinesBusiness tax: 3%BelgiumVAT:0%
MalaysiaVAT:0%LuxembourgVAT:0%
SingaporeVAT:0%South AfricaVAT:0%
IndonesiaBusiness tax: 0%USABusiness tax: 0%
U.K.VAT:0%CanadaGST:0%

If it is not in the above-mentioned countries, VAT is 5%.

DTA-tw-080
What are the summary of CIT and VAT
practicing for overseas airline branches in Taiwan?

Answer:
(1) If the Taiwan branch operates international transportation business and comes from 13 countries that have reciprocal tax agreements on international transportation business with Taiwan,
it will be completely exempt from the Corporate income tax CIT.
Asia: Japan, South Korea, Macau, Thailand
Europe: European Union, Germany, Luxembourg, the Netherlands, Norway, Sweden
America: Canada, the United States

If the source country of the Taiwan branch is listed in Taiwan Tax Bureau Letter No. 851901086, they are mutually exempted or reduced the business tax VAT rate, otherwise you need to pay 5% business tax. . Please note that although corporate income tax CIT and business tax VAT are exempted, declarations are still required.
(2) If the Taiwan branch operates international transportation business but does not come from the 13 countries that have a reciprocal tax agreement on international transportation business with Taiwan, the corporate income tax can be paid based on the industry profit rate of 10%*20%=2% .
If the country of origin of the Taiwan branch is listed in Taiwan Tax Bureau Letter No. 851901086, the business tax VAT rate will be exempted or reduced accordingly.
Otherwise, the business tax VAT will be 5%.
(3) If the Taiwan branch operates non -international transportation business (transportation business within the ROC Taiwan + non-transportation business), regardless of the country came from , it must declare the income and pay 20% corporate income tax(CIT); business tax (VAT)is 5%.

Q&A on foreign airlines applying for branch offices in Taiwan

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The above content is a summary of Evershine R&D and Education Center (abbreviation: Evershine RD) in July 2022 and translated it into English in 2024/02. Over time, regulations will change and different situations will have different options. Before choosing an option, contact us or consult a professional you trust.
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