Welcome to Start Up In Taiwan!
In our experience, these are foreign investors’ most frequent FAQs:
1. Regulatory Requirements
Q1. Will my business be permitted to run under foreign investment？
- For foreign investors except those from mainland China: only the listed items are forbidden. (Click to see forbidden items)
- For mainland Chinese investors: only the listed items are permitted.
Q2. Does this kind of business require a license?
Q3. Are there requirements for the location?
The following kinds of business are subject to location / area restrictions: Ballroom, Dance hall, Wine shop, Bar, Particular kinds of coffee / tea shop, Audiovisual and singing service, Bathhouse, Electronic game arcade, Computer recreational activity, Night club, Restaurant, Catering, Public house / beer hall, Massage service (unless involving visually impaired massage therapist), Foot massage, Body shaping service, Retailer of adult products, Automotive repair and maintenance, Motorcycle repair shop, Retailer of automobile and motorcycle parts and appliances, Car detailing, Amusement park, Athletic / recreational sports stadium, Pet grooming, Retailer of pet food and appliances.
2. Tax System
- Business in Taiwan pay a value-added tax (VAT), also known as a goods & services tax (GST) in some countries.
- Taiwan also has a business income tax system, including:
- Corporate Income Tax
- Withholding tax on dividends
- Tax on undistributed profit
Q1. What does Taiwan’s tax system cover and tax rates?
- On goods sold in Taiwan: 5%
- On services provided in Taiwan: 5%
- On goods sold outside of Taiwan (export goods): 0%
- On services provided outside of Taiwan (i.e., provided from within Taiwan but consumed in another country): 0%
Q2. When do I file for the VAT return?
Business Income Tax
Q1. What does Taiwan’s tax system cover and tax rates?
Q2. Must my company pay corporate income tax if the Taiwanese research center has no income and provides service only to the parent company?
- Please note the Transfer Pricing Issue. Transfer pricing refers to rules and methods for pricing transactions within and between enterprises under common ownership or control. Some multinational corporations are accused of manipulating the transfer pricing to allocate profits across different tax jurisdictions. Under such circumstances, most profits are tied to jurisdictions with lower tax rates, regardless of where the profits were actually generated.
- Currently, most countries have legislated to manage such manipulation of transfer pricing among related parties. In order to avoid suspicion, the Taiwanese research center charges the parent company an arm’s-length price for its service.
Q3. Must business pay the withholding tax even if their subsidiaries don’t distribute dividends?
Q4. When do I file for the corporate income tax return?
Q1. What does Taiwan’s tax system cover?
- Salaries which include base salaries, stipends, wages, allowances, annuities, cash awards, bonuses and all kinds of subsidies.
- Lease income and from royalties
- Income from professional practice
- Income from self-employment in farming, fishing, animal husbandry, forestry and mining
- Income from property transactions
- Income from contests and games, along with prizes and awards won by chance
- Separation income
- Other income
Q2. How do non-Taiwanese people pay these taxes?
- For visitors staying in Taiwan for <90 days (non-residents):
Tax on income derived from sources in Taiwan shall be withheld and paid at the respective sources. These taxpayers need not file for an income tax returns; however, if they have gained income from property transactions, occasional trade, etc., they should declare and pay the appropriate taxes prior to departure. For those staying in Taiwan through May 31st any given year, it is necessary to file based on their past year’s income.
- For visitors staying in Taiwan for 90–183 days (non-residents):
Tax on income derived from sources in Taiwan shall be withheld and paid at the respective sources. These taxpayers need not file for an income tax return; however, income derived from overseas in exchange for services provided from within Taiwan must be reported prior to departure. For those who stay in Taiwan through May 31st of any given year, it is necessary to file based on their past year’s income.
- For visitors staying in Taiwan for >183 days (tax residents):
As long as the 183 days fall within one calendar year, these residents will be required to file at the Tax Bureau based on their annual income of the past year, and to pay any outstanding taxes during the month of May. Those leaving the country in the middle of the year will be required, prior to departure, to file based on income earned in that year.
Q3. What tax rates apply?
- For non-residents: flate rates, as follows:
-Monthly > TWD 34,650: 18%
-Monthly < TWD 34,650: 6%
- Dividends: 21%
- Interest: 20%
- Lease income and royalties: 20%
- Income from professional practice: 20%
- Income from property transactions: 20%
- Income from contests and games along with prizes and awards won by chance: 20%
- Separation income: 18%
- Other income: 20%
- For taxpaying residents: progressive rates
- Consolidated net income < TWD 540k
5% of the consolidated net income
- TWD 540k < Consolidated net income < TWD 1.21 million
12% of the consolidated net income – TWD 37,800
- TWD 1.21 million < Consolidated net income < TWD 2.42 million
20% of the consolidated net income – 134,600
- TWD 2.42 million < Consolidated net income < TWD 4.53 million
30% of the consolidated net income – 376,600
- TWD 4.53 million < Consolidated net income
40% of the consolidated net income – 829,600
- Consolidated net income < TWD 540k
Q4. What if a company leases a house for its non-Taiwanese employee, and pays the rental fee on the employee’s behalf??
- Salary and subsidy
As mentioned with Q1, an employee’s salary includes “all kinds of subsidies,” such as relocation allowance or house rental aid. Therefore, the rent paid by the company is a part of the employee’s salary, no matter who signs the leasing contract.
If the employee satisfies all of the following requirements, rental aid can be exempted from the salary:
1. Obtained work permit as a specialized or technical worker, or as an executive in business supported by foreign investment.
2. Became a tax-paying resident (staying in Taiwan for >183 days of the calendar year)
3. Reported taxable domestic and foreign salary income > TWD 1.2 million
3. Set Up a Company in Taiwan
Q1. What is most crucial?
Q2. Why does the nationality of the investor matter?
Q3. What is the first step?
Q4. What is most difficult?
Q5. Which type of organization is most appropriate for me?
5.1 What are the options?
5.2 What are the differences among these options?
5.3 What is most relevant to most investors?
- If the business entity in Taiwan will generate sales revenue, and the sales revenue cannot be controlled, a branch is more advisable considering the exemption of profit distribution to foreign headquarters.
- If the entity in Taiwan is designated only for liaison with Taiwanese clients or suppliers, a representative office is recommended considering its comparatively low regulation and exemption from certain tax procedures.
Q6. What are the considerations for amounts of capital?
6.1 Is there a threshold?
6.2 Under what circumstances are there special requirements for the capital amount?
- When the company in Taiwan is to engage in a highly regulated business, and under certain other conditions.
- The company in Taiwan will hire foreign employees.
- The company in Taiwan takes part in the immigrant investor program.
6.3 Will there be any problem if the capital investment is too small?
- If the accumulated net loss exceeds the capital, the company needs to announce its insolvency.
- The procedure for injecting additional capital is almost the same as setting up a company. It takes time, effort, and money.
6.4 Will there be any problem if the capital investment is too big?
6.5 Will there be any problem if we borrow from the foreign parent company to bridge the finance gap?
6.6 Will the working capital be audited?
6.7 Can the capital be withdrawn from the Taiwanese entity’s account after the audit?
6.8 Can the capital be used?
6.9 Does capital amount have anything to do with tax treatment?
Q7. Procedures and timeline
Q8. Is a Taiwanese partner required?
Q9. Is a Taiwanese agent required?
Q10. Is it difficult to open a bank account in Taiwan?
- Some banks are friendlier to new foreign clients. These include the Shanghai Commercial & Savings Bank (上海商銀), the Chang Hwa Commercial Bank (彰化商銀), the E.Sun Bank (玉山銀行), and the CTBC Bank (中國信託).
- Other banks are more discreet. These include the Bank of Taiwan (台灣銀行), the Cathay United Bank (國泰世華), the Shin Kong Bank (新光銀行), Citibank, and HSBC.
Q11. Which procedures require my presence in person?
- Opening a bank account.
- Meeting with the tax bureau after company setup and before operations’ commencement.
Work Permit for Foreign Workers
Q1. Why do the companies need to apply for work-permits？
- For the purpose of protecting Taiwanese nationals’ right to work, non-Taiwanese workers’ employment must never jeopardize nationals’ opportunities in employment, employment terms, economic development, or social stability.
- Accordingly, unless otherwise specified in the Employment Service Act, no foreign worker may work in Taiwan without the employer having first applied for and obtained a permit.
- No one may illegally let foreign workers stay to engage in work, nor is it legally for anyone to refer a foreign worker to work for any third party.
Q2. What are the types of work permit?
- Specialized or technical work.
- Director/manager/executive (of a business supported / set up by overseas investment.
- Teacher (at regular institutions of higher education).
- Teacher (at a cram school).
- Sports coach / athlete.
- Religious / artistic / entertainment worker.
- A crew member of a merchant’s vessel / working vessel.
- Marine worker (fishing / netting).
- Household assistant / nurse.
- Workers designated by the Central Competent Authority in response to major national construction projects, or to economic / social development needs.
- Other specialized ad hoc workers (approved by the Central Competent Authority due to the lack of such specialists in the Taiwanese employment market and the business necessity of retaining such specialist’s service.
Q3. What are the requirements in order for a startup to apply for a work permit?
Q4. Are investment visas an alternative form of work permit?
Q1. What are the additional costs attached to salary?
The Labor Pension premium per month by an employer provided to the Annuities Insurance program may not be less than 6% of a worker’s monthly wage. While the contribution from the employee is not required.
2. Labor Insurance Premiums
The labor insurance premium is based on the insured emloyee’s monthly regular wage level, and paid by both the insured employee and his employer. The program provides ordinary insurance with 5 kinds of benefits (maternity, injury or sickness, disability, old-age and survivors’ benefits), and occupational accident insurance with 4 kinds of benefits (injury and sickness, medical-care, disability and survivors’ benefits).
3. National Health Insurance (NHI) Premiums
Similar to the labor insurance premium, the NHI premium is based on the insured emloyee’s monthly regular wage level and paid by both the insured employee and his employer.
4. Supplementary National Health Insurance Premiums
It is a response to two main criticism on NHI Premium:
1) The NHI system is supported only by the normal salaried employees
The supplementary NHI Premium is levied on five types of income in addition to regular salaries. They incoude landlords’ rent income, lenders’ interest income, investors’ dividend income, self-employed’s income from professional practitice, extra considerable bonus, and the income not from the employer.
2) Some companies underreports their employee’s wage level in order to evade from a regular fee rate
The supplementary NHI Premium is levied on the difference when the total amount of salary paid exceeds the insured payroll-related amount for that month.
Q2. How much is the total costs of hiring an employee?
Q3. How much an employee can receive after all deductions?
Q4. What is wage withholding?
The wage withholding system requires withholding for income taxes on payments by employers to employees. Income tax for the employee for the year is generally determined upon filing a tax return after the end of the year. The amount withheld and paid by the employer to the government is applied as the employee’s prepayment of income taxes and is refundable if it exceeds the income tax liability determined on the employee’s filing the tax return.
Q5. Why wage withholding should not be regarded as a cost of hiring?
Q6. Why Supplementary NHI premiums should not be regarded as a cost of hiring?
Q7. How does the company pay the insurance premiums and withholding tax?
On the other hand, Supplementary NHI premium and wage withholding need to be calculated by the employer himself. The employer then needs to generate bills, pay in a convenient store or bank (automatical payment is not available), and report to the government regularly.