By Hung Ou Yang and Paul Ma
In Taiwan, significant indirect taxes include value added tax (VAT), stamp duty, entertainment tax, tobacco and alcohol taxes, etc. Among these, VAT is the most important consideration in both tax planning and tax compliance. For foreign multinational corporations, key considerations include how to properly allocate the burden of VAT and whether there are non-deductible input tax amounts to be accounted for.
In particular, Taiwan's tax laws impose strict regulations on the collection of VAT, requiring PSEs to issue invoices or receipts that comply with the strict regulations. For example, PSEs should issue their invoices according to a certain format without any exceptions. In practice, the most commonly investigated and penalised cases by tax authorities are those involving errors or violations in the issuance of invoices.
Due to its unique political circumstances, Taiwan is not a formal member of most international organisations, and therefore, it is not necessarily directly bound by various international tax reforms or proposals. However, for reasons such as aligning its tax system with other countries, expanding its tax base, and avoiding Taiwan being used as a tax haven, Taiwan still closely follows international developments and makes corresponding responses.
Taiwan is not a member of the OECD; however, since the introduction of the OECD BEPS Action Plan, Taiwanese authorities have been closely monitoring it and making efforts to align with its directives. Taiwan has been implementing various measures such as transfer pricing regulations, establishing a three-tiered documentation framework, implementing thin capitalisation rules, and CFC regulations.
As of the time of writing, Taiwan has not explicitly planned to adopt OECD Pillars One or Two as legislative objectives, nor has it provided a detailed timeline. However, Taiwanese officials have expressed a high level of concern regarding this issue and indicated that they will strengthen their response to the implementation of the minimum tax regime in line with legislative processes in neighbouring countries. Following the trend, the effective rate of a company becomes an important requirement when the authority grants tax incentives.
Taiwan has signed tax treaties with over 30 jurisdictions, including several key trading partners and economically important countries such as Australia, Austria, Belgium, Canada, France, Germany, India, Italy, Japan, Malaysia, the Netherlands, New Zealand, Poland, Singapore, South Korea, Sweden, Switzerland, Thailand, Vietnam and United Kingdom.
In the tax treaties signed by Taiwan, provisions often reference the models provided by the United Nations and OECD. Within the tax treaties signed by Taiwan, key types of income include dividends, interest and royalties.
The withholding tax rates for dividends were originally at 21 per cent, while those for interest and royalties were at 20 per cent. However, through tax treaties, the withholding tax rates for these types of income can generally be reduced to around 10 per cent or 15 per cent.
Although Taiwan has already signed tax treaties with the vast majority of its major trading partners, there have been recent developments in signing new significant tax treaties. For instance, the tax treaty between Taiwan and South Korea was signed in 2021 and came into effect in December 2023. As of March 2024, the tax treaty between Taiwan and the United States is also undergoing relevant legislative processes in both countries. Upon completion of the signing by both parties, it will bring more favourable tax treatment for Taiwan and the United States, which are crucial trading partners.
AUTHOR: Hung Ou Yang
Managing Partner
Taipei
+886-2-2707-9976
[email protected]
Copyright: Brain Trust International Law Firm
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
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