Direct taxation of businessesi Tax on profitsDetermination of taxable profit
Taxable profits are based on accounting profits and are adjusted for by tax law. Profits are taxed on an accrual basis. In principle, taxpayers are taxed on worldwide-source profit. For any profit-seeking enterprise operating within Taiwan, profit-seeking enterprise income tax shall be levied. For any profit-seeking enterprise with its head office within Taiwan, profit-seeking enterprise income tax shall be levied on its total profit-seeking enterprise income derived from both within and outside of Taiwan. On the other hand, a branch of a foreign company is taxed only on its Taiwan-sourced income.
Depreciation is tax-deductible based on a table of service lives for various categories of assets. Service lives actually adopted cannot be shorter than those in the table, and an estimated residual value is required to calculate the annual depreciation. Depreciation methods allowed include straight line, fixed percentage on a declining base, sum of the years' digits, units of output and service hours. Any other method adopted requires advance approval from the tax authority. Amortisation of intangibles is provided on the following useful lives:
- operating rights: 10 years;
- copyright: 15 years; and
- trademarks, patents and other franchise rights: the remaining statutory lives.
Generally, all profits are taxed on an actual realised basis with only two exceptions:
- Land: gains on sales of land are free from regular income tax but subject to a land increment tax based on a special formula and government-regulated prices. However, starting 1 January 2016, capital gains of foreign nationals derived from the disposition of real estate acquired after 31 December 2015 will be taxed at a rate of 45 per cent for real estate held for less than one year. This rate will be reduced to 35 per cent if the real estate is held for more than one year.
- Securities: gains from the trading of securities are generally free from regular income tax but subject to an alternative minimum tax.
Tax losses are allowed to be carried forward for 10 years. No loss carry-back is allowed under Taiwan law.Rates
The current corporate income tax rate is 20 per cent.Administration
There is only one level of corporate income tax in Taiwan, known as the profit-seeking enterprises' income tax. An enterprise is required to pay an interim income tax based on 50 per cent of the previous year's income tax payable in the ninth month of the year. Alternatively, under certain circumstances, an enterprise can choose to pay the interim tax based on the actual operating results of the current year's first six months.
An enterprise is then required to file an annual income tax return in the fifth month of the following year. The return should be filed along with the simultaneous payment of any taxes due.
Enterprises are encouraged to have their income tax returns certified by certified public accountants (CPAs) prior to filing. Income tax returns filed with a CPA's certification are in theory less likely to be chosen for a tax audit by the tax authority. This certification involves a limited audit of the balance sheet accounts and a more extensive audit of the profit and loss accounts.
The tax authority does not have a fixed audit cycle and will only choose targets for audit randomly. The statute of limitations is five years if the tax return is filed on time and no tax fraud is involved.
It is possible to obtain advance rulings from the tax authority for clarification of tax treatments.
There are clear administrative remedy procedures to resolve disputes with the tax authority. In Taiwan, tax litigation cases are handled by two levels of administrative courts, the high administrative courts and the supreme administrative courts.Tax grouping
Taiwan does not have consolidated tax grouping rules except for financial holding companies, and for companies that have been through a merger, acquisition or spin-off executed in accordance with the Business Merger and Acquisitions Law. All group companies with holdings over 90 per cent shall be included if tax grouping is selected. The company's taxable income and loss are allowed to be offset with each other. Other than that, there is no other meaningful tax benefit under a tax grouping. Basically, this is simply a combination of group companies' taxable income and loss, and thus is not a true consolidated tax grouping.ii Other relevant taxes
Other than corporate income tax, business tax is the other major tax of interest to multinational companies doing business in Taiwan. Sales of goods and services in Taiwan are subject to business tax, which comes in two forms: value added tax (VAT) and gross business revenue tax (GBRT), currently at a rate of 5 per cent of gross revenues. GBRT mainly applies to financial institutions and is borne by sellers. VAT applies to other general industries, and is to be collected from buyers of goods and services by the sellers. Sales of certain products and services are exempt from VAT, whereas exports of goods and services are generally entitled to a zero rate of VAT.
Net profit not appropriated before the end of the following year will be subject to a surplus tax on retained earnings at a rate of 5 per cent. Unlike in the past, any surplus tax paid can no longer be creditable against the dividends withholding tax when the profit is subsequently distributed.