According to a ruling issued by the Ministry of Finance on May 6th, 2016 ("Ruling"), with respect to a foreign entity which has no fixed place of business in the ROC and engages a logistical center or bonded warehouse located within the ROC to import goods into the ROC for further manufacturing process and/or storage, and then deliver the goods on behalf of the foreign entity to its customers within or outside the ROC, any income generated therefrom shall fall into the category of business profit under Article 8 (9) of the Income Tax Act, and be subject to the ROC income tax. Furthermore, said logistical center or bonded warehouse shall be deemed the business agent ("BA") of such foreign entity. The BA shall, on behalf of the foreign entity, (i) maintain accounting books, (ii) issue, acquire and keep relevant documentation, (iii) calculate the foreign entity's income from the ROC ("ROC-sourced Income"), and (iv) file an income tax return and pay income tax in due course.
If such ROC-sourced Income cannot be verified based on the actual costs and expenses incurred, the tax authority may assess the foreign entity's ROC-sourced Income based on the data that it has collected or at the standard profit rate of the industry to which the foreign entity belongs as well as the percentage of functions performed in the ROC ("Contribution Percentage"). If the Contribution Percentage is difficult to ascertain, the tax authority may determine the Contribution Percentage as follows:
- If the goods are imported into the ROC for storage and delivery only, the Contribution Percentage is 12%.
- In addition to storage and delivery, if the goods are imported into the ROC for manufacturing and adding value, the Contribution Percentage is the sum of 12% plus the rate arrived at by dividing the total manufacturing costs and expenses incurred within the ROC by the total manufacturing costs and expenses incurred within and outside of the ROC.