Basic Introduction to Tax on Cross-Border Electronic Services
Date:2019-05-31 Read
The Ministry of Finance (hereafter MOF) promulgated a new regulation on the income tax of the cross-border electronic services by a foreign profit-seeking enterprise. According to the annual income tax principle, the income tax regime became effective from the taxable year 2017. The basic introduction is described below: 1. Recognition of revenue sources from the R.O.C. 1. 1. The product produced or manufactured outside of the R.O.C., e.g., stand-alone software, e-book, etc. 1.1.(1) If only through changing the way of presentation of the product, the enterprise transmits and saves the product into a computer or mobile device via the Internet or other electronic means to offer electronic services to buyers within the R.O.C., the sales amounts collected therefrom are not regarded as income from sources in the R.O.C. 1.1.(2) If the product provided with the assistance and involvement of a person or profit-seeking enterprise of the R.O.C., the sales amounts collected therefrom shall be recognized as income from sources in the R.O.C. 1.2. The real-time, interactive, handy and continuing electronic services: Such as online games, streaming series, streaming music, streaming video, online advertisements, etc. offered to domestic buyers within the R.O.C., its sales amounts shall be deemed as income from sources of the R.O.C. 1.3. Electronic services delivered by physical locations: Such as accommodation services, automobile renting services offered via the Internet or other electronic means and if the locations of the service delivering are within the R.O.C., its sales amounts collected regarded as income from sources in the R.O.C.. 1.4. Foreign platform operator If one of the transaction parties of the internet-based platform is a person, profit-seeking enterprise, or entity within the R.O.C., its sales amounts collected from the seller and buyer shall be recognized as income from sources in the R.O.C. 2. Calculation of the taxable income 2.1. Deductible costs and expenses 2.1.(1) Verification: The accounting books and documents are provided, the taxable income amount shall be the verified gross revenue from sources in the R.O.C. after the deduction of related costs and expenses. 2.2.(2) If the accounting books and documents are not available, the taxable income amount shall be calculated as the gross revenue from sources of the R.O.C. multiplied by the net profit ratio of the profit standard of the same trade concerned applicable to the foreign profit-seeking enterprise. Provided that the business type of the foreign profit-seeking enterprise is recognized as the type "offering platform electronic services," the applicable net profit ratio is 30%. 2.2.(3) The net profit ratio of 30% is applied for foreign profit-seeking enterprises not meeting the 2.1.(1) and 2.1.(2) above. 2.1.(4) If the actual net profit ratio verified by the taxation authority is higher than the above ratio, the actual net profit ratio shall be applied. 2.2. The domestic profit contribution ratio shall be determined according to the following: If the whole transaction flow or the electronic service provided is within the territory of the R.O.C. the deemed domestic profit contribution ratio shall be 100%; otherwise, it should be determined as blow. 2.2.(1) Verification: A foreign profit-seeking enterprise should provide documents supporting a clear division of the onshore and offshore transaction flows as well as the ratio of the contribution attributed to the services performed within the territory R.O.C.. The domestic profit contribution ratio shall be determined based on the supporting documents provided. 2.2.(2) The domestic profit contribution ratio set to be 50% when it can’t meet 2.2.(1) above. 2.2.(3) The actual domestic profit contribution ratio shall be applied if such ratio verified by the taxation authority is higher than 50%. 3. Ways of reporting and paying taxes 3.1. For income within the withholding tax scope, the tax withholder shall withhold the tax from the payment source in accordance with the withholding ratio of the "payable amount". However, if a foreign profit-seeking enterprise has applied with the taxation authority in accordance with the above criteria, its payable tax of the income from sources in the R.O.C. shall be calculated and withheld based on the given net profit ratio and domestic profit contribution ratio. 3.2. For income not within the withholding tax scope, the foreign profit-seeking enterprise shall file the income tax return by itself or through a tax agent within the period for the taxable year. 3.3.(1) Where a foreign profit-seeking enterprise is a platform operator, the sales amounts it collects shall be subject to the income tax. 3.3.(2) If a part of the sales amounts it collects will be transferred to a foreign non-platform service provider, e.g. foreign online game software supplier, the platform service fees collected shall be subject to the income tax and tax withholding requirements. It shall settle all the taxes withheld in the previous month for the national treasury within the first ten days of each month, and shall report the calculation information of the withheld and paid taxes regarding the transferred sales amounts to the taxation authority. Reference: Taxation Administration, MOF, R.O.C.
Business Tax on Cross-Border Electronic Services
Date:2019-01-02 Read
An offshore electronic services business entity shall apply for taxation registration in accordance with the Value-Added and Non-Value-Added Business Tax Act (hereinafter referred to as the VAT Act), which came into force on May 1st, 2017. In the event that an offshore electronic services business entity having no fixed place of business within the territory of the R.O.C. sells services to domestic individual purchasers, the Ministry of Finance (MOF) stipulates that such offshore electronic services business entity shall apply for taxation registration and file/pay VAT by itself or appoint a tax-filing agent to complete these matters if its annual sales amounts derived therefrom exceeds NT $480,000. Reference: Ministry of Finance(MOF)
The gist of the 2018 tax reform passed by Legislative Yuan
Date:2018-01-18 Read
The tax amendment draft was passed on January 18, 2018, including the increase of the standard deductions, the increase of the Special Deductions of Personal Income from Salaries/Wages and for the physically or mentally challenged person as well as for the preschool children. 1. Personal Income Tax: 1.1 The standard deduction of personal income tax is increased to NTD $120,000 from NTD $90,000 (Such deduction is doubling for spouses). Special Deductions for the physically or mentally challenged person and Salaries/Wages are both increased to NTD $208,000 from NTD $128,000. 1.2. Reducing the highest tax bracket of personal income from 45% to 40%. 1.3. As for the dividend income, the taxpayer can either choose (1) the tax rate of 26 % levied on the dividend separately or (2) have the dividend counted as part of total personal income with a tax exemption of dividend at 8.5% which is subject to a maximum of NTD $80,000. 1.4 Eliminating the Imputation Tax credit owing to the Integrated Income Tax System. 1.5 For those who are workplace freshman whose yearly income is less than NTD $408,000 (monthly salary of NTD $30,000), dual-earner families whose annual income is less than NTD $816,000, dual-earner families with 4 members(raising two children under 5 years old) whose annual salary is less than NTD$ 1,232,000, may be exempted from income tax, and therefore reducing the tax burden on them. 2. Profit-seeking enterprise income tax: 2.1 Abolition of business income tax for wholly owned businesses and partnerships, whose earnings will be treated as individual income. 2.2 The corporate income tax rate is increased from 17% to 20%, but if the Taxable Income is equal to or less than NTD $500,000, the tax rate can be adjusted to 18% for 2018 and 19% for 2019, respectively and returned back to 20% in 2020. 2.3 The tax rate on corporate retained earnings is reduced from 10% to 5%. 2.4 Eliminating the Imputation Credit Account (ICA)/imputation system. 3. The dividend tax rate for FINI/FIDI: 3.1 The withholding tax rate is increased to 21% from 20%. 3.2 Eliminating the tax credit owing to the corporate retained earnings. Reference: Taxation Administration, Ministry of Finance, R.O.C
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=