Taiwan’s forward-looking tax policies
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Taiwan’s forward-looking tax policies

Taiwan refined its framework for taxing digital economy businesses in the past year, improved the tax rules for foreign enterprises operating regional logistics hubs, and updated transfer pricing (TP) provisions. Sherry Chang, Stephen Hsu, Hazel Chen, Ellen Ting, Lynn Chen and Betty Lee examine these important policy developments.

In view of Taiwan's rapidly evolving digital economy, the complex domestic imputation regime and the tax burden difference between domestic and foreign investors, the Taiwan government set out major tax reforms in 2017. This included imposing VAT on relevant foreign e-commerce service providers, as well as simplifying the corporate income tax (CIT) rules; the changes are described in last year's Taiwan chapter, Taiwan: tax goes digital. The tax reform rules were passed by the Legislative Yuan in January 2018, with some of the rules becoming effective from January 1 2018.

In 2018, tax changes continue to be adopted which affect the digital economy. Specifically, building further on the prior VAT changes, CIT is now also being imposed on foreign enterprises providing e-commerce services to Taiwan individuals. The Taiwan tax authority has also updated one of its key tax rulings relating to Taiwan-sourced income (TSI) derived by foreign business entities engaging in importing, storage, manufacturing and delivery of goods to domestic and foreign customers. Further, Taiwan continues to adopt the BEPS Action Plan changes, by amending its TP rules for the BEPS Action 13 measures on country-by-country reporting (CbCR) and the master file.

CIT regime extended to foreign e-service providers

Following on from the implementation of the new VAT regime for e-services provided by foreign e-services providers (detailed in last year's chapter), the Ministry of Finance (MOF) issued Tax Ruling 10604704390 (ruling). This addresses the income tax treatment for income derived by foreign e-services providers from e-services provided to onshore Taiwan customers.

Corporate income tax is applicable retroactively and covers transactions entered into from January 1 2017 onwards. Foreign e-service providers needed to self-report during the month of May 2018, in respect of the financial year ended December 31 2017.

There are two types of transactions addressed under the income tax regime: sale of e-services and services that are used with a specified physical location within Taiwan.

  • The former refers to services that are provided and used through internet download or other electronic transmission to computer equipment or mobile devices. It also includes services that are provided and used online or via other electronic means (e.g. online games, online advertisements, and streaming services); and

  • The latter describes services that are provided through the internet or via other electronic means and used at a physical place, such as a hotel/lodging booking, or car rental services.

According to Taiwanese income tax rules, foreign entities are only subjected to income tax on income derived from Taiwan. For e-services, the following types of income are considered as Taiwan sourced:

  • For the sale of e-services, income derived from services that are provided entirely outside Taiwan but require the assistance of a Taiwan-based individual or enterprise to complete the service provision; and

  • For services that are used with a specified physical location within Taiwan, income derived from the use of services in Taiwan.

In terms of calculating the taxable income, the tax regime allows foreign e-services providers to claim actual costs and expenses incurred, or adopt a deemed profit ratio. The deemed profit ratio refers to the industry standard profit rate. As an example, if the taxpayer is assessed as a foreign platform service provider, the industry standard profit rate is 30%. The MOF also provided that where the relevant industry standard profit rate is not provided for the taxpayer, the default deemed profit ratio would be 30%. However, the use of the deemed profit ratio requires pre-approval from the tax authority.

In addition, the tax regime allows taxpayers to apply a 'contribution ratio', which can reduce the amount of revenue derived from Taiwan that is treated as Taiwan sourced and taxable. The contribution ratio divides income into a part deemed attributable to activities conducted in Taiwan and a part deemed attributable to activities conducted outside Taiwan. The taxpayer can determine its actual contribution ratio as supported by evidentiary documents (e.g. CPA audit report, TP report, work plan or records, etc.) Alternatively, it is to apply a 100% rate if the relevant transactions take place entirely in Taiwan, or if services are both provided and used onshore, for example, Taiwan advertisers only targeting Taiwan audiences.

Where neither the actual contribution ratio nor the 100% contribution ratio is appropriate, the 50% contribution ratio can be used. Although there is no prescribed reasoning on the use of the 50% contribution ratio, such ratio appears to take into consideration and balance both the foreign e-service provider's compliance costs and the Taiwan tax authorities' own review and assessment efforts. Similar to the utilisation of the deemed profit ratio, the use of the contribution ratio also requires pre-approval from the tax authority.

New calculation method for TSI for foreign businesses that import, store and manufacture in Taiwan

On April 17 2018, the MOF announced a tax ruling (No 10600664060) to interpret the new calculation method for TSI derived by foreign business entities with a fixed place of business (e.g. a logistic hub) engaging in importing, storage, processing, sales and delivery of goods to domestic and foreign customers with a view to encouraging more foreign enterprises to consider Taiwan as a logistics hub for the region. According to the ruling, the profit standard rate and contribution rate (simplified calculation method) could be adopted by foreign entities conducting the above-mentioned activities that are not limited to the areas of free trade zones or bonded areas (as was the case for certain such rulings in the past). The contribution rate has also been reduced substantially to create a more reasonable tax burden.

The transaction types eligible for this ruling can be broadly divided into four categories, as outlined in Table 1.

For transaction types 1 and 3, where the primary manufacturing activities for the foreign enterprise are outside of Taiwan, provided that the completion of the sales of the goods are in Taiwan, the profit contribution ratio in calculating TSI over the entire transaction flows will be reduced from 12% (from previous rulings) to 3%.

Table 1

Activities performed by foreign enterprises outside Taiwan

Activities performed by foreign enterprises in Taiwan


Self-manufactured outside Taiwan

Procured outside Taiwan










Completion of sales while the goods are in Taiwan

To customers within and outside Taiwan





Execution and completion of sales offshore






Completion of sales while the goods are in Taiwan

To customers within and outside Taiwan






Execution and completion of sales offshore

For transaction types 2 and 4, where the foreign enterprise procures its goods outside of Taiwan and then imports the goods into Taiwan for sale or simple processing in Taiwan, provided that the execution and completion of the sales of goods occur in Taiwan, then the profit contribution rate (which cannot exceed 100%) in calculating TSI should be calculated based on the formula set forth under the ruling:

Contribution rate = 3% + (costs and expenses of manufacturing and processing incurred onshore/total costs and expenses incurred onshore and offshore).

The new tax ruling enlarges the scope of applicability of the simplified calculation method for foreign business entities engaging in importing, storage, processing and delivery of goods to domestic and foreign customers. The contribution rate to determine the contribution of the activities conducted in Taiwan over the entire transaction flow is reduced for foreign entities who merely engage in logistics and manufacturing. Therefore, this tax ruling should be considered beneficial to taxpayers. Foreign business entities that may qualify under this ruling would be well advised to review their corporate income tax returns that have yet to be assessed by the Taiwan tax authority and seek the opportunity to claim a tax refund where appropriate.

In addition, one of the necessary criteria to constitute TSI under each of the transaction types is that the sales of goods are completed within the territory of Taiwan. However, further clarification should be provided by the MOF in relation to the detailed rules and applicable conditions to determine whether the sales of goods are completed outside of Taiwan.

Transfer pricing, CbCR and master file

In late 2017, the MOF announced amendments to the Regulations Governing the Assessment of Profit-Seeking Enterprise Income Tax on Non-Arm's-Length Transfer Pricing (TP Assessment Rules). The amended TP Assessment Rules include the three-tiered TP documentation as suggested by the OECD under BEPS Action 13. The latest amendments will apply to fiscal years from 2017 onward. The three-tiered TP documentation is composed of a TP report, which was already implemented from 2005, with the two new additions of the CbCR and the master file (MF). Major amendments include the multinational enterprises (MNE) that have members in Taiwan who may be required to file an MF and a CbC report. At the same time it might be noted that the substantive provisions of Taiwan's TP rules have not yet been brought fully in line with the BEPS changes, for example, the concept of development, enhancement, maintenance, protection and exploitation of intangibles (DEMPE), and so on.

In view of the compliance costs for MNEs in preparing TP documents, the MOF further released safe harbour rules for the master file and CbC reports in Taiwan, after considering international practices, national conditions in Taiwan and public opinion. The content and covered entities involved are consistent with the OECD template.

Disclosure requirements

This year (2018), Taiwan adopted the three-tier TP documentation in local regulations. Hence, Taiwanese entities with annual consolidated group revenues that exceed T$27 billion ($880 million) will be required to disclose whether they will be the filing entity for CbCR in the TP disclosure forms as part of their CIT returns.

If the ultimate parent company (UPE) is a Taiwanese entity

When an entity in Taiwan is the UPE of an MNE group, it will be required to submit a CbC report for the fiscal year in the prescribed format, and submit the same to the local tax authority within one year after the end of the financial year.

If the UPE is a foreign entity

When an MNE group's UPE is located outside Taiwan, one of its constituent entities in Taiwan will be required to submit the CbC report to the Taiwan tax authority if one of the following conditions apply:

  • The UPE of the MNE group is not obliged to file a CbC report in its country/jurisdiction of tax residence;

  • The UPE has filed a CbC report in its country/jurisdiction of tax residence, but such country/jurisdiction does not have an agreement to exchange CbC reports with Taiwan by the CbCR filing deadline in Taiwan; or

  • The UPE has filed a CbC report in its country/jurisdiction of tax residence and such country/jurisdiction has an agreement to exchange CbC reports with Taiwan, but the Taiwan tax authority is unable to effectively obtain the CbC report in accordance with the agreement.

Thresholds for the master file and the CbC report

A Taiwanese entity that meets either one of the following conditions will be exempt from filing the master file:

  • The Taiwanese entity's total annual turnover (including operating and non-operating turnover) has not exceeded T$3 billion; or

  • The Taiwanese entity's total cross-border controlled transaction amount has not exceeded T$1.5 billion.

An enterprise in Taiwan that meets any of the following conditions will be exempt from filing a CbC report:

  • The UPE of a MNE group is a Taiwanese entity with an annual consolidated group revenue of less than T$27 billion in the previous fiscal year;

  • A Taiwanese subsidiary/branch has a UPE outside of Taiwan, and meets one of the following:

  • The jurisdiction of tax residence of the UPE has statutory provisions to file the CbC report, and also meets the exemption requirements to file the CbC report;

  • The UPE's jurisdiction of tax residence does not have the statutory provisions to file CbC reports, but the MNE appoints one of its members to act as a surrogate parent entity (SPE) to file the CbC report, which meets the exemption requirements for CbCR; or

  • The UPE's jurisdiction of tax residence does not have the statutory provisions to file CbC reports, nor does it appoint a SPE, but it meets the exemption requirements for CbCR in Taiwan (an annual consolidated group revenue during the fiscal year immediately preceding the reporting fiscal year that does not exceed T$27 billion).

For foreign entities in Taiwan, if the group's revenue exceeds the T$27 billion threshold or €750 million ($855.5 million), or a near equivalent amount in another currency, it is important to know whether the CbC report filed by the UPE or SPE can be successfully exchanged with the Taiwan tax authority.

In view of the fact that the 2017 tax year was the first year that Taiwan had implemented the requirements on CbCR, it has a reciprocal arrangement with New Zealand only. This came about under a recent tax ruling, whereby New Zealand could effectively exchange CbC reports with Taiwan as of April 27 2018. This means that any Taiwanese entity with a UPE or SPE located anywhere other than New Zealand would have had to indicate itself (or another MNE member in Taiwan) as the filing entity for the 2017 CbCR under the TP disclosure forms during the 2017 CIT return process.

It is possible that Taiwan's MOF may update the list of countries to allow an effective CbCR mechanism intermittently and without prior notice. Therefore, it is recommended that Taiwanese entities of foreign MNE groups seek advice from their tax consultants and monitor for any further developments regarding the list of treaty countries after the CIT filing. It is expected that further details/guidance on practical issues for CbCR will be released by the MOF in the near future.

Final thoughts

Given Taiwan's excellent geographic location and talent pool, the government has always encouraged foreign enterprises to invest in Taiwan. This is evidenced by the various tax changes that have taken place in Taiwan in recent years, including research and development incentives, more flexibility in share-based compensation schemes, a major reform to the imputation tax regime with a view to simplifying the system, and so on. Despite the increase in the Taiwan CIT rate from 17% to 20% effective from January 1 2018, the overall effect of the changes is to better align the Taiwan tax system with international practices. The new tax ruling issued by the MOF in April this year, for foreign businesses engaging in importing, storage, processing sales and delivery of goods, clearly sends a positive message to the market and to foreign businesses specifically.

For the changes discussed above, we are expecting more detailed guidance to be provided in due course. It is recommended that existing and potential investors closely monitor the development and implementation details of the changes to ensure that tax risks and obligations are appropriately managed and compliance requirements are met, while tax opportunities are appropriately secured. Further, as tax information becomes more accessible to the Taiwan tax authorities, increases in tax audits should be expected.

We note that many Taiwan MNEs have their manufacturing facilities in China. Given the increasing costs in China, the US tax reforms and the recent US tariff policies against China, Taiwan businesses are looking into the possibility of investing into the US and revisiting its manufacturing supply chain with a view to reducing the negative impact to their overall groups' profitability. As such, given Taiwan's continuing encouragement of foreign business, including welcoming the return of Taiwan enterprises' overseas operations to Taiwan, it may now be a good time for businesses to review their supply chains in the medium to long-term perspective.

Sherry Chang


Partner, Tax

KPMG Taiwan

Taipei 101 Tower, 68F, No.7, Sec.5, Xinyi Rd.,

Taipei City 11049, Taiwan (ROC)

Tel: +886 2 8101 6666


Sherry Chang joined KPMG in 1999 and became a tax partner in 2004. She is the head of tax and the global transfer pricing services leader at KPMG Taiwan.

Sherry has been involved in providing tax administrative remedy procedures, tax consultation services for individual and tax consultations services for both domestic and multinational groups in the areas including: transfer pricing, corporate investments, operational and shareholding structuring, tax incentive applications, etc. In terms of industrial specialisation , Sherry has specific experience in technology, media and telecommunications, industrial and consumer markets, financial services and infrastructure, government and healthcare.

Sherry received her master's degree in management from the National Taiwan University. She is a member of the Taipei City, Kaohsiung City and Taiwan Provincial CPA Association. Prior to joining KPMG, Sherry worked for nine years in the legal affairs division and the first examination division of National Taxation Bureau of Taipei, Ministry of Finance (NTBT). During her time at the NTBT, her main service lines included commentating and research on tax laws, as well as the inspection and auditing of corporate income tax returns. By leveraging her knowledge and experience in taxation and valuable connections with taxing authority, Sherry assisted many of her clients with various taxation issues.

Stephen Hsu


Partner, Tax

KPMG Taiwan

68F, Taipei 101 Tower, No. 7,

Sec. 5 Xinyi Road, Taipei 11049,

Taiwan (ROC)

Tel: +886 2 8101 6666


Stephen Hsu is head of mergers and acquisition (M&A) tax and the head of financial services tax of KPMG in Taiwan. Before joining KPMG, Stephen was a tax officer at the Taipei National Tax Administration, Ministry of Finance.

Stephen specialises in the provision of financial services. He has assisted multinational companies in M&A tax evaluations, international tax planning and tax planning services for corporate investment and operation structures. He has also been actively providing global transfer pricing services to both foreign and domestic companies and assistance in tax appeal consultation and filings.

Stephen is an instructor both internally at KPMG in Taiwan, and externally at national Taiwan University's College of Management as a professor in the department of accountancy, and a lecturer at the training institute of the Ministry of Finance, ROC. Stephen serves as an advisor of the Taiwan Insurance Institute. He is also a member of the Taipei City CPA Association, a member of the Taxation Agency, Ministry of Finance, ROC, and a member of the Government Information Office, ROC.

Hazel Chen


Partner, Tax

KPMG Taiwan

68F, Taipei 101 Tower, No. 7,

Sec. 5 Xinyi Road, Taipei 11049

Taiwan (ROC)

Tel: +886 2 8101 6666


Hazel Chen joined the tax service department in Taiwan in 2006. Before her tax consulting career, Hazel was a former tax officer of the Taipei National Tax Administration, with more than four years of experience in the field of individual income tax and corporate income tax audit. Her experience has strengthened her understanding of the practices of the tax administration.

Hazel provides tax consulting services to both domestic and multinational groups in areas of transfer pricing, corporate investments and operational structuring, as well as tax audit assistance. She also assists multinational companies in handling global transfer pricing and tax compliance issues. Her specialisation is in the technology, media and telecommunications sectors in both industrial and consumer markets.

Hazel has been involved in numbers of tax field audit projects for merger transactions conducted by multinational and large local companies. She also has extensive experience in cooperation with many foreign KPMG teams through co-execution of various transfer pricing analyses.

Hazel is a frequent speaker at tax and transfer pricing seminars, and workshops for clients and the public.

Ellen Ting


Partner, Tax

KPMG Taiwan

68F, Taipei 101 Tower, No. 7,

Sec. 5 Xinyi Road, Taipei 11049,

Taiwan, ROC

Tel: +886 2 8101 6666


Ellen Ting joined KPMG Taiwan in 2004. Before joining the firm, she worked for three and a half years with the KPMG Vancouver office, in the international tax department, focusing on US corporate and state tax.

Ellen has assisted many multinational companies in providing tax advisory services in respect of their operations and transactions in Taiwan. Her areas of focus include income tax and withholding tax on cross-border transactions, surtax, tax risk analysis, tax incentive planning and indirect taxes. She has been involved in a broad array of projects, including restructuring, tax due diligence, and has experience advising clients from the financial services industry including banks, fund houses and securities houses.

Her areas of focus also include global transfer pricing and she has participated in many transfer pricing projects encompassing planning, compliance, contemporaneous documentation and audit defence for multinational corporations from various industries.

Other than client responsibilities, Ellen is a frequent guest speaker for various foreign trade organisations and at taxation seminars.

Lynn Chen


Partner , Tax

KPMG Taiwan

68F, Taipei 101 Tower, No. 7,

Sec. 5 Xinyi Road, Taipei 11049,

Taiwan (ROC)

Tel: +886 2 8101 6666


Lynn Chen joined KPMG Taiwan in 2001. With more than 12 years in providing tax advisory services to multinational corporations, Lynn's expertise includes Taiwan and international tax planning and risk assessment, tax due diligence, mergers and acquisitions (M&A), restructuring, investment structures, tax advisory for cross-border transactions and reorganisation for banking and private equity (PE) clients.

With extensive experience in transaction services, Lynn has managed and completed a significant number of complex M&A projects in various industries covering numerous jurisdictions.

Other than client responsibilities, Lynn is a frequent guest speaker in various foreign trade organisations and taxation seminars.

Betty Lee


Director, Tax

KPMG Taiwan

68F, Taipei 101 Tower, No. 7,

Sec. 5 Xinyi Road, Taipei 11049,

Taiwan (ROC)

Tel: +886 2 8101 6666


Betty Lee is an international tax director in KPMG Taiwan. She has more than 10 years of professional experience gained in a number of jurisdictions, namely Australia, Hong Kong and Taiwan. She joined KPMG Hong Kong in 2007 where she provides corporate tax advice and compliance services to Hong Kong businesses and multinational companies.

Betty joined KPMG in Taiwan in 2011 where she specifically provides international tax and investment consulting services for both domestic and multinational groups. Betty has extensive exposure and specialises in numerous facets of taxation to a range of clients, as well as identifying the needs and provision of required solutions, including investment holding structuring and tax planning, group restructuring and relevant tax implications, and general tax compliance and advisory support.

She is a member of the Chartered Accountants of Australia and New Zealand, a chartered tax advisor of The Tax Institute (Australia) as well as an international affiliate member of the Hong Kong Institute of Certified Public Accountants.

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