Reduced rates on technical consulting fees, dividends, royalties, etc.

 Withholding Tax

Q1. What is a withholding tax?

  • A withholding tax, or retention tax, is an income tax to be paid to the government by the payer rather than by the recipient of the income.
  • The tax is thus withheld, or deducted, from the income paid to the recipient.

Q2. What are the types of withholding tax?

  • International withholding
    The Taiwanese government requires payers to withhold at specific rates from interest, dividends, royalties, technical consulting service fees, and other “Taiwan-sourced income” paid to non-residents; the rates vary by type of income.


  • Domestic withholding
    • Wage withholding
      The Taiwanese government operates a withholding tax system for payments from employers to employees; an employee’s income tax for the year is generally determined upon filing for a tax return after the end of the year, and the amount withheld by the employer and paid to the government is applied as a prepayment of income taxes, refundable if it exceeds the employee’s income tax liability as determined when filing.
    • Other domestic withholding
      The Taiwanese government also requires that income taxes be withheld from certain payments (other than wages) made to domestic persons.

Q3. What are the tax rates for International withholding?

  • Interest:20%
  • Dividends: 21%
  • Royalties: 20%
  • Technical consulting service fee: 20%
  • Other Taiwan-sourced income: 20%

Q4. What is the time limit for international withholding remittance and reporting?

The Taiwanese government requires withheld taxes to be paid and reported to tax authorities within 10 days after the income is released.

 Strategies

Q1. What tax strategies are most frequently considered?

  • Reduced 3% withholding rate
    A foreign company engaged in international transport involving Taiwan, regardless whether or not it has a branch office or business agent in Taiwan, may apply for approval to consider 10% of its total business revenue as its income derived within Taiwan; similarly, in construction contracting, providing technical services, or leasing machinery / equipment, the rate is 15%. And the resulting gross withholding rate will become 3%(=assessed profit rate at 15% * regular withholding rate at 20%).


  • Tax treaties
    Currently, Taiwan has an “Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income” with 32 countries, and Taxpaying residents of these treaty-partner countries may apply for approval to reduce the withholding tax on their Taiwan-based dividends, interest, royalties, capital gains, business profits, entertainers / athletes, etc.


  • Tax exemption for royalties
    Income tax on the royalties paid to a foreign company shall be exempted if the royalties are pa id in order to introduce new production technology or products, to improve product quality, or to reduce production costs; the same is true for remunerations paid to foreign companies for technical services rendered in construction of factories for an important production enterprises.

Q2. What are the primary requirements?

  • Reduced 3% withholding rate
    The company must be engaged in international transport, construction contracting, providing technical services, or leasing machinery / equipment in Taiwan.

  • Tax treaties
    The company must be a taxpaying resident of one of Taiwan’s treaty-partners countries.

  • Tax exemption for royalties
    The company must demonstrate technical depth and application.

Q3. What other considerations are there?

If a case satisfies more than one of the requirements of for the above strategies, the following additional issues are often taken into consideration:

  • Benefit
    Take a German company’s technical consulting service fee, for example, where applying treaties may be more beneficial than the reduced 3% withholding rate because the business profits in the treaty will not be taxed by the Taiwanese government.


  • Cost
    Due to different requirements and assessment procedures, the time and effort required vary widely. Generally speaking, the cost of applying for the reduced 3% withholding rate is lower since the tax office basically assesses only the technical service contract: evidence of service provision is not required. On the other hand, the cost of applying tax treaties is higher since evidence of transaction is required. Finally, the cost of applying for tax exemption regarding royalties is the highest because the case will be assessed not only by the tax office but also from a technical point of view by the Industrial Development Bureau.


  • Uncertainty
    Usually, the uncertainty of applying for the reduced 3% withholding rate is lowest since basically only the service contract will be assessed.

Q4. When should I apply?

Although theoretically there are two options, we suggest to apply in advance for the avoidance of extra uncertainty and cost of another application for tax refund:

  • Option 1. Pay regular 20% withholding tax first and apply for a reduced rate later. After obtaining the approval for the reduced rate, then proceed to apply for tax refund.
  • Option 2. Apply in advance for the reduced rate and pay by the reduced rate directly.

 Reduced 3% Withholding Rate

Q1. What is the rationale?

As described above, if a foreign company engages in certain activities within Taiwan, and the costs / expenses are difficult to calculate, the company may apply to identify 15% of its total business revenue as its income derived within Taiwan. The resulting gross withholding rate will become 3%(=assessed profit rate at 15% * regular withholding rate at 20%).

Q2. What are the requirements?

  • Applicant
    Organization
    Business entity or NPO. Practitioners of professions, such as law firms, are excluded.
    Nationality
    Applicants from mainland China are excluded, and applicants from tax havens will be assessed carefully.


  • Activity
    Business in Taiwan
    International transport, construction contracting, providing technical services, or leasing machinery / equipment.
    Royalties
    If the payments for technical consulting services include royalties, the payments for royalties should be separated and excluded from the total technical consulting fee.
    Related-party Transaction
    If the payer and payee are related in other ways, additional to the transaction itself, the pricing and necessity will be assessed carefully.


  • Cost Calculation
    Having difficulty in calculating the project’s cost and profit according to the work done. In this circumstance, the taxpayer applies for the assessed profit rate at 15%, if the cost can be measured precisely, the taxpayer should be taxed according to the real profits based on real costs.


  • Deadline
    The application should be submitted within 5 years after the payment takes place.

Q3. What are the procedures and timeline?

The case will be submitted to the National Taxation Bureau of the area, and it generally takes 2-4 weeks to address the issues.

 Tax Treaties

Q1. What is the rationale?

Taiwan entered into tax treaties with other countries to avoid or mitigate double taxation. Taxpaying residents of Taiwan’s treaty-partner countries should not be taxed by both tax jurisdictions.

Q2. What are the requirements?

  • Applicant
    Organization
    No limitation.
    Nationality
    The applicant must be a taxpaying resident in a country with treaty partnership respecting Taiwan. Currently, the treaty partners are as follows:
    Complete Agreement (32 countries): Singapore, Indonesia, South Africa, Australia, New Zealand, Vietnam, Gambia, Eswatini, Malaysia, North Macedonia, the Netherlands, the UK, Senegal, Sweden, Belgium, Denmark, Israel, Paraguay, Hungary, France, India, Slovakia, Switzerland, Germany, Thailand, Kiribati, Luxembourg, Austria, Italy, Japan, Canada, Poland.
    Shipping or Air Transport Agreement (12 countries): Canada, the EU, Germany, Japan, Korea, Luxembourg, Macau, The Netherlands, Norway, Sweden, Thailand, the United States.


  • Activity
    Business in Taiwan
    Business profits, income from real estate, shipping and air transport, dividends, interest, royalties, capital gains, etc.
    Royalties
    If business profits include royalties, the royalties should be separated and treated differently from the business profits.
    Permanent establishment
    If a foreign company conducts business in Taiwan through a permanent establishment in Taiwan, the profits attributable to that establishment may be taxed by the Taiwan government.
    Related-party Transaction
    If the payer and payee are related in any other way, additional to the transaction itself, the pricing and necessity will be assessed carefully.


  • Cost calculation
    Not limited.


  • Deadline
    The application should be submitted within 5 years after the payment takes place.

Q3. What are the procedures and timeline?

The case will be submiited to the area’s Tax Bureau, and it generally takes 8-12 weeks to address the issues.

 Tax Exemption for Royalties

Q1. What is the rationale?

The Taiwanese government exempts certain royalties from taxation in order to encourage Taiwanese manufacturers to adopt advanced manufacturing technologies.

Q2. What are the requirements?

  • Applicant
    Organization
    Business entity or NPO. Practitioners of professions, such as law firms, are excluded.
    Nationality
    Applicants must originate from countries belonging to the World Trade Organization.


  • Activity
    Technical Depth
    1. The technology is not available in Taiwan.
    2. The technology is available in Taiwan but not satisfying.
    Industry
    The technology is to be applied in the following industries: precision machinery and automation intelligence, automotive, high-value metal materials, wind energy, solar energy, communication of next-generation communication and smart handheld devices, smart electronic components, displays, LED lighting, smart living environments, cloud computing, high-value petrochemicals, high-value textiles, electro-optical chemicals, healthy food, biotechnology, recycling, water recycling, information services, and design.
    Effects
    1. The patent introduces new production technology to be applied in manufacturing new products, or it promotes product quality or efficiency, or it reduces production costs.
    2. The technical service is provided to an important Taiwanese manufacturing company, for the construction of a factory.
    Royalties
    Total revenue from royalties is applicable, but income from the sale of the patent is excluded.
    Related-party Transaction
    If the payer and payee are related in any other way, additionally to the transaction itself, the pricing and necessity will be assessed carefully.


  • Cost calculation
    No limitation.


  • Deadline
    The application should be submitted within 5 years after the payment takes place.

Q3. What are the procedures and timeline?

  • Stage 1. Technical Review
    The case will be submitted to the Industrial Development Bureau, and it generally takes 2-4 weeks to resolve the technical issues.
  • Stage 2. Transaction Review
    After obtaining approval from the Industrial Development Bureau, the case will proceed to the area’s Tax Bureau, and it generally takes 4-8 weeks to address the issues.

  Work with Us

Q1. How to request a quotation?

Please click the blue button below for requesting the quotation of international withholding tax consultation service.

Q2. Are the results guaranteed?

Please understand that the authority approves this application on a case-by-case basis, and the power to grant approval rests solely with the authority.

Q3. Will you prepare a formal engagement letter?

Yes. If you are fine with our quotation, we will proceed to prepare a formal engagement letter for your review.

Q4. What is the payment arrangement?

We will send our first progressive billing at the signature of our engagament letter at 50% service fee and all known out-of-pocket expenses, and issue the final bill when completion of case.

Q5. Can I pay from a bank account which is not in Taiwan?

Yes, but please be reminded that there will be additional bank processing fee for cross-border remittance.

Q6. Can I pay by Paypal?

Yes, but please be reminded that there will be additional Paypal processing fee.

Q7. Can I pay by any other currency except for TWD?

Yes, we accept main currencies in addition to TWD.

Q8. If I pay by a foreign currency, what the exchange rate will be?

We refer to the exchange rate published by Bank of Taiwan.

Q9. What documents do I need to provide to you?

We will evaluate the case before making a list of required documents.

Q10. How to consult more questions?

Please feel free to contact us.

Q11. Can we arrage for a face-to-face meeting?

Sure. Please let us know your availablity.