Taiwan withholding tax guide

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Comprehensive Overview of Withholding Tax in Taiwan

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What is Withholding Tax (WHT) in Taiwan?

In Taiwan, the withholding tax is an amount withheld by the company making payment (payer) on income earned by a resident or a non-resident.

In simpler terms, if you are paying non-local (foreign) vendors, you need to withhold a certain % of the invoiced amount and pay the tax office a form of tax, and the remaining balance to be paid to your foreign vendor.

It covers payments such as:

Dividend
Interest
Rental Income
Royalty
Technical fees, payment for services
Wages and salaries
Commissions

Taiwan's withholding tax system applies to various types of income earned by both residents and non-residents, with rates and regulations determined by the type of income and the taxpayer's residency status. Each type of payment is subject to different withholding tax rates, and preferential tax rates may apply if a double taxation agreement exists between Taiwan and the country where the non-resident (foreign party) is a tax resident. The table below details the relevant forms for different payments under Taiwan's withholding tax system. Download the Taiwan Withhdoling Tax Tate.

Withholding tax on foreign service providers in Taiwan

When a Taiwan company or a Taiwan individual pays a foreign company for a service used in Taiwan, a 20% withholding tax is charged to the foreign company that derives income from a Taiwan source for services provided or work is done in Taiwan. The withholding tax should be held by the Taiwan company and handed over to the Taiwan Tax Authority within 10 days after the payment.

Example A: The contract value is 1,000. Your Taiwan company withholds 20% of withholding tax, or 200, and the foreign company receives 800. The total cost of your Taiwan company is 800+200 =1,000.

It is the Taiwan company's responsibility to withhold the tax and pay it to the Taiwan tax authority. In fact, most payment terms in service contracts are written "Net of Tax". In other words, the foreign service provider asks the Taiwan company to pay all the taxes incurred. The real cost of the service is the service fees plus a 25% withholding tax. See example B.

Example B: A foreign company called Johnson LLC asks to receive 1,000 net of tax. Since Johnson LLC asked to receive 1,000 net of tax. The Taiwan company has to pay the withholding tax itself. The total cost of service fees is 1,000+250 =1250.

If the services provided by the foreign company meet certain criteria. For example, if the services are technical services, you can apply for a withholding tax deduction from 20% to 3%. Please read the "Withholding tax deduction application" for the details.

Dividends, interest, royalty pays to foreign companies

Taiwan withholding tax applies to certain types of payments to foreign individuals and foreign companies. Although, in some situations, withholding tax is also applicable to resident individuals and companies. Here we only discuss withholding tax rules when payment is paid to non-resident individuals and foreign companies.

Royalty is defined as any sums paid as consideration for the use of or the right to use:

Copyrights, artistic or scientific works, patents, designs or models, plans, secret processes or formulae, trademarks or tapes for radio or television broadcasting, motion picture films, films or video tapes or other means of reproduction where such films or tapes have been or are to be used or reproduced in Malaysia or other like property or rights;
Know-how or information concerning technical, industrial, commercial or scientific knowledge, experience or skill; or
Income derived from the alienation of any property, know-how or information mentioned in the above paragraph of this definition.

Royalties: 20% of the payment is withheld.
Dividend: The withholding tax rate when dividends are paid to foreign individuals is 20% and 21% when dividends are paid to foreign companies.
Commission: 20% of the payment is withheld.
Interests: 20% of the payment is withheld
Rentals: 20% of the payment is withheld.

Salary pays to employees

Salaries: 18% of the payment is withheld when salary is paid to the foreign employee. However, after the foreign employee has stayed in Taiwan for over 183 days in a calendar year, the Taiwan company is not required to withhold tax.
Salaries: 5% of payment is withheld when the resident employee's monthly salary equals or exceeds NTD 80,000.

Rent, compensation, professional fees, etc., pays to individual landlords/lawyers/CPAs

Rent: 10% of the payment is withheld when rent pays to an individual landlord. If your landlord is a company, your company should receive the uniform invoice from your landlord.
Professional fee: 10 % of the payment is withheld when pays lawyer, CPA service fees

How to pay Withholding Tax in Taiwan and penalty if not paid?

Persons/companies who pay income subject to withholding at source must pay the taxation office the amount of tax withheld at source no later than the 10th day of the payment. Persons/companies who are tax withholders fail to withhold tax are liable for the tax and subject to a fine of no more than the amount of the tax amount that should be withheld.

To sum up, you must be well aware of the ongoing changes in the withholding tax in Taiwan for your business. At Songjer CPA, we ease your load through our comprehensive tax advisory services. So what are you waiting for?