Tax residence and fiscal domicile in Taiwan

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Tax residence and fiscal domicile

Corporate residence is determined based on where the corporate entity is incorporated regardless of the place of effective management (PEM) under current law.

However, Taiwan introduced a new provision regarding the PEM in July 2016 through the addition of Article 43-4 to the Income Tax Act. Prior to the amendment, only companies incorporated under Taiwan laws will be subject to corporate income tax in Taiwan, and foreign companies will not be taxed in Taiwan unless they maintain a fixed place of business or a business agent in Taiwan. With the introduction of the PEM rules, foreign companies will be taxed in Taiwan if they are construed as having their PEM within Taiwan. According to Article 43-4 of the Income Tax Act, foreign companies will be deemed Taiwan tax residents if all of the following conditions are met:

2.1 Decision makers (individual and corporate) for significant operation management, financial management, and human resource management are residents in Taiwan or incorporated in Taiwan; or such decisions are made within the territory of Taiwan;

2.2 Creation and storage or financial statements, accounting records and shareholders'/directors' meeting minutes are within the territory of Taiwan; and

2.3 Main business activities are executed within Taiwan.

Nevertheless, it should be noted that the effective date of this new provision is still pending.

Foreign companies can do business in Taiwan through a branch, and will only be taxed on the profit of that branch in Taiwan. The tax will be limited to the branch's Taiwan-sourced income, and head office expenses can be allocated to Taiwan through a special mechanism.