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Understanding Dividend Tax in Taiwan: How shareholder structure affect tax
Dividend tax is an essential consideration for businesses and shareholders in Taiwan, especially for those managing profits and structuring ownership across domestic and international entities. This guide explains Taiwan’s dividend tax regulations, the impact of residency status, and key factors to consider when selecting shareholders for a Taiwan-based company.
1. Overview of Dividend Tax in Taiwan
Dividends distributed by a Taiwan company to its shareholders are subject to taxation. The tax liability depends on the shareholder’s residency and tax status, as well as applicable tax treaties.
1.1. Taxation for Taiwanese Residents
Taiwan uses a partially integrated income tax system:
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Dividends received by individual residents are included in their taxable income and taxed at progressive income tax rates.
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Individual taxpayers can apply a dividend deduction, allowing for an 8.5% deduction of total dividends received (capped at NTD 80,000 per year per household).
1.2. Taxation for Non-Residents
Non-residents are taxed via withholding:
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A flat 20% withholding tax applies to dividends paid to non-residents.
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Tax treaties may reduce this rate, typically to 10%-15%.
2. Dividend Tax Scenarios for Different Shareholder Profiles
The shareholder’s residency and tax status significantly influence the dividend tax rate. Below is a comparison of scenarios involving an individual shareholder, Michael, a British citizen. Michael owns a company registered in the UK, "Acme Company." He is considering establishing an IT consulting company in Taiwan. He is evaluating whether it would be more tax-efficient for him or his UK company to act as the shareholder.
2.1. Michael as the Shareholder (Individual)
Scenario 1: Michael stays in Taiwan for Less than 183 days and he is the tax residency of the UK in 2024 and can get the Tax Residency Certificate from UK HMRC
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Who Pays the Dividend Tax: Michael.
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Tax Rate: 10%.
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Explanation: The lower tax rate applies under the tax treaty between Taiwan and the UK when Michael provides a valid UK tax residency certificate from HMRC.
Scenario 2: Michael stays in Taiwan for Less than 183 days and travels globally. He is not the tax resident of the UK.
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Who Pays the Dividend Tax: Michael.
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Tax Rate: 21%.
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Explanation: Without a valid UK tax residency certificate, Michael can't utilize the tax treaty between the UK and Taiwan and is taxed at the non-resident withholding tax rate of 21%.
Scenario 3: Michael has been in Taiwan for more than 183 days and becomes the tax resident of Taiwan
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Who Pays the Dividend Tax: Michael.
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Tax Rate: Progressive tax rates range from 5% to 40%.
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Explanation: As Michael qualifies as a tax resident of Taiwan, his dividend income is subject to Taiwan’s income tax rates.
2.2. Acme Company as the Shareholder (Corporate)
Scenario 4: Acme Company, a British company is the shareholder of the Taiwan company
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Who Pays the Dividend Tax: The company.
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Tax Rate: 20%, 10% when Acme Company is the UK tax residency.
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Explanation: The corporate shareholder benefits from the reduced tax rate under the tax treaty between Taiwan and the UK when providing a valid tax residency certificate.
3. Factors to Consider When Structuring Shareholder Ownership
Choosing the appropriate shareholder structure requires careful analysis of taxation implications and strategic planning. Below are some key considerations:
3.1. Residency and Tax Treaties
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Determine whether the shareholder can provide a tax residency certificate from their home country.
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Review applicable tax treaties to confirm eligibility for reduced withholding rates.
3.2. Duration of Stay in Taiwan
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For individual shareholders, the number of days spent in Taiwan determines tax residency status and affects tax rates.
3.3. Corporate vs. Individual Ownership
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Corporate shareholders may benefit from more favorable tax treatment, especially when holding valid residency certificates.
3.4. Future Business Goals
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Assess long-term objectives, such as company growth, ownership transfer, or cross-border tax compliance.
4. Conclusion
Dividend tax in Taiwan varies based on factors such as residency, duration of stay, and the shareholder’s tax status. When structuring ownership, it is crucial to evaluate the tax implications thoroughly to optimize returns and compliance.