Tawain Tax & Business Guide - Deloitte

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Basic facts
Population 22.7m Inflation 1.4% (2007)*
Main languages Mandarin, Taiwanese and Hakka GDP per head US$16,584*
Currency New Taiwan dollar (NT$) GDP growth 4.3% (2007)*
Economic communities Asia Pacific Economic Co-operation, WTO
GDP sources 1.5% agriculture, 26.8% industry, 71.7% services
*Economist Intelligence Unit estimates.
Political environment

Taiwan was formed at the end of the Chinese civil war in 1949, but is not recognised worldwide as an entity with sovereignty separate from mainland China. The political system has evolved into a representative democracy. A directly elected president presides over the Executive Yuan (the cabinet). The largest party in the Legislative Yuan (the parliament) is the Democratic Progressive Party (DPP), which heads an informal governing coalition.

The next elections are due in 2008: in January (Legislative Yuan) and March (presidential).
Foreign trade and investment
Exports US$236.0bn (2007)* Imports US$214.7bn (2007)*
*Economist Intelligence Unit estimates.

Major exports: Machinery and electrical equipment, metal manufactures, plastic and rubber articles, and textiles.

Leading export markets: China, Hong Kong and the US.

Incentives are available, but foreign investments that are deemed a threat to public safety, security or morals, or are polluting, are prohibited. Tax incentives include a reduced withholding tax rate of 20% on dividends paid to non-residents and a tax credit of up to 30% of amounts invested in research and development (R&D) and the training of personnel against business income tax payable
Business and financing
Business forms Company limited by shares

Because of its greater flexibility, most foreign investors prefer to form a company limited by shares. For joint ventures and other foreign-invested firms, the limited company is rarely used except when regulation dictates. Foreign firms may also operate through branches.

Taipei, the capital, is the main financial centre.
Labour environment
Unemployment rate 3.9% (2007)* Minimum wage NT$15,840 (monthly)
*Economist Intelligence Unit estimate.

Taiwan does not recognise Western-style labour rights and employers set wages unilaterally.

The minimum monthly wage for adults is NT$15,840.

Under a compulsory national health insurance scheme, the contribution is set at 4.55% of the employeeÌs base salary, with the maximum base salary capped at NT$131,700 per month. Six key industries (textiles, basic metals, metal production manufacturing, machine equipment, electrical and electronic goods, and construction) are allowed to import foreigners for 15 different job classifications.
Taxation
Corporate tax
Main rate 25%

Resident companies are taxed on their worldwide income; non-resident companies are taxed only on Taiwan-source income. A profit-seeking enterprise is resident if its head office is in Taiwan. Enterprises are taxed at progressive rates rising to 25% on income over NT$100,000. A foreign branch office with a fixed place of business in Taiwan is subject to tax only on Taiwan-source income but at the same rate as domestic companies. If there is no fixed place of business, withholding tax is levied on income sourced in Taiwan, usually at a rate of 20%.

Dividends paid between domestic enterprises are exempt. A 10% surcharge is imposed on retained earnings, and this can be claimed as a credit against the final tax liability of resident and non-resident shareholders.

An alternative minimum tax (AMT), introduced in 2006, applies at a rate of 10% to both business enterprises and individuals. AMT liability arises where the tax liability computed under the general tax system is lower than that computed under the AMT regime. If the AMT applies, the taxpayer must add back certain Ïpreferred itemsÓ to taxable income calculated under the general rules. Enterprises with income of less than NT$2m are outside the scope of the AMT. From January 1st 2007, penalties are imposed on underpayment of AMT.
Individual tax
Progressive rates to 40%

Resident and non-resident individuals are taxed only on Taiwan-source income. Tax is charged at progressive rates to 40%. Dividends received are taxable at the shareholder level, but an imputation credit is available. Expatriates who are in Taiwan for less than 90 days are not taxable on their salary paid by a foreign employer and not charged to a Taiwan entity. Certain expatriate directors, managers and technical personnel are not taxable if they are working in Taiwan for less than 183 days.

The AMT discussed above also applies to individuals.
Capital gains
Gains are taxed as income

Capital gains of companies and individuals are generally taxed as income. Sales of land are subject to a land value increment tax on the increase in value. Individuals are subject to a lower 10% rate of tax on the first-time sale of their main residence.
Indirect tax
VAT standard rate 5%

The general business tax (VAT) applies to most transactions. Zero-rated items include exports, services performed overseas, services performed in Taiwan for use overseas and international transport. Exemptions include land, water, basic food, certain agricultural inputs, some insurance and financial products, health and education. A separate business turnover tax applies to banking, insurance and investment services at a 2% rate; higher rates apply to entertainment.

Registration is compulsory for businesses.
Tax administration and compliance
Tax year Corporations: accounting year; Individuals: calendar year

Profit-seeking enterprises may choose their accounting period as the tax year. They must file a provisional tax return by the ninth month in the tax year, and a provisional tax payment must also be made by the same date. The provisional payment amounts to either one-half the tax liability of the previous year or the actual liability for the first half of the current accounting period. All taxpayers, enterprises and individuals must submit a final tax return by May 31st following the tax year. No extension can be granted. A final payment of tax must be made by the due date for the return. Where, after examining the return, the tax authorities decide that further tax is due, this is collected by assessment.

Employment income of individuals is subject to a withholding tax.
Additional tax information
Withholding taxes Dividends 20% (approved by the Investment Commission), Interest and Royalties 20%. The rates may be reduced under an applicable tax treaty.
Tax treaties Taiwan has concluded 16 tax treaties.
Dividends Dividends are taxable, with an imputation credit. Dividends paid between domestic enterprises are exempt.
Revenue protection Transfer-pricing rules apply. There is no anti-haven (CFC) or thin capitalisation legislation.
Groups There is no provision for group taxation in general. A few enterprises that meet certain requirements may file consolidated tax returns.
Incentives Investment tax credits for production; high-tech; R&D; offshore banking; cultural creative industries.
Other taxes Building tax, Commodity tax, Deed tax, Estate and gift tax, Futures transaction tax, Import duties, Land value tax, Land value increment tax, Securities transaction tax, Stamp tax.