New value-added tax (VAT) regime on cross-border sales of business-to-consumer (B2C) electronic services
Starting 1 May 2017, foreign corporate sellers without a fixed place of business in Taiwan that sell electronic services to Taiwan individual consumers will need to perform tax registration, file VAT returns, and pay corresponding VAT payable if their annual sales exceed the promulgated threshold of 480,000 new Taiwan dollars (TWD).
Anti-tax avoidance rules
The Income Tax Act was amended in July 2016 to include anti-tax avoidance rules in Article 43-3 (Controlled Foreign Company [CFC]) and Article 43-4 (Place of Effective Management [PEM]) of the Income Tax Act.
In general, profits retained at the CFC level, which is located in a low tax rate jurisdiction and without commercial substance, will be taxed in advance at the Taiwan parent company level. In the past, taxation of foreign investment income is deferred until the Taiwan parent company receives dividend income. Going forward, qualified investment income will be deemed distributed and taxable in Taiwan in advance. As of 31 May 2017, the Ministry of Finance has announced draft 'Regulations Governing Controlled Foreign Companies', but the final version has yet to be promulgated.
For PEM rules, under this new tax regime, if a foreign company meets all three criteria triggering the PEM definition, including (i) decision making location, (ii) record keeping and maintenance location, and (iii) actual operating location are all in Taiwan, the foreign enterprise will be deemed as having its head office in Taiwan and will be subject to tax assessment in accordance with the Taiwan Income Tax Act and other tax regulations. The 'Regulations Governing Places of Effective Management' was announced by the Ministry of Finance in May 2017.
The CFC and PEM taxation mechanisms have yet to take effect, and it is currently anticipated that the new mechanisms will not take effect until at least 2018.
Within the past year, Taiwan’s tax treaty network has increased to include treaties with Canada, Japan, and Poland, all of which entered into effect starting 1 January 2017. Taiwan has also signed a treaty with China; however, this tax treaty has not yet come into effect.