PORTFOLIO

Business Operations in the Republic of China (Taiwan) (Portfolio 958)

Tax Management Portfolio, Business Operations in the Republic of China (Taiwan), describes the forms of doing business in the Republic of China and the relevant tax acts and regulations.

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DESCRIPTION

Foreign investments in the Republic of China are subject to the approval of the competent government authorities pursuant to the Statute for Investment by Foreign Nationals, the Statute for Investment by Overseas Chinese, the Statute for Establishment and Administration of Science-Based Industrial Parks, or the Statute for Establishment and Administration of the Export-Processing Zones. The formation and operation of a company are discussed in detail.

Other than a treaty on shipping and air transport income, there is no income tax treaty between the Republic of China and the United States. However, a flat corporate income tax rate (17%) and tax incentives under the Statute for Industry Innovation and other related regulations substantially alleviate the tax burdens of United States investors in the Republic of China. Moreover, the Republic of China has entered into tax treaties with a number of countries, including France, Germany, the Netherlands, Singapore, and the United Kingdom, among others. These treaties provide investors from those jurisdictions with preferential tax treatment.


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AUTHORS

Business Operations in the Republic of China (Taiwan) was authored by the following experts.
C. V. CHEN
C. V. Chen, Managing Partner, admitted 1975, Member of Taipei and Kaohsiung Bar Associations, R.O.C.; Education: S.J.D., Harvard Law School (1972); LL.M., Harvard & University of British Columbia; LL.B., National Taiwan University. Experience: Managing Partner and CEO, Lee and Li Attorneys-at-Law, Taipei, Taiwan; Member of the Committee of Taxation Policy and Regulation Consultation, Ministry of Finance, R.O.C.; Adjunct Professor of Law, National Chengchi University & Soochow University Graduate School of Law (1972–present), Taiwan; Lecture Professor of Law at the Management Schools of Peking University and Tsinghua University, China; President, (April 2000–present), The Red Cross Society of the Republic of China; Chairman, Taipei European School Foundation, Taiwan, Republic of China (1994–present); Director (December 1993–present), Vice Chairman (February 1992–December 1993), first-term Vice Chairman & Secretary General (November 1990–February 1992), Straits Exchange Foundation; Director, Lee and Li Foundation; President, The Chinese Society of International Law (January 2004–present); Board of Director, Yuan Ze University (Taiwan) (1990–present); Honorary President, Harvard Club of Republic of China on Taiwan (1989–present); Numerous articles on transnational legal problems.

SOPHIA H. H. YEH
Sophia H. H. Yeh, National Taiwan University, Taipei (LL.B., 1980); University of Pennsylvania Law School (LL.M., 1987); senior counselor at Lee and Li, Attorneys-at-Law (1981–present ); co-leader of projects for Amendments to the Company Act, Amendments to Mechanisms for Merger and Acquisition and Share Swap, Knowledge-based Economy Related Legal Framework Research, Strategy Planning for Establishing Taiwan as a Global or Asian Resource Integrator, Securitization of Assets; Co-writer of the Taxation of Income Derived from the Supply of Technology (IFA), Model Acquisition Asset Purchase Agreement(ABA).

JOSEPHINE Y. K. PENG
Josephine Y. K. Peng, Member of Taiwan CPA Association and Taipei Certified Public Accountant Association (since 1985); CPA, New Jersey, USA (since 1982); Senior CPA and Senior Counselor, Lee and Li, Attorneys-at-Law, Taipei (2000–present); Managing Partner, Intellects & Co., CPAs, Taipei (1989–2000); Columbia University, USA (Accounting Doctoral Program, 1981); Central State University of Oklahoma, USA (MBA, 1980); National Chung Hsing University, Taipei (B.B.A., 1977). Named by International Tax Review in 2006 as the most sought after tax adviser in Taiwan; and by The Tax Directors Handbook 2009 as one of the three best tax advisers in Taiwan; leads the Tax Practice Group of Lee and Li, Attorneys-at-Law, which was voted by International Tax Review in 2006 and 2007 as Taiwan Tax Firm of the Year; an active member on the tax committees of the American Chamber of Commerce in Taipei and the European Chamber of Commerce in Taipei; and a regular contributor of articles on various tax issues.

TABLE OF CONTENTS

Detailed Analysis

I. An Introduction to Taiwan

A. The Country, Its People, and the Economy

B. The Government

II. Operating a Business in Taiwan

A. Foreign Investment Regulations

1. Opportunities

2. Incentives

3. Requirements

4. Registrations and Licenses

B. Currency and Exchange Controls

1. Background

2. Major Liberalization

3. Impact on Inward and Outward Remittances

C. Trade and Commerce Regulations

1. Imports and Exports

a. Licenses and Quotas

b. Customs Duties and Other Taxes

c. Documentation

2. General Regulation of Business

a. Monopolies

b. Mergers and Combinations

c. Concerted Actions

d. Unfair Trade Practices

e. Price Fixing

f. Trade Secrets

g. Personal Data Protection

3. Securities Regulations

a. Administration

b. Futures Transactions

c. Anti-manipulation

d. Foreign Investment in the Securities Market

4. Licensing and Franchising

a. Repatriation of Royalties

b. Tax Implications

c. Income Tax Exemption

d. Reduced Income Tax Rate

5. Consumer Protection Act

a. Product Liability and Safety

b. Standard Contracts and Special Sales

c. Consumer Information

d. Administrative Supervision

e. Complaints and Mediation

f. Consumer Litigation and Penalties

6. Money Laundering Control

a. Controlled Activities

b. Reporting Obligation

c. Penalties

D. Immigration Regulations

1. Visa Requirements

2. Alien Resident Certificate

3. Work Permit

E. Labor Relations

1. Labor Standards Act

a. Minimum Standards for Working Conditions

b. Labor Contracts

c. Wages

d. Working Hours, Rest and Vacations

e. Retirement

(1) Old Pension Scheme Under the Labor Standards Act

(2) New Pension Scheme Under the Labor Pension Act

(a) Choice Between Old and New Pension Schemes

(b) Setting Aside Pension Fund for Employees Subject to Old Pension Scheme

(c) Seniority and Severance Pay Under the Labor Pension Act

(d) Contributions to Employees' Individual Pension Fund Accounts

(e) Pension Fund Payment

(f) Annuity Insurance

(g) Liability and Penalties for Noncompliance with the Labor Pension Act

2. Labor, National Health and Employment Insurances

a. Labor Insurance

b. National Health Insurance

c. Employment Insurance

3. Gender Equality in Employment

a. Prohibition of Gender Discrimination

b. Prevention of Sexual Harassment

c. Measures to Promote Equality in Employment

4. Labor Unions

5. Mass Redundancy of Employees

6. Labor Disputes

7. Employee Welfare

8. Safety and Sanitation

III. Forms of Doing Business in the Republic of China

A. Principal Business Entities

1. Sole Proprietorship

2. Company

3. Partnership

4. Branch Office of a Foreign Corporation

5. Other Alternatives

B. Company Limited by Shares

1. Formation

a. Business Scope

b. Corporate Name

c. Incorporators

d. Articles of Incorporation

e. Capital Stock

f. Incorporation Procedure

g. Directors and Supervisors

h. Costs of Incorporation

2. Operation

a. Special License

b. Amendment to Articles of Incorporation

c. Increase and Reduction of Capital

d. Acquisition of Own Shares

e. Transfer of Shares

f. Corporate Officers

g. Shareholders' Meeting

h. Directors' Meeting

i. Books and Records

j. Financial Statements

k. Dividends and Other Distributions of Profits

l. Reserves

m. Investment in Other Companies

n. Extending Loans

3. Merger

4. Dissolution

5. Liquidation

6. Reorganization

C. Branch Office of Foreign Corporations

1. Registration

2. Liability

3. Books and Records

IV. Taxation of Domestic Companies

A. Definition of Domestic Company

B. Corporate Income Tax

1. Taxation of Worldwide Income

2. Registration and Accounting

3. Calculation of Gross Income

a. General

b. Exemptions

(1) Interest Income from Short-Term Commercial Paper

(2) Capital Gains from Sale of Land

(3) Capital Gains from Transactions in Securities and Futures

(4) Dividend Income

4. Business Expenses

a. General

b. Organizational Expenses

c. Bad Debts

d. Casualty Losses

e. Charitable Contributions

f. Depreciation and Amortization

g. Entertainment Expenses

h. Foreign Investment Loss Reserve

i. Interest and Royalties

j. Inventory Write-Downs

k. Investment Losses

l. Obsolete Equipment

m. Repair and Maintenance

n. Rental

o. Salaries and Wages

p. Taxes

q. Loss Carryforward

5. Tax Credits

a. Foreign Tax Credit

b. Investment Tax Credit

c. Tax Credit for Research and Development and Personnel Training Expenditures

6. Tax Rates and Calculation of Taxable Income

7. Tax Integration

8. Transfer Pricing Regulations

C. Ten-Percent Undistributed Earnings Tax

D. Alternative Minimum Tax

E. Assessment and Filing

V. Taxation of Foreign Companies

A. Definition of Foreign Company

B. Definition of ROC-Sourced Income

C. Method of Taxation

1. Filing and Payment by Fixed Place of Business

2. Filing and Payment by Business Agent

3. Withholding by Payer

4. Filing and Payment by Foreign Company

5. Special Withholding Tax Rates and Exemptions

a. Withholding Tax Rate of 2.5% or Exemption

b. Withholding Tax Rate of 3.75%

c. Reduced Rate for a Foreign Motion Picture Company

d. Exemption for Interest Income

D. Alternative Minimum Tax

VI. Taxation of Resident Individuals

Introductory Material

A. Gross Income

B. Exemptions, Deductions, and Imputed Credit

1. Exemptions

a. General

b. Pension/Termination Payments

2. Deductions

3. Imputed Credit

C. Individual Income Tax Rates

D. Income Subject to Income Tax Withholding

E. Alternative Minimum Tax

F. Filing

VII. Taxation of Nonresident Individuals

Introductory Material

A. Withholding Income Tax

B. Income Tax Exemptions

C. Filing of Returns and Payment of Tax

VIII. Taxation of Partnerships and Other Business Entities

IX. Tax Incentives

A. Statute for Upgrading Industries

1. Investment Reserves

2. Tax Credits

a. Tax Credits or Exemption for Newly Emerging, Important, and Strategic Industries

(1) Investment Tax Credit

(2) Five-Year Tax Holiday

b. Tax Credits for Investments in Specified Industries

c. Tax Credits for Investments in Various Geographical Areas

d. Tax Holidays for Investments in Manufacturing and Related Technical Service Industries

e. Exemption from Customs Duty and Business Tax

3. Special Withholding Tax Rate and Tax Exemptions

a. 20% Withholding Rate for Shareholders Receiving Foreign Investment Approval

b. Tax Exemption

4. Accelerated Depreciation

5. Tax Benefits for Merger or Consolidation

6. Tax Exemption for Patent Right or Computer Program Copyright Royalties

7. Other Incentives

B. Statute for Establishment and Administration of Science-Based Industrial Park

C. Statute for Establishment and Administration of Export Processing Zones

D. Regulations Governing Customs Bonded Factories

E. Regulations Governing Offsetting or Refund of Duties and Taxes on Raw Materials of Export Products

F. Regulations Governing Establishment and Administration of Bonded Warehouses

G. Statute for Encouragement of Private Participation in Transportation Infrastructure Projects

X. Avoidance of Double Taxation

A. Foreign Tax Credit

B. Tax Exemption

C. Tax Treaties

XI. Other Taxes

A. Business Tax

1. General

2. Zero Tax Rate

3. Tax Exemptions

4. Business Tax Rate and Calculation of Value Added Tax

5. Tax Registration

6. Government Uniform Invoices

7. Declaration and Payment of Business Tax

8. Audit and Penalty

B. Stamp Tax

1. General

2. Taxpayers

3. Tax Rates

C. Commodity Tax

1. General

2. Taxable Commodities and Tax Rates

3. Payment

4. Exemptions

D. Customs Duty and Dues

1. General

2. Duty-Paying Value

3. Tariff Rates

4. Exemptions

5. Duty Bonding

6. Duty Refund

7. Countervailing and Anti-Dumping Duties

E. Securities Transaction Tax and Securities Transaction Income Tax (Capital Gains Tax)

1. General

2. Tax Rates

3. Payment

F. Futures Trading Tax and Futures Trading Income Tax (Capital Gains Tax)

1. General

2. Tax Rates

3. Payment

G. Taxes on Real Property

1. Land Value Increment Tax

2. Land Tax

3. Deed Tax

4. Building Tax


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 Check List of Documents Required for Application for Investment by Foreign National or Overseas Chinese

Worksheet 2 Application Form, Summary of Business Plan and Guidelines for Preparation of a Business Plan for Investment Project in Science-Based Industrial Park

Worksheet 3 Application Form for Investment in Export Processing Zone

Worksheet 4 Memorandum on Forms of Business Operations in the Republic of China

Worksheet 5 Memorandum on Investment in and Incorporation of an FIA Company Limited by Shares

Worksheet 6 Memorandum on Procedures for Establishment of a Company Limited by Shares by a Foreign Company in the Republic of China

Worksheet 7 Sample Articles of Incorporation of a Company Limited by Shares

Worksheet 8 Memorandum on Procedures for Application for Recognition as a Legal Entity and Establishment of a Taiwan Branch by a Foreign Company in the Republic of China

Worksheet 9 Memorandum on Procedures for Applying for the Establishment of a Representative Office Under Article 386 of the R.O.C. Company Act

Worksheet 10 List of Comprehensive Double Taxation Agreements and Related Protocols signed by The Republic of China as of January 1, 2009

Worksheet 11 List of Shipping and Air Transport Taxation Agreements Signed by The Republic of China as of January 1, 2009

Worksheet 12 Table of Withholding Rates

Bibliography

OFFICIAL

Laws and Regulations: