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Taiwan withholding tax guide
Taiwan’s tax filing system is based as a rule on self-assessed income tax payments where taxpayers (individuals and companies) calculate their annual income and file tax returns by themselves. In addition, a tax withholding system where companies collect income tax on the date of payment and pay the tax on behalf of income earners is also introduced for specific incomes. Tax withholding at source is required when payments of certain taxable income are made, whether paid to an individual or a corporation.
Taiwan's withholding tax system applies to various types of income earned by both residents and non-residents. The rates and regulations are determined by the type of income and the residency status of the taxpayer. Below is a comprehensive guide to understanding the withholding tax in Taiwan.
Pay foreign company for services used in Taiwan
When a Taiwan company or a Taiwan individual pays to 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 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.
Be cautious of "net of tax" in the service contract
It is the Taiwan company's responsibility to withhold the tax and pays 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, the services are technical services, you can apply for withholding tax deduction from 20% to 3%. Please read the "Withholding tax deduction application" for the detail.
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 also applicable to resident individuals and companies. Here we only discuss withholding tax rules when payment pays to non-resident individuals and foreign companies.
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Dividend: The withholding tax rate when dividend pays to foreign individuals is 20% and 21% when dividend pays to foreign companies.
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Commission: 20% of the payment is withheld.
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Interests: 20% of the payment is withheld
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Rentals: 20% of the payment is withheld.
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Royalties: 20% of the payment is withheld.
Salary pays to resident/non-resident employees
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Salaries: 18% of the payment is withheld when salary pays 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 18% of withholding tax.
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Salaries: 5% of payment is withheld when the resident employee's monthly salary is equal to or more than NTD 80,000.
Rent, compensation, professional fees, etc., pays to individual landlords/lawyers/CPAs
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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.
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Professional fee: 10 % of the payment is withheld when pays lawyer, CPA service fees
What happens if my company does not withhold tax?
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.