International Withholding

It si possible to apply for a reduced withholding tax rate on technical consulting fees, dividends, royalties, etc. from a Taiwanese payer:

1. International Withholding Tax

Q1. What is a withholding tax?

  • A withholding tax, or retention tax, is an income tax to be paid to the government by the payer rather than by the recipient of the income.
  • The tax is thus withheld, or deducted, from the income paid to the recipient.

Q2. What are the types of withholding tax?

  • International withholding
    The Taiwanese government requires payers to withhold at specific rates from interest, dividends, royalties, technical consulting service fees, and other “Taiwan-sourced income” paid to non-residents; the rates vary by type of income.


  • Domestic withholding
    • Wage withholding
      The Taiwanese government operates a withholding tax system for payments from employers to employees; an employee’s income tax for the year is generally determined upon filing for a tax return after the end of the year, and the amount withheld by the employer and paid to the government is applied as a prepayment of income taxes, refundable if it exceeds the employee’s income tax liability as determined when filing.
    • Other domestic withholding
      The Taiwanese government also requires that income taxes be withheld from certain payments (other than wages) made to domestic persons.

Q3. What are the tax rates for International withholding?

  • Interest:20%
  • Dividends: 21%
  • Royalties: 20%
  • Technical consulting service fee: 20%
  • Other Taiwan-sourced income: 20%

Q4. What is the time limit for international withholding remittance and reporting?

The Taiwanese government requires withheld taxes to be paid and reported to tax authorities within 10 days after the income is released.

2. Tax Strategies

Q1. What tax strategies are most frequently considered?

  • Reduced 3% Withholding Rate
    A foreign company, regardless whether or not it has a branch office or business agent in Taiwan, which is engaged in international transport, construction contracting, providing technical services, or machinery and equipment leasing in Taiwan, and the cost and expenses of which are difficult to calculate may apply for approval to consider 10% of its total business revenue for an enterprise engaged in international transport business, or 15% of its total business revenue for one engaged in any other businesses as its income derived within Taiwan.


  • Tax Treaties
    Currently, Taiwan has an “Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income” with 32 countries. Tax residents of the treaty partners of Taiwan may apply for approval to reduce the withholding tax on dividends, interest, royalties, capital gains, business profits, entertainers/sportsperson, and etc.


  • Tax Exemption for Royalties
    Income tax on the royalty paid to a foreign company shall be exempted if the royalty is paid in order to introduce new production technology or products, improve product quality, or reduce production cost, as well as remuneration paid to a foreign company for its technical services rendered in construction of a factory for an important productive enterprise.

Q2. What are the primary requirements?

    • Reduced 3% Withholding Rate
      Engaged in international transport, construction contracting, providing technical services, or machinery and equipment leasing in Taiwan

    • Tax Treaties
      A tax resident of treaty partners with Taiwan

  • Tax Exemption for Royalties
    Technical depth and application.

Q3. What are other considerations?

If a case satisfies more than one requirements of the above strategies, the following issues are also often been taken into consideration:

  • Benefit
    Take a German company’s technical consulting service fee, for example, applying treaties may be more beneficial than the reduced 3% withholding rate because the business profits in the treaty shall not be taxed by Taiwan government.


  • Cost
    Due to different requirements and assessing procedures, the time and efforts needed are very different. Generally speaking, the cost of applying for the reduced 3% withholding rate is lower since the tax office basically assesses the technical service contract only and evidence of service provision is not required. On the other hand, the cost of applying tax treaties is higher since the evidence of transaction is required. Last, the cost of applying for tax exemption for royalties is highest since the case will be assessed not only by the tax office but also by the Industrial Development Bureau from a technical point of view.


  • Uncertainty
    Usually, the uncertainty of applying for the reduced 3% withholding rate is lowest since basically only the service contract will be assessed.

Q4. When should I apply?

Although theoretically there are two options, we suggest to apply in advance for the avoidance of extra uncertainty and cost of another application for tax refund:

  • Option 1. Pay regular 20% withholding tax first and apply for a reduced rate later. After obtaining the approval for the reduced rate, then proceed to apply for tax refund.
  • Option 2. Apply in advance for the reduced rate and pay by the reduced rate directly.

-Reduced 3% Withholding Rate

Q1. What is the rationale behind?

As described above, if a foreign company engages in certain activities in Taiwan and the cost and expenses of which are difficult to calculate, he may apply to consider 15% of its total business revenue as its income derived within Taiwan. As a result, the gross withholding rate will become 3%(=deemed profit rate 15% * regular withholding rate 20%.

Q2. What are the requirements?

  • Applicant
    Organization
    Business entity or NPO. Practitioners of profession such as law firms are excluded.
    Nationality
    Applicants from mainland China are excluded, and applicants from tax havens will be assessed carefully.


  • Activity
    Business in Taiwan
    Engaged in international transport, construction contracting, providing technical services, or machinery and equipment leasing in Taiwan.
    Royalty
    If the payments for technical consulting service, in fact, contain royalty, the payments for royalty should be separated and excluded from the total technical consulting fee.
    Related-Party Transaction
    If the payer and payee are related, the pricing and necessity will be assessed carefully.


  • Cost Calculation
    Having difficulty in calculating the project’s cost and profit accordingly. In this circumstance, the taxpayer applies for the deemed profit rate at 15%. On the contrary, if the cost can be measured precisely, the taxpayer is supposed not to apply for the deemed profit rate and should be taxed according to real profit based on real cost.


  • Deadline
    The application should be submitted within 5 years since the payment takes place.

Q3. What are the procedures and timeline?

The case will be submitted to National Taxation Bureau of the area, and generally takes 2~4 weeks to clarify the issues raised by the tax office.

-Tax Treaties

Q1. What is the rationale behind?

Taiwan entered into tax treaties with other countries to avoid or mitigate double taxation. A tax resident of Taiwan’s treaty partner should not be double taxed by both tax jurisdictions.

Q2. What are the requirements?

  • Applicant
    Organization
    Not limited.
    Nationality
    A tax resident of treaty partners with Taiwan. Currently, the treaty partners are as below:
    Complete Agreement (32 countries) Singapore, Indonesia, South Africa, Australia, New Zealand, Vietnam, Gambia, Eswatini, Malaysia, North Macedonia, The Netherlands, UK, Senegal, Sweden, Belgium, Denmark, Israel, Paraguay, Hungary, France, India, Slovakia, Switzerland, Germany, Thailand, Kiribati, Luxembourg, Austria, Italy, Japan, Canada, Poland.
    Shipping or Air Transport Agreement (12 countries) Canada, EU, Germany, Japan, Korea, Luxembourg, Macau, The Netherlands, Norway, Sweden, Thailand, United States.


  • Activity
    Business in Taiwan
    Business profit, income from immovable property, shipping and air transport, dividends, interest, royalties, capital gains, etc.
    Royalty
    If the business profit, in fact, contains royalties, the royalties should be separated and treated differently from the business profit.
    Permanent Establishment
    If the foreign company carries on business in Taiwan through a permanent establishment in Taiwan, the profits attributable to that permanent establishment may be taxed by the Taiwan government.
    Related-Party Transaction
    If the payer and payee are related, the pricing and necessity will be assessed carefully.


  • Cost Calculation
    Not limited.


  • Deadline
    The application should be submitted within 5 years since the payment takes place.

Q3. What are the procedures and timeline?

The case will be submiited to National Taxation Bureau of the area, and generally takes 8~12 weeks to clarify the issues raised by the tax office.

-Tax Exemption for Royalties

Q1. What is the rationale behind?

Taiwan government exempts the tax on certain royalties in order to encourage Taiwanese manufacturers to adopt advanced manufacturing technologies.

Q2. What are the requirements?

  • Applicant
    Organization
    Business entity or NPO. Practitioners of profession such as law firms are excluded.
    Nationality
    Applicants are limited to from a country which is a member of World Trade Organization.


  • Activity
    Technical Depth
    1. The technology is not available in Taiwan.
    2. The technology is available in Taiwan but not satisfying.
    Industry
    The technology is applied to the following industries: precision machinery and automation intelligence, vehicles, high-value metal materials, wind energy, solar energy, communication of new generation and smart handheld device, smart electronic components, display, LED Lighting, smart living environment, cloud computing, high-value petrochemical, high-value textile, electro-optical chemicals, healthy food, biotechnology, recycling, water recycling, information service, and design.
    Effects
    1. The patent is new production technology, applied to manufacture new products, or is helpful to improve product quality or efficiency or reduce the production cost.
    2. The technical service is provided to an important Taiwanese manufacturing company in the construction of a factory.
    Royalty
    Total revenue from Royalty is applicable, but income from the sale of the patent is excluded.
    Related-Party Transaction
    If the payer and payee are related, the pricing and necessity will be assessed carefully.


  • Cost Calculation
    Not Limited


  • Deadline
    The application should be submitted within 5 years since the payment takes place.

Q3. What are the procedures and timeline?

  • Stage 1. Technical Review
    The case will be submitted to the Industrial Development Bureau, and generally takes 2~4 weeks to clarify the technical issues raised by the office.
  • Stage 2. Transaction Review
    After obtaining the approval from Industrial Development Bureau, the case will proceed to the National Taxation Bureau of the area, and generally takes 4~8 weeks to clarify the issues raised by the tax office.

Work with Us

Q1. How to request a quotation?

Please click the blue button below for requesting the quotation of international withholding tax consultation service.

Q2. Is the result guaranteed?

Please understand that the authority approves this application on a case-by-case basis and the power of granting approval rests solely with the authority.

Q3. Will you prepare a formal engagement letter?

Yes. If you are fine with our quotation, we will proceed to prepare a formal engagement letter for your review.

Q4. What is the payment arrangement?

We will send our first progressive billing at the signature of our engagament letter at 50% service fee and all known out-of-pocket expenses, and issue the final bill when completion of case.

Q5. Can I pay from a bank account which is not in Taiwan?

Yes, but please be reminded that there will be additional bank processing fee for cross-border remittance.

Q6. Can I pay by Paypal?

Yes, but please be reminded that there will be additional Paypal processing fee.

Q7. Can I pay by any other currency except for TWD?

Yes, we accept main currencies in addition to TWD.

Q8. If I pay by a foreign currency, what the exchange rate will be?

We refer to the exchange rate published by Bank of Taiwan.

Q9. What documents do I need to provide to you?

We will evaluate the case before making a list of required documents.

Q10. How to consult more questions?

Please feel free to contact us.

Q11. Can we arrage for a face-to-face meeting?

Sure. Please let us know your availablity.

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