Taiwan tax reform effective from January 1, 2018
Date:2017-09-03 Read
The tax reform proposed by Taiwan’s Ministry of Finance (MOF) is aiming to reduce the tax burdens for salary and low-income earners and give the tax forgiveness to small and medium-sized enterprises as well as start-up companies. The practical approach is as follow and expected to put into effect on January 1, 2018: 1. Standard deduction of individual income tax is increased to NTD $110,000 from NTD $90,000. Special Deductions for the physically or mentally challenged person and of Income from Salaries/Wages are both increased to NTD $180,000 from NTD $128,000. 2. Reducing the highest tax bracket of individual income from 45% to 40%. 3. Abolition of business income tax for wholly owned businesses and partnerships, whose earnings will be treated as individual income. 4. The corporate income tax rate is increased from 17% to 20%, but there’s a reduction of the tax rate on corporate retained earnings from 10% to 5%. 5. Eliminating the Imputation Credit Account (ICA)/imputation system. 6. As for FINIs, withholding tax rate on their dividend income is increased to 21% from the current tax rate, 20%. While proposing to eliminate the imputation system, the MOF has proposed two alternative tax plans for local tax resident: Plan A allows investors to enjoy tax-free status on 37% of dividends they receive and the remaining dividends will be taxed as their personal income tax. Plan B includes two options. The option 1 allows dividends to be taxed at a flat rate of 26%. While the second one will treat all the dividend income as personal income, but give taxpayers a tax deduction of the lower of (1) the dividends multiplied by 8.5% or (2) NTD $80,000. Reference: 中央通訊社 http://www.cna.com.tw/news/firstnews/201709010308-1.aspx http://focustaiwan.tw/news/aeco/201709020004.aspx
The latest progress of regulations of CFC( Controlled Foreign Company ) and PEM( Place of Effective Management )
Date:2016-08-26 Read
The Article 43-3, 43-4 and 126 of the Income Tax Law with respect to the Controlled Foreign Company (CFC) and the Place of Effective Management (PEM) were amended by the President and have been announced on July 27. The gist of the law is as follows: 1. The establishment of the CFC system: 1.1 Article 43-3 stipulates the profit-seeking enterprise and its related parties directly or indirectly holding up to 50% of shares or capital of a foreign-affiliated enterprise registered in a low-tax burden country or jurisdiction, or having a significant influence on such a foreign-affiliated enterprise, the surplus earnings of the foreign-affiliated enterprise shall be recognized as the profit-seeking enterprise’s investment income which is calculated according to the ratio and holding period of the shares or capital, and such investment income shall be included in taxable income of the current year. 1.2 For carrying out the spirit of the CFC system as well as considering the cost of the relevant affairs, the profit-seeking enterprises could be exempted from the aforesaid tax if their surplus earnings of the foreign-affiliated enterprise are below to a certain standard in the current year. 1.3 In order to precisely reflect on the disposable earnings, the losses of each year incurred in the foreign-affiliated enterprise may be deducted from surplus earnings of the foreign-affiliated enterprise within ten years, and the recognized investment income doesn't to be included in taxable income when the profit-seeking enterprise receives the dividends or surplus earnings from the foreign-affiliated enterprise. 2. The establishment of the PEM system: 2.1 Article 43-4 stipulates any foreign profit-seeking enterprise established according to the foreign law having a PEM in the Republic (ROC) of China shall be deemed as a profit-seeking enterprise having its head office within the territory of the ROC and shall be subject to profit-seeking enterprise income tax. The tax withholders shall withhold the income tax from various income payments, and issue withholding certificates, dividend vouchers, and other relevant certificates in accordance with Income Tax Act and other relevant laws. 2.2 The definitions of the PEM are as follows: 2.2.1 The decision maker who makes significant decisions in business management, financial management, and personnel management is an individual resident in the ROC or its head office is within the territory of the ROC, or the place where the significant decisions are made is in the ROC. 2.2.2 Financial statements, records of accounting books, minutes of meetings of the Board of Directors or minutes of meetings of the shareholders prepared or stored in the territory of the ROC. 2.2.3 Major business activities carried out in the ROC. 2.3 Once the system of the PEM takes in place, it can prevent tax erosion and entitles the PEM who recognized as the resident in the ROC to the tax benefit of The Cross-Strait tax agreement as well as protects the right for the enterprises having business across the Strait. 3. To avoid the impact that the enforcement it may cause, the effective date depends on the situation of implementing the Cross-Strait tax agreement as well as the international progress, including Singapore and Hong Kong, of the Common Reporting and Due Diligence Standard (CRS), which obtains information from their financial institutions and automatically exchange that information, and it shall also complete the relevant sub-law plan and propaganda before the laws come into force.e. Resource: Taxation Administration, MOF, R.O.C. https://www.etax.nat.gov.tw/etwmain/web/ETW118W/CON/444/5215864286050740719?tagCode=
Taiwan, Japan conclude agreement on avoiding double taxation
Date:2015-11-26 Read
Taiwan and Japan have signed an agreement on avoiding double taxation. Lee Chia-chin, head of the foreign ministry’s Association of East Asian Relations and Ohashi Mitsuo, Japan’s representative to Taiwan signed the agreement in Tokyo Thursday. The agreement on taxation was one of three the two sides concluded after a two-day bilateral meeting on trade. The agreement will cap taxes on stock dividends, interest, and royalties at ten percent, and eliminate taxes on interest altogether in certain cases. The agreement will also eliminate taxes on income from stock transactions. Japanese investment in Taiwan reached US$550 million in 2014. This represents an increase of 34% over 2013, though it still falls well below the record US$1.59 billion Japan invested in Taiwan in 2006. Taiwanese investment in Japan has also seen a sharp uptick over the past year. Taiwan invested US$680 million in Japan during 2014, four times the amount it invested in Japan during 2013. Resource : Radio Taiwan International http://english.rti.org.tw/news/?recordId=37476
Abolishment of capital gains tax for resident and foreign individuals
Date:2015-11-19 Read
The Legislative Yuan has passed a revision of the Income Tax Act to abolish capital gains tax applicable to both resident and foreign individual investors (FIDIs) on 17th November,2015. which would be effective since January 1, 2016. Basically, capital gains of FINIs are still tax-exempted in Taiwan; however, FINIs with fixed business locations or business agents in Taiwan will continue to pay tax on capital gains under the Alternative Minimum Tax (AMT) scheme at the rate of 12% should the following criteria are all met: (1) the FINI registered as a non-fund / non-trust type with TWSE and (2) with headquarter in other country but has fixed business location or business agent in Taiwan and (3) use its own capital to engage in security transactions. The term "fixed business location" as used in Income Tax Act refers to fixed places for business operation, however, this shall exclude (1)its local security houses, (2)its local stock sale and purchase agents doing such transactions as instructed by FINIs and (3)its local custodian banks in Taiwan. Before or after this revision on Income Tax Act becomes effective, the FINIs without fixed business locations or business agents in Taiwan would not incur any capital gain taxes issues here. TBBC Ltd.
Stocks gains tax to be abolished next year
Date:2015-11-17 Read
The legislature has abolished the controversial stocks gains tax after it was put to a vote. Under a revision to the income tax law, the new measure will come into effect on January 1st next year. The stocks gains tax was in place for two years and has been revised four times since 2012. The legislature’s decision to strike down the tax has won support from both the ruling and opposition parties. Ruling KMT lawmaker Lo Ming-tsai said on Tuesday that the decision was made for the sake of Taiwan’s economic future and on the basis of the principles of “ability to pay” and “tax withheld at source.” He said the stocks gains tax has destabilized Taiwan’s stock market. “After the decision was made today, all well-heeled stock investors, including foreign investment, are welcome to invest in Taiwan and speed up Taiwan’s economic development. When the revision goes into effect, hopefully shares will rise to the 10,000 point mark and the public will have a better life like before,” said Lo. Financial Supervisory Commission (FSC) Chairman William Tseng said the abolition will add momentum to the stock market at the end of this year. Resource : RTI (Radio Taiwan International) http://english.rti.org.tw/news/?recordId=36947