Reduced Withholding Tax

Income Tax Act 25 (“ITA 25”)

According to the Act, a foreign company engaged in international transport involving Taiwan, in construction contracting, providing technical services, or leasing machinery / equipment and the costs / expenses are difficult to calculate, regardless whether or not it has a branch office or business agent in Taiwan, may apply for approval to consider 10% or 15% of its total business revenue as its income derived within Taiwan. And the resulting gross withholding rate will become 2% or 3% (=assessed profit rate at 10% or 15% * regular withholding rate at 20%).

Reduced Rates

ActivitiesDeemed Profit Rate (a)Tax Rate (b)Withholding Rate (c=a*b)
International transport involving Taiwan
10%
20%
2%
Construction contracting
15%
20%
3%
Providing technical services
15%
20%
3%
Leasing machinery / equipment
15%
20%
3%

Requirements

To apply for the reduced 3% withholding rate,

Condition
Requirements
OrganizationBusiness entity or NPO. Practitioners of professions, such as law firms, are excluded.
NationalityApplicants from mainland China are excluded, and applicants from tax havens will be assessed carefully.
Permanent EstablishmentNot relevant and regardless whether or not it has a branch office or business agent in Taiwan.
Business in TaiwanOnly international transport, construction contracting, providing technical services, or leasing machinery / equipment are included.
RoyaltiesIf the payments for technical consulting services include royalties, the payments for royalties should be separated and excluded from the total technical consulting fee.
IndustryNo limitation.
Technical DepthNo limitation.
EffectsNo limitation.
Related-party TransactionIf the payer and payee are related in other ways, additional to the transaction itself, the pricing and necessity will be assessed carefully.
Cost CalculationHaving 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 10% or 15%, if the cost can be measured precisely, the taxpayer should be taxed according to the real profits based on real costs.
DeadlineThe application should be submitted within 5 years after the payment takes place.

Procedures

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

Assessment

Usually only the contract will be assessed, and the evidence of service provision is not required.

Related Articles