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 was deferred until the Taiwan parent company received dividend income. Going forward, qualified investment income will be deemed distributed and taxable in Taiwan in advance. The Regulations Governing Controlled Foreign Companies were announced by the Ministry of Finance (MoF) on 31 May 2017. On 14 January 2022, the Executive Yuan announced that the CFC Rules will come into force from 1 January 2023.
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 were announced by the Ministry of Finance in May 2017. However, the PEM taxation mechanisms have yet to take effect.
Joint Property Tax System 2.0 is effective from 1 July 2021 onwards
Building and land acquired post 1 January 2016 and sold after 1 July 2021 will be subject to the tax rate stipulated under Joint Property Tax System 2.0.
As of 31 December 2021, Taiwan has concluded 34 effective double taxation agreements (DTAs) with countries around the world, which generally follow the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention and cover corporate and individual income tax. Taiwan has also concluded 13 international transportation income tax agreements.
Taiwan has also signed a treaty with China; however, this tax treaty has not yet come into effect.
On 17 November 2021, Taiwan and Korea signed a DTA (the 'Taiwan-Korea tax treaty'). Once both parties have notified each other on the completion of respective domestic legal procedures, the Taiwan-Korea tax treaty will become effective starting 1 January of the subsequent year.