Guide to Taiwan Profit-Seeking Enterprise Income Tax
1. Introduction | |
A profit-seeking enterprise is defined as an entity established in the form of a sole proprietorship, partnership, company (including a Taiwan branch of a foreign company), and any other form of organization that operates for profit-seeking purposes through a fixed place of business, regardless of whether the enterprise is owned by the government, private sector, or jointly by the government and the private sector. Profit-Seeking Enterprise Income Tax in Taiwan is similar to Enterprise Income Tax in China in nature. |
2. Tax Base and Tax Rate | |||||||||
A profit-seeking enterprise in the form of a sole proprietorship, partnership, or company (including a subsidiary that is wholly owned by a foreign company or a joint venture company) is subject to profit-seeking enterprise income tax on its worldwide income. The taxable income of a company for purposes of the profit-seeking enterprise income tax is gross income (including exempt income), less all allowable expenses and losses. A foreign tax credit is available for income tax paid in other countries on income derived from outside Taiwan. The credit may be used to offset the foreign tax paid against the enterprises Taiwan income tax liability, but the credit may not exceed the tax liability that would result if the foreign-source income is added to the Taiwan taxable income and taxed at the applicable domestic rate. A profit-seeking enterprise whose head office is outside Taiwan (such as a foreign company and a Taiwan branch of a foreign company) is considered non-resident for tax purposes, and is subject to profit-seeking enterprise income tax only on its Taiwan-source income. The minimum taxable income, tax brackets, and tax rates for profit-seeking enterprise income tax purposes are as follows:
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3. Exempt Income | |||||||||||||||||||
The following categories of income are exempt from profit-seeking enterprise income tax:
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4. Deductible Expenses/Costs | |
Costs and expenses incurred by an enterprise in carrying out its main and auxiliary activities may be deducted up to certain limits provided the taxpayer has sufficient supporting documentation. |
5. Exemptions and Reductions | |||||||||||||||||||
Reductions of and exemptions from the land value increment tax are as follows:
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6. Alternative Minimum Tax | |
Taiwan requires the calculation of a separate Alternative Minimum Tax (AMT) in accordance with the Income Basic Tax Act. A profit-seeking enterprise with a fixed place of business or business agent in Taiwan is subject to a separate AMT calculation if it earns certain income that is tax-exempt or that enjoys certain tax incentives under the ITA or other laws, or if the basic income of the enterprise exceeds NTD500,000. If the AMT as calculated exceeds the profit-seeking enterprise income tax after deducting investment tax credits, the enterprise must pay the difference. AMT is calculated as follows: |
7. Fiscal Year and Return Filing | |||||||||||||
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8. Imputation System | |||||||||
Under Taiwans imputation system, when a Taiwan company distributes its after-tax profits as dividends to individual resident shareholders, the distributing company also allocates the profit-seeking enterprise income tax paid on the dividends to the shareholders as an imputed tax credit. An individual shareholder can use the imputed credit to offset his/her individual income tax liability. Consequently, the profit-seeking enterprise income tax paid by a Taiwan company becomes an advance tax payment for its shareholders. For Taiwan corporate shareholders, the dividends received are not considered taxable income, but the tax credits are included in the balance of the companys shareholder-imputed credit account (ICA) and will be imputed to the corporate shareholders for future dividend distributions. There is no mechanism for passing on the imputation tax credit to non-resident foreign shareholders (including individuals and businesses). For foreign shareholders, tax is withheld at source on any cash or share dividends distributed by a resident company in Taiwan. The withholding tax rate on dividends generally is 20%, but this rate can be reduced to 10% under many of Taiwans tax treaties.
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