Doing Business in Taiwan - UHY Saxena Business in Taiwandoc6122012104143.pdfHighlights to attract...

Doing Business in Taiwan

2011

Contents

1. Introduction ......................................................................................... 1

2. Business environment ........................................................................ 2

3. Foreign investment ............................................................................. 4

4. Setting up a business .......................................................................... 8

5. Labour .................................................................................................. 9

6. Taxation .............................................................................................. 13

7. Accounting & reporting ................................................................... 23

8. UHY firms in Taiwan ....................................................................... 26

9. UHY offices worldwide ................................................................... 26

© Copyright 2011 UHY International Ltd -1-

1. Introduction

UHY is an international organisation providing accountancy, business

management and consultancy services through financial business centres

in over 80 countries throughout the world. Business partners work

together through the network to conduct trans‐national operations for

clients as well as offering specialist knowledge and experience within their

own national borders. Global specialists in various industry and market

sectors are also available for consultation.

This detailed report providing key issues and information for investors

considering business operations in Taiwan has been provided by the office

of UHY representatives:

UHY L&C Company, CPAs

Suite 2, 2 nd Floor

No. 20, Beiping East Road

Taipei 100

Taiwan

Phone: +886 2 2391 5555

Email: [email protected]

Website: www.uhy-taiwan.com.tw

You are welcome to contact Lawrence Lin for any inquiries you may have.

Information in the following pages has been updated so that they are

effective at the date shown, but inevitably they are both general and

subject to change and should be used for guidance only. For specific

matters, investors are strongly advised to obtain further information and

take professional advice before making any decisions. This publication is

current at July 2011.

We look forward to helping you do business in Taiwan.

UHY L&C Company, Certified Public Accountants is a member of UHY, an international

association of independent accounting and consultancy firms, whose organising body is

Urbach Hacker Young International Limited, a UK company. Each member of UHY is a

separate and independent firm. Services described herein are provided by UHY L&C

Company, Certified Public Accountants and not by Urbach Hacker Young International

Limited or any other member of UHY. Neither Urbach Hacker Young International Limited

nor any member of UHY has any liability for services provided by other members.

mailto:[email protected]

http://www.uhy-taiwan.com.tw/


2. Business environment

Taiwan located in the East China Sea some 100 miles from the Chinese

mainland is the 17th largest economy in the world. While Taiwan is also

known as Formosa, its formal name is Republic of China. The current

President, Ma Ying-Jeou, has been in power since 2008.

Highlights to attract investors doing business in Taiwan include:

Superior geographic location

World’s 16th largest trading nation

World’s No. 1 key industries supplier

Silicon island innovations

World's 4th in patent applications

High-tech innovation

Research & development epicentre

Stimulating economic growth

Strategic growth roadmap

Global logistics development plan

World's 4th in growth competitiveness.

In the last 50 years Taiwan has transformed itself from an agrarian

economy to one of the world’s leading producers of mass-produced goods.

Agriculture accounts for only 4% of GDP. Since the 1990s Taiwan has

undergone further transformation into the world’s largest producer of IC

and LCD.

Taiwan is a member of the WTO and APEC.

Taiwan’s economy is highly dependent on international trade and export.

General

Population ± 22.7 million

Area 36,188 sq km

Civilian working population around 7 million

Main trading nations (areas) % of 2010 total trade (import and export)

China 22

Japan 13

USA 11

Hong Kong 7

Korea 5

Singapore 4

Europe 9


Currency

Local currency is New Taiwan Dollars (NT$). Exchange rate between US$

and NT$ ranges approximately from US$1 : NT$28 to US$ 1: NT$30


3. Foreign investment

Taiwan welcomes foreign business investors, especially those with a high-

tech focus.

Taiwan is strategically located at the crossroads of three leading Asian

economic regions:

North East Asia

Greater China

The ASEAN nations.

In terms of shipping, the average time from Taiwan to five major regional

harbours (Singapore, Hong Kong, Tokyo, Shanghai, and Manila) is 53

hours. The average flight time from Taiwan to seven major cities in the

western Pacific is less than three hours.

Certain selected benefits and tax incentives (exemptions and credits)

prescribed by related codes and laws are as following.

Income tax exemption for enterprises outside Taiwan territory

Following Taiwan source income are income tax exempted for enterprises

outside Taiwan territory and are not subject to withholding:

Subject to advanced approval by related governing authorities, royalty

paid to a foreign enterprise for the use of its patent rights, trademarks,

and/or various kinds of special licensed rights in order to introduce

new production technology or products, improve product quality, or

reduce production cost.

Subject to advanced approval by related governing authorities,

remuneration paid to a foreign enterprise for its technical services

rendered in construction of a factory for an important productive

enterprise.

Interest derived from loans offered to Taiwan government or legal

entities within Taiwan territory by foreign government or

international financial institutions for economic development.

Interest derived from the financing facilities offered to their branch

offices and other financial institutions within the territory of the

Taiwan by foreign financial institutions.

Interest derived from loans extended to legal entities within Taiwan

territory by foreign financial institutions for financing important

economic construction projects under the approval of the Ministry of

Finance.


Interest derived from favourable-interest export loans offered to or

guaranteed for the legal entities within Taiwan territory by foreign

governmental institutions and foreign financial institutions which are

specialized in offering export loans or guarantees.

Import Tariff and VAT exemptions for science-based Industries Park

Import tariffs and VAT is exempted for imported machinery and

equipments by enterprises locate inside Science-based Industries Park

upon approval from MOEA if:

The imported machinery and equipments are for an enterprise’s own

use, and

The imported machinery and equipments have not been

manufactured domestically.

Import tariffs are levied upon said imported machinery and equipments

are sold or whose usage being changed within five years since imports.

Import tariffs and VAT are still exempted if machinery or equipments are

sold to companies that operate within Science-based Industrial Parks,

Duty-Free Export Processing Zones, or other companies with science-

based industries.

Raw materials that are imported by bonded factories are exempt from

import tariffs and VAT. Import tariffs and VAT are levied upon such raw

materials shipped outside the bonded area.

Income tax credit for R&D expenditure

For an enterprise’s spending in R&D, 15% of the spending is entitled to the

income tax credit. The credit can be used to deduct an enterprise’s income

tax payable, subject to 30% of the income tax payable of the year of R&D

expenditure incurrence, while the unused credit becomes ineffective and is

not allowed for deductions in the following year.

R&D credits are required to go through advance approval from authority,

and have to be evidenced by required supporting documents together

with return filing materials; and are subject to Tax Authority’s assessment

after filings.

A branch office is not eligible for R&D credits.

Mergers and Acquisitions

According to Business Mergers and Acquisitions Act:

In a merger or acquisition while the newly issued voting shares issued

by acquiring entity consists of no less than 65% of the total


consideration for acquiring the shares or assets of the acquired entity,

following exemptions apply:

a. Stamp duty and deed tax incurred by contracting and real estate

transfers are exempt.

b. Security transaction tax derived from the shares exchange is

exempt.

c. Inventory transfer is not subject to VAT.

d. Land value increment tax incurred by land deeded to the

acquiring entity is assumed by the acquiring entity and payment

is procrastinated to next transfer.

The amount for unused loss carry forwards of extinguished entities

are inherited by the surviving entity or the newly-established entity of

the merger, subject to following limitations:

a. The surviving/newly-established entity and extinguished entities

are all qualified for net loss carry forward before and after the

merger.

b. The amount for an extinguished entity’s unused loss carry

forward be inherited by the surviving/newly-established entity is

subject to a ratio of issued shares held by extinguished entity’s

shareholders to the total issued shares of the surviving/newly-

established entity.

The amount for exemptions or unused income tax credits of

extinguished entities inherited by the surviving/newly-established

entity are subject to following limitations:

a. The surviving/newly-established entity engages in those

extinguished entities’ businesses on which exemptions are

originally granted, and the exemptions are limited to the taxable

income generated from those businesses.

b. The extinguished entity’s unused income tax credits are totally

inherited by the surviving/newly-established entity, but those

credits can only deduct against income tax payable generated by

segments descend from the extinguished entities.

Success stories

As a result of these advantages, many multinational enterprises have set

up their operation centres in Taiwan. UPS, FedEx and DHL have set up

Asian transportation hubs at the Taoyuan International Airport. NYK,

which operates Japan's largest merchant shipping fleet, has signed a

contract with the Kaohsiung Harbour Bureau to lease a wharf and

container centre. NYK plans to use Kaohsiung as its main East Asian hub

and is considering moving its container trans-shipment base from

Singapore to Kaohsiung.


Among multinational enterprises, the American-based company, Applied

Materials, has set up its first logistic centre for the distribution of

semiconductor equipment, parts and components for the Asia-Pacific

region in Taoyuan. Aware of the strength of Taiwan's IT industry, Intel

has also decided to build its first Asia-Pacific warehousing centre on the

island.

Research and development centres based in Taiwan have been set up by

many multinational enterprises.


4. Setting up a business

The following types of business entities are generally recognised in

Taiwan by foreign investors:

Subsidiaries – the company name needs to be approved and registered

by the MOEA (Ministry of Economic Affair, the Economy Ministry)

before the subsidiary can be formally registered.

Branches – the foreign company needs to apply with MOEA for

official recognition and establishment of a branch in Taiwan. Then the

registration must be completed with local and municipal authorities.

Representative office – A representative office works for a foreign

company needs to be registered with the MOEA.

A non-Taiwan citizen can be appointed as the Responsible Person of a

Taiwan registered company, but such Responsible Person should have

residence registered in Taiwan.

It can take up to three weeks to register a company in Taiwan. There is no

minimum initial capital requirement for all kinds of business entities,

branch office and representative office.


5. Labour

General descriptions

The Taiwanese have a strong work ethic. A typical working week in

Taiwan is 40 hours and foreign workers are expected to put in similar

hours. Many Taiwanese work a five-day week. Annual leave varies from

7-30 days and entitlement depends on seniority. Unemployment stands at

6%.

Foreign workers can take up employment in Taiwan on a work visa

(ARC—Alien Residence Certificate). The working conditions of foreign

workers are not different from those of Taiwan nationals.

Foreign labours (approximately 630,000) from neighbouring south-east

Asian countries, including China, Philippines, Thailand and Indonesia, are

legally employed; and contribute a lot in industries and fields like

manufacturing, construction, nursing/caring and house-keeping.

Cultural notes

Most people working for international businesses in Taipei speak

English.

Taiwan is a religion free nation without restriction on religions.

Taoism and Buddhism are the most prevalent religions.

Taiwanese government always emphasizes the importance of

education. Taiwanese are in-average well educated and highly

disciplined.

Mandarin and Taiwanese are the most prevalent spoken languages in

Taiwan.

Chinese Lunar new-year holidays is the main holiday session in

Taiwan, which is approximately seven days (Saturday and Sunday

included) and locates in the second half of January to the first half of

February in general.

Standard Labour Law and Labour Pension Act

Standard Labour Law was promulgated in 1984. Under the Law,

employers are enforced to establish a Defined Benefit Pension Plan

covering all employees. According to the Law:

A retired employee is entitled to a one lump-sum pension payment

calculated based on the average monthly salary of the last six months

before retirement, multiplied by gained points calculated based on the

number of service years. An employee gains two points for one year


of service for the first to 15th year and one point for the years after, and

subject to an upper ceiling of a total of 45 points.

Employers are required to make a monthly contribution based on a

certain percentage of paid salaries and wages to an independent

pension fund deposited with the Bank of Taiwan or an approved

financial institute.

An employee can apply for retirement upon:

a. Work for same employer continuously for more than 15 years and

reaches an age of 55.

b. Work for same employer continuously for more than 25 years.

c. Work for same employer continuously for more than 10 years and

reaches an age of 60.

The Labour Pension Act was promulgated on July 1, 2005. The Act

enforces a Defined Contribution Pension Plan. Under the Act:

Employers make a monthly contribution based on at least 6% of paid

financial reward to accounts of individual employees deposited with

Bureau of Labour Insurance. Employees can choose to make monthly

mutual contributions for up to 6% of financial reward, and are free to

change their decision at anytime.

Employees can apply for a lump sum pension or for monthly pension

payments dependent on certain number of years of service or reaching

certain ages.

The account belongs to the employee and employee’s entitlement to

the pension is not harmed by employment interruption.

The Defined Contribution Pension Plan under the Labour Pension Act

is not applied to non-Taiwan Citizens.

New entities established after 1 July 2005, and employees employed after 1

July 2005, are enforced to adopt new plan (Defined Contribution Pension

Plan prescribed by Labour Pension Act). Those employees employed

before the promulgation of Labour Pension Act have to make decision for

shifting to new plan or adhering to old plan (a Defined Benefit Pension

Plan under the Standard Labour Law), and their seniority accumulated

before 1 July 2005 is maintained if new plan is chosen.

Labour Insurance

The Labour insurance system has been in existence in Taiwan since the

1950s. The system is handled by Bureau of Labour Insurance and is

enforcing for almost all employees and employers. Foreigner-employees

are also applicable. The Insured is limited to employee himself/herself, and

additional coverage over co-insured or dependents is not allowed.

Premium is determined mainly by the basic salaries/wages, charge rates

and days of employments. Insurance premium is paid in monthly basis


and is contributed by insured, employer and government; respectively, on

percentages depending on the type of insured items; and employers are

generally responsible for 70% of the premium. The effectiveness of an

employee’s insured number-of-years is intact upon employment

discontinuity.

The following benefits are available for the insured employee:

Medical Therapy benefits.

Injury benefits

Disability benefit

Survivors benefit

Maternity benefit

Non-voluntary Unemployment benefit

Old Age benefit for insured employees:

a. For those who have been insured accumulatively for 15 years.

b. For those who have been continuously insured and employed by

the same employer for 25 years.

c. For those who have worked in certain dangerous and laborious

works for 5 years and reach 55 years of age.

National Health Insurance

The National Health insurance project has been promulgated in Taiwan

since 1994. The project is handled by Bureau of National Health Insurance

and is enforcing for all Taiwan citizens reside in Taiwan for over four

months and foreigners with an Alien Resident Certificate. Dependent

relatives of the insured can participate in the insurance. Insurance

premium is determined mainly by the total financial reward, charge rates

and headcounts of the insured. Premium is paid on a monthly basis and is

contributed by the insured, employer and government; respectively, on

percentages depending on the type of insured items; and employers are

generally responsible for 60% of the premium. The project is enforcing

regardless of the insured is employed or not. The insured is eligible for

free or low medical therapy expense for the prescribed treatment items.

Employee Fringe Benefit Committee

According to Employee Fringe Benefit Statute, employees of a profit

seeking enterprise are obliged to organize an Employee Fringe Benefit

Committee. Employers and employee are required to make contribute to

fund of the Committee based on:

Up to 5% of registered share capital upon incorporation

0.05-0.15% of monthly gross operating revenue

0.5% of employee monthly payroll

20-40% of the revenue from sales of scrape.


The fund is reserved for fringe benefit expenditures. Employee Fringe

Benefit Committee is defined as an Organization for educational, cultural,

public welfare or charitable purposes, and is subject to income tax filing.

Committee is income tax exempt if its total expenditure, spent exclusively

for fringe benefit purposes, exceeds 70% of its total contribution income.


6. Taxation

Profit-seeking enterprise income tax

Profit-seeking enterprise Income Tax Rates in 2010 and after

Range Taxable Income Rate Progressive Difference

1 Below NT$ 120,000 - -

2 Over NT$ 120,000 17% -

Note: The income tax rates listed in above are independent from the 10%

sur-tax. 10% sur-tax is described below.

10% sur-tax for undistributed earning

A 10% income tax is imposed on undistributed net earnings generated in

every year since 1998. Paid income taxes (including both 17%-rated and

10%-rated ones) are accumulated in an ICA (Imputation Credit Account).

The “Credit” is to be imputed to shareholders upon earning distribution

and can be used to deduct the respective shareholders’ individual

consolidated income tax payable.

10% income tax and ICA are enforced for all profit-seeking enterprises

except for branches, partnership, proprietorship, non-for-profit

organizations and certain other entities restricted by related statues from

distributing (for example, government owned entities). Only paid 10%

income tax can be imputed to non- Taiwan resident shareholders or to

entity shareholders who have no fixed operating premise located in

Taiwan by means of offsetting the withholding upon remitting earning

distribution.

Transfer pricing

A profit-seeking enterprise which has an affiliated relationship with, or is

directly or indirectly owned or controlled by another enterprise within or

outside ROC territory, whereof, if it is found that the transactions between

the parties not conforming with the regular business practices in respect of

income, cost, expense and income/loss allocation for the purpose of

avoiding its income tax obligations, taxation body can apply for Ministry

of Finance (MOF) approval for effecting adjustments to its taxable income.


The statute governing transfer pricing stipulates:

Transactions with related parties are defined by the statute as

“Controlled Transactions”, which are subject to evaluation and

income tax adjustments.

Usages and transfers of tangible and intangible assets, service

provisions and financings are the regulated transactions.

General procedures and principles for evaluation includes:

a. Selecting “Comparing Transactions”, which are uncontrolled

transactions with non-related parties and whose general terms are

equivalents or similar to those of the controlled transactions.

Results of comparing transactions (for example, the gross margin

rates) are the factors in applying many “Pricing Methods”.

b. “Pricing Methods” pertained to different types of transactions are

prescribed by the statute for deciding “Arm Length Transaction

Result”, based on which to evaluate whether or not controlled

transactions conforming regular business practices.

c. To determine best Pricing Methods for different types of

transactions based on the “Degree of Comparability” of

comparing transactions.

d. Applying best Pricing Methods on controlled transactions by an

individual transaction basis.

e. Selecting comparing transactions from current year. Selecting

from preceding years’ average is allowed under certain

conditions.

f. Figuring out “Ranges” for “Arm Length Transaction Result” by

applying one best Pricing Method on more than two comparing

transactions.

g. Adjustment is required when the result of controlled transactions

locate outside the Range and when adjustment increase income

tax payable.

Profit-seeking enterprises engage in controlled transactions

amounting over NT$ 1,000 million can apply tax authority for an

“Advance Pricing Agreement”, which settles “Pricing Methods” for

figuring out “Arm Length Transaction Result” up to for each

application 5 years.

Information of related parties and related-party transactions are

required to be disclosed in income tax return filing.

Followings are required to be prepared by enterprises engage in

“Controlled Transactions” in yearly basis and be submitted upon

request from tax authority:

a. General descriptions for the filing enterprise, including history,

engaged ordinary course of business and an analysis of factors in

regards of economy, legality and all the others affecting transfer

pricing.


b. Chart of holding structure, related parties and affiliates for both

domestic and in abroad, listings of directors, supervisors and

managers and the changes from preceding year.

c. Summary of controlled transactions, including types of

transaction, dates, flows, quantities, prices, terms, objects and the

usages for the objects been transacted.

d. A “Transfer Pricing Report” comprises at least the following:

1. An analysis for economy and industry.

2. An analysis for the risks and functions of parties participate

in the controlled transactions.

3. The result of applying procedures and principles referred to

in above.

4. The unrelated parties selected for comparing purposes and

results of like-kind transactions with those unrelated parties

undergone in an arm-length manner.

5. An analysis for the “Degree of Comparability” between the

controlled transactions and the comparing transactions.

6. The adopted best Pricing Methods and the reasons for

adopting them. The reasons for not adopting other

prescribed Pricing Methods.

7. The pricing policies and other useful information of parties

participate in the controlled transactions.

8. The result of evaluation by applying best Pricing Methods.

e. Other documents which is competent in supporting filing

enterprises’ conformation with regular business practices.

Deemed Profit

A Profit-seeking enterprise whose head office locates outside ROC

territory and runs business in Taiwan can apply with MOF (Ministry of

Finance) for “Deemed Profit”, subject to two conditions:

The enterprise runs business of international transportation,

construction contracting, machinery/equipment leasing and technical

assistance in Taiwan;

The allocation of cost and expenses of the business in Taiwan are

difficult to calculate.

“Deemed Profit” is calculated as follows regardless whether a branch

office or an agent has been established in Taiwan or not:

The enterprise’s taxable income equates 10% of its gross operating

revenue for international transportation business.

The enterprise’s taxable income equates 15% of its gross operating

revenue for construction contracting, machinery/equipment leasing

and technical assistance business.


Accordingly, loss carry forward is not applicable if “deemed profit”

applied.

Enterprises’ Taiwan source income

The income earned both within and outside Taiwan territory by a profit

seeking enterprise, whose head office locates in Taiwan, is subject to

Taiwan profit-seeking enterprise income tax. The withholdings or income

tax imposed by income originated nations can be used to deduct Taiwan

income tax payable, if following two conditions been met:

The paid income tax is required to be supported by evidence issued by

income originated nation’s authorities and be attested by Taiwan

embassy, consulate or Taiwan government authorized representative.

The deduction is subject to an upper limit amounted to the increased

Taiwan income tax payable caused by adding income earned in

abroad.

The income earned within Taiwan territory by a branch office or

representative office is subject to Taiwan profit-seeking enterprise income

tax; income of its head office locates outside Taiwan is not Taiwan source

income.

Withholding tax

For non-Taiwan residents who stay in Taiwan for less than 183 days

accumulatively in one year, or profit-seeking enterprises that have no fixed

operating premises located in Taiwan:

Withholding rate is 20% for income such as commissions, rentals,

royalties and service fees earned in Taiwan.

Withholding rate is 15% for the interest of short-term commercial

paper, corporate bond, government bond and securities issued based

on Financial Asset Securitization Act and Real Estate Securitization

Act. Withholding rate is 20% for other kinds of interest.

Withholding rate is 20% for non-Taiwan residents who have dividend

income from Taiwan registered profit-seeking enterprises,

partnerships and Sole-proprietorships.

Withholding rate is 20% for dividend distributed from Taiwan

registered profit-seeking enterprises to entities that have no fixed

operation premises located in Taiwan.

Withholding rate is 18% for non-Taiwan residents who have salary

income from Taiwan.

Lower withholding rates for dividend, interest and royalty income

range from 5% to 15% for those nations with which Taiwan has signed

Tax Treaty.


Loss Carry-forward

Net loss can be carried forward for 10 consecutive years following the

years of losses; whereas carry-backward is not allowed. Profit-seeking

enterprises are eligible for net loss carry forward in compliance with the

followings:

The taxpayers keep complete sets of accounting records and vouchers

as required by the related regulations;

The taxpayers are eligible for using the “Blue Return Filing Form”,

which is required to be applied for ratification from tax authority; and

use said Form in the years of losses and offsets; or

The income tax filings for the years of losses and offsets are all

certified by Certified Public Accountants.

Non-deductibles and exemptions for profit-seeking enterprise income

tax filing purpose

Special rules regarding a branch of overseas head office:

a. A branch of overseas head office can recognize either the interest

on loans due to overseas head office or the Management Fee

Allocation, but is not allowed to recognize the both;

b. Recognition of interest on loans due to overseas head office

should be approved by Authority in advance;

c. Recognition of Management Fee Allocation from overseas head

office is required to be supported by report detailing the

calculation, certified by a CPA practices in place where head

office locates, and attested by Taiwan embassy, consulate or

Taiwan government authorized representative.

Interest on loan due to non-financial institutes for the part calculated

on interest rate in excess of the maximum rate prescribed by Authority

is not deductible.

Allowances & returns, operating cost & expenses and non-operating

losses are not deductible if not supported by required vouchers,

documents or other evidential matters.

Certain expenses and losses are subject to recognition limitation

prescribed by related regulations; such as entertainment, depreciation

of luxury sedan, fringe benefit expenditure, donation, meal allowance,

bad debt provisions, etc.

Valuation provisions and treatments required by financial reporting

standards but are unrealized within the income tax perspective, such

as exchange differences, investment gain or loss of equity method,

asset impairment loss provision, value decline provision o financial

instruments, pension provision, etc, are deferred for income tax

purposes until realized.

Exemptions stipulated by Tax Laws or related regulations, such as

gain or loss incurred by sales of land, securities and futures, earning


distribution from domestic investee, etc., are exempted from income

tax.

Exemptions stipulated by Incentive Statutes or related regulations,

such as five-year exemption for taxable income generated by incentive

and encouraged business, are exempted from income tax.

Fines, penalties, other expenditures unrelated to the taxpayers’

ordinary course of business, are non-deductible.

Note: Tax adjustments are numerous and are stipulated in a variety of

sources including income tax law, related regulations, rulings, statutes,

implementation guidance’s, etc; and are not limited to the ones

enumerated in above. Regulations listed in above are only for general

reference purpose.

VAT (Value Added Tax)

Standard VAT is 5% for a majority of business.

VAT rate is 0% for exports, goods sold to bounded area and to Science-

based Industry Park and for international transportation.

VAT is exempt for certain transactions, such as sales of land; sales of raw

agricultural harvests, cattle raising and fishing; activities of public welfare,

culture, education and charity, etc.

VAT rate is 2% for enterprises engage in banking, insurance, investment

trust, securities, futures, commercial paper and pawnshops.

VAT rates are 15% and 25% for certain entertaining businesses.

Profit-seeking enterprises applicable for 0%-rate VAT can file for VAT-in

return. VAT exempt profit-seeking enterprises are obliged to calculate

“non-deductible ratio” and to replenish government of over-deducted

VAT-in.

Other enterprises applicable taxes

Stamp duty is levied on certain types of agreements, receipts,

vouchers and documentations with rates ranging from 0.1%-0.4%. A

fixed duty of NT$12 per contract is levied on usual non real estate

transactions.

Deed tax is levied on real estate transactions (land is excluded)

involving sale, creation of lien, exchange, bestowal, partition, or

acquisition of ownership by virtue of possession. Deed tax rates range

from 2% to 6% of the contract amount.

Commodity tax is levied on the manufacturers and importers of

certain type of goods including cement, rubber tire, beverage, flat


glass, fuel and gas, electronic appliance and vehicle & motorcycle.

Commodity taxes for cement and fuel & gas are levied based on the

quantity, and the others are levied based on their wholesale prices.

Taxes related to land as regulated by Land Tax Act:

a. Gain from sales of land is income tax exempt, but is subject to

“Land Value Increment Tax”. Said tax is progressively imposed

on value increment, defined as the difference between the decreed

land value at the time of sales and its original decreed land value

or the previous transfer value, based on rates as followings:

1. 20% for total value increment less than 100%.

2. 30% for total value increment over 100% and less than 200%.

3. 40% for total value increment over 200%.

For land that has been held for over certain period of time before

transfer, its land value increment tax on the portion exceeding the

first bracket listed in above shall be reduced by certain percentage

as followings:

1. Reduce 20% for holding more than 20 years.



b. Land value tax:

1. The land value tax rate on self-used residential land is in

general 0.2%.

2. The land value tax rate is 1% for land earmarked for industry,

mining, private park, zoo, sports stadium, temple, church, or

government-designated scenic spot or historical sites.

3. For the other land, the land value tax rates progressively

range from 1% to 5.5%.

Gain from sales of marketable securities and futures is income tax

exempt, but the sales are subject to transaction tax :

a. Transaction tax rate is 0.3% for exchanging shares or share

certificates embodying the right to shares issued by companies.

b. Transaction tax rate is 0.1% for trading corporate bonds or other

government approved securities, however, this tax is exempted

for seven years from January 1, 2010.

c. For stock index futures contracts, transaction tax is levied per

transaction at a rate of not less than 0.0000125% and not more

than 0.06%, based on the value of the futures contract.

d. For interest rate future contract, transaction tax is levied per

transaction at a rate of not less than 0.0000125% and not more

than 0.00025% based on the value of the contract.

e. For option contracts on stock index futures or equity related

option contracts, transaction tax is levied per transaction at a rate

of not less than 0.1% and not more than 0.6%, based on the

premium paid.


Note: Taxes, duties, tariffs are numerous and are stipulated in a variety of

sources, and are not limited to the ones enumerated in above. Taxes listed

in above are only for general reference purpose. Stamp duty, Deed taxes,

land related taxes and security transaction taxes are also applied to

individual.

Individual Income Taxes

Individual Consolidated Income Tax Rates in 2010

Range Taxable Income Bracket

Rates for

2010 and

after

1 NT$ 0 - NT$500,000 5%

2 NT$500,001 - NT$ 1,130,000 12%

3 NT$1,130,001 - NT$2,260,000 20%

4 NT$ 2,260,001 - NT$4,230,000 30%

5 Over NT$4,230,001 40%

Note: The bracket is subject to adjustment every year.

Non-Taiwan resident’s Taiwan source income

A non-Taiwan citizen stays in Taiwan for 183 days accumulatively within

one year is deemed as a Taiwan-resident, and is required to file individual

consolidated income tax return for Taiwan source income in compliance

with the same rule applied to Taiwan citizens.

The individual consolidated income tax for Taiwan source income earned

by a non-Taiwan resident, who stays in Taiwan for less than 183 days

accumulatively within one year, is collected by means of withholdings.

The reward paid by employers outside Taiwan territory to a non-Taiwan

resident, who stays in Taiwan for less than 90 days accumulatively within

one year, for whose services provided in Taiwan is not a Taiwan source

income, and is not subject to Taiwan individual consolidated income tax.

Other individual applicable taxes

Estate tax rate is a flat rate of 10% after deductions and an exemption

of NT$ 12,000,000 prescribed by Estate and Gift Tax Act.

Gift tax rate is a flat rate of 10% after deductions and an exemption of

NT$ 2,200,000 prescribed by Estate and Gift Tax Act.

Note: Taxes, duties, tariffs are numerous and are stipulated in a variety of

sources, and are not limited to the ones enumerated in above.


Treaty network

As of 1 January 2011, the ROC has concluded tax treaties with 30 countries

(including comprehensive income tax treaties and international

transportation income tax agreements). Twenty income tax treaties have

been concluded, including treaties with Australia, Gambia, Indonesia,

Macedonia, Malaysia, New Zealand, Netherlands, Singapore, South

Africa, Vietnam, Swaziland, UK, Senegal, Sweden, Belgium and Denmark

have been signed and are now effective.

International transportation income tax agreements have been signed and

are now effective with Canada, the European Union, Germany, Israel,

Japan, Korea, Luxembourg, Netherlands, Norway, Thailand, Sweden, the

United States and Macau.

Please refer to Withholding Tax for the withholding rates for various

incomes. However, with respect to dividends, interest and royalties,

reduced withholding tax rates ranging from 5-15 per cent are provided for

by treaty.

Alternative Minimum Income Tax System

For the purpose of eliminating tax base erosion and imparity among

taxpayers resulted from numerous credits, exemptions and incentives been

granted exclusively to enterprises and shareholders within certain

industries, a “Basic Income Tax Act” has been promulgated since 2006.

The Basic Income Tax Act stipulates that:

Enterprises and individuals with annual “Basic Income” in excess of

NT$ 2 million and NT$ 6 million; respectively, are subject to the

System.

The “Basic Income” is calculated by adding back certain exemptions,

as prescribed by the Act, to the taxable income figured out in

compliance with existing Income Tax Act, related regulations and

statutes. For individual taxpayers, income derived from sources

outside Taiwan was excluded from taxable income according to

existing Income Tax Act, but is to be added back for calculating the

“Basic Income” since 2010.

The “Basic Income Taxes” are calculated by imposing 10% on “Basic

Income”, after subtracting an exemption of NT$ 2 million, for

enterprise taxpayers; and by imposing 20% on “Basic Income”, after

subtracting an exemption of NT$ 6 million, for individual taxpayers.

Taxpayers are obliged to pay “Basic Income Taxes” if it is higher than

“Regular Income Tax Payable” calculated based on existing Income

Tax Act, related regulations and statutes. The difference between the

http://www.dot.gov.tw/en/display/tax-treaty-policy/Australian-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/Gambia-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/Indonesian-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/Macedonia-en.doc

http://www.dot.gov.tw/en/tax-treaty/tax-treaty-policy/Malaysia-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/NewZeland-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/Netherlands-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/Singapore-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/SouthAfrica-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/SouthAfrica-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/Vietnam-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/Swaziland-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/UK-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/senegal-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/Sweden-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/Canada-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/EU-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/Germany-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/Israel-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/Korea-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/Luxembourg-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/Netherland-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/Norway-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/Sweden-en93.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/United%20States-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/United%20States-en.doc

http://www.dot.gov.tw/en/display/tax-treaty-policy/Macau-en.doc


“Basic Income Taxes” and the “Regular Income Tax Payable” is not

allowed to be deducted by income tax credit.

Act Governing Relations between Peoples of Taiwan Area and of the

Mainland Area

This Act is mainly applied to regulate relations between the people or

entities of Taiwan Area and of the people or entities of Mainland China

Area in respect of business transactions, investments, financings, agencies,

cooperation, negotiations, attestations & notaries, transportations,

employments, migrations, residences, inheritance, civil rights, etc; and the

arise legal issues relating to afore-mentioned interactions.

Any individual, juristic person, organization, or other institution of the

Taiwan Area having income derived from sources in the Mainland Area

shall pay income tax thereon together with the income derived from

sources in the Taiwan Area; provided, however, that the amount of the

income tax already paid in the Mainland Area may be deducted against

the income tax payable of Taiwan Area. The total amount to be deducted

may not exceed the increment of the income tax payable computed, after

including the income derived from sources in the Mainland Area, at the

applicable income tax rate of the Taiwan Area.


7. Accounting & reporting

The financial statements are required to be reported in local currency

(New Taiwan Dollar) and are required to be prepared in accordance with

GAAP (Generally Accepted Accounting Principles).

The annual financial statements of a company having paid-in capital more

than NT$30,000,000 or bank facilitates more than NT$30,000,000 are

required to be audited by a CPA.

The financial report is to be approved in an annual regular shareholders’

meeting to be held within 6 months subsequent to the end of accounting

period.

GAAP is a conglomerate concept includes “Statements of Financial

Accounting Standard” (SFAS), rulings, imperatives and related

guidance/statute/regulations/acts; among them SFAS is the main basis.

SFAS are announced by “Accounting Research and Development

Foundation”, and SFAS are constantly undergoing amendments to

conform to “International Financial Reporting Standards” (IFRS). IFRS

applies for those transactions whose accounting treatments have not been

regulated by GAAP, and US GAAP applies while there is no applicable

IFRS.

Taiwan authority has announced enforcing adoption of IFRS for listed

companies starting on 2013, and for non-listed public companies starting

on 2015.

Unique regulations and practices in Taiwan

Legal Reserve

Taiwan Company Law stipulates that net after-tax earning of a company

should be:

Firstly offset its accumulated deficit, if any.

For the remaining balance after offsetting deficit, if any, 10% of it

should be set aside as “Legal Reserve” (an account under

shareholders’ equity) to be resolved by the regular shareholders’

meeting. (In general, legal reserve is appropriated at annual Regular

Shareholders’ Meeting).

However, Company Law exempts a company from the obligation upon its

“Legal Reserve” reaches its total issued share capital.


“Legal Reserve” appropriation is enforced while an earning distribution is

resolved, whereas the appropriation is not enforced if there is no

distribution; notwithstanding, the accumulated amount not been

appropriated for past earning years is required to be replenished upon

current distribution resolution.

“Legal Reserve” is “earning” in nature, but it is restricted from distribution

except for certain situations as prescribed by the Company Law:

“Legal Reserve” can be used to offset “Accumulated Deficit” upon

shareholders’ meeting resolution.

Up to 50% of the “Legal Reserve” of a company can be used to

recapitalize (transferred from “Legal Reserve” to “Issued Share

Capital” by issuing stock dividends) when said company’s “Legal

Reserve” reaches one-half of said company’s total “Share Capital”,

and said recapitalization is deemed as earning distribution by local

laws and regulations.

Capital Surplus

Under Statements of Financial Accounting Standard and Accounting Law,

following items are accounted for as “Capital Surplus” (an account under

shareholders’ equity):

Paid-in capital in excess of par value

Donated assets

Gain from treasury stock transactions

The fair value of share-based compensation

Correspondent recognition of “Capital Surplus” of an equity method

accounted investee

Surplus of the acquired net asset in excess of the par value of shares

issued in exchange during a merger.

“Capital Surplus” is not “earning” in nature and distribution from which

is not allowed. Company Law and related regulations stipulates that:

“Capital Surplus” can be used to offset “Accumulated Deficit” upon

an annual regular shareholders’ meeting resolution.

“Capital Surplus” derived from “paid-in capital in excess of par

value” and “donated assets” can be used to recapitalize, and said

recapitalization is not an earning distribution.

Employee Bonus

It is Taiwan practice that employee can participate in earning distribution.

“Employee Bonus” has to be stipulated in the Article of Incorporation as a

distribution item; the accounting treatment over which in Taiwan is


treated as compensation to employee be charged to profit and loss

accounts.

Assets Revaluation

Government allows Profit-seeking enterprises to apply for revaluing their

fixed assets, deletion assets and intangible assets upon when the price

indexes become more than 125% of the ones prevailed at assets

procurements or at previous revaluation. The revaluation increments are

recognized as an “Unrealized revaluation increment” under Owner Equity

section of the Balance Sheet.

Note: There are numerous unique practices pertained to Taiwanese

business environment, and are not limited to the ones enumerated in

above. Those ones listed in above are the major ones for general reference

purpose.


8. UHY firms in Taiwan

UHY L&C Company, CPAs

Suite 2, 2 nd Floor

No. 20, Beiping East Road

Taipei 100

Taiwan

Contact:

Lawrence Lin [email protected]

Phone: +886 2 2391 5555

Website: www.uhy-taiwan.com.tw

9. UHY offices worldwide

For contact details of UHY offices worldwide, or for details on how to

contact the UHY executive office, please visit www.uhy.com

mailto:[email protected]

http://www.uhy-taiwan.com.tw/

http://www.uhy.com/

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