Where a foreign profit-seeking enterprise with no fixed place of business in Taiwan engages domestic logistics centres or bonded warehouses for logistic services (or manufacturing and simple processing services), and storage of goods to be delivered to domestic and offshore customers, income derived therefrom should be categorised as "profits from business operation within the territory of Taiwan" under Article 8 of the Income Tax Act, and subject to Taiwan corporate income tax assessment. In principle, the domestic logistic centres/bonded warehouses are obliged to keep separate accounting books for the foreign profit-seeking enterprise and calculate its taxable income on an actual basis. However, Tax Ruling No. 10404052130 issued by the Ministry of Finance on May 6, 2016 indicates explicitly that the contribution rate approach provided under Tax Ruling No. 10404572310 issued on July 17, 2015 for similar activities carried out by Free Trade Zone entities can be adopted to determine the foreign profit-seeking enterprise's Taiwan sourced income. The salient points of Tax Ruling No. 10404572310 are summarized below:

  1. If taxable income cannot be calculated on an actual basis or based on available taxation data, the taxable income shall be determined as follows:

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  1. Contribution rates will no longer vary across industries, but instead be determined according to the functions or activities performed in Taiwan. :

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Where

"A" refers to costs and expenses of onshore purchase of raw materials.

"B" refers to costs and expenses of onshore contract manufacturing.

"C" refers to import price of foreign goods as indicated on the import declaration form. Should the import price be significantly higher than the current market price with the purpose of avoiding or reducing the tax liability due, the tax collection authority may assess the import price based on available taxation date, or dutiable value of identical or similar imported goods as indicated on the import declaration form.

PwC Observation:

Where foreign profit-seeking enterprises with no fixed place of business engage domestic logistics centres or bonded warehouses for importation, simple processing, and storage of goods to be delivered to onshore and offshore customers, income derived therefrom will be deemed as income from carrying out business operation within the territory of Taiwan. Where foreign profit-seeking enterprises do not maintain accounting books and records, though the contribution rate can be calculated based on the above guidance, records concerning onshore purchase of raw materials, contract manufacturing costs, and import declaration forms of imported goods should be well maintained to ensure compliance with the guidance provided in the Tax Rulings.