Business Operations in the Republic of China (Taiwan) (Portfolio 7080)

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. To view this Portfolio, visit Bloomberg Tax for a free trial.

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Description

Tax Management Portfolio, Business Operations in the Republic of China (Taiwan), No. 7080 T.M., describes the forms of doing business in the Republic of China and the relevant tax acts and regulations.

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 (20%) 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.

This Portfolio may be cited as Chen, Tseng and Lin, 7080 T.M., Business Operations in the Republic of China (Taiwan).




Authors

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.

Ken-Ying Tseng

Ken-Ying Tseng, National Taiwan University, Department of Law (LL.B., 1993); National Taiwan University, Graduate Institute of Law (LL.M., 1995); Harvard Law School (LL.M., 1998); partner at Lee and Li, Attorneys-at-Law (2006 – present); practice focusing on mergers and acquisitions/joint ventures of cable TV system operators, e-commerce/dotcom companies, on-line game companies, news media, telecommunications, retail business, and other high-tech companies dealing in technology industries such as electronics/semiconductors/EMC testing industries etc. Extensive experience in cross-border M&A transactions having advised multinational companies on compliance, procedure and requisite applications in respect of this particular branch of the law. Head of the Mergers and Acquisitions Practice Group (non-financial sector) and of the Personal Data and Privacy Practice Group at Lee and Li. Named as one of the Asialaw Leading Lawyers, 2013 to 2018.

Frank Lin

Frank Lin, Member of the Taiwan CPA Association and Taipei Certified Public Accountant Association (since 1989); Member of Taipei Bar Association (since 1997); Partner, Lee and Li, Attorneys-at-Law (since 2005); Partner, L&L, Leaven & Co., CPAs, Taipei (since 2014); Northwestern University (Program for Corporate Law and Business for Legal and Business Professionals 2001); Soochow University, LL.M. (1996); Soochow University, MBA (1989); National Taiwan University, BA (1985). Co-writer on the research report on the draft Business Mergers and Acquisitions Act enacted in 2002; Adviser on draft Income Basic Act enacted in 2005; Advisor's Representative of the Committee of Tax Policy & Regulations of the Ministry of Finance. Named as one of the leading individuals in the tax field in Taiwan by Legal 500.

Table of Contents

Detailed Analysis
I. The Republic of China (Taiwan) — The Country, Its People and Economy
A. The Country and Its People
B. The Economy
C. The Government
II. Operating a Business in Taiwan
A. Foreign Investment Regulation
1. Calculation of PRC Investor's Shareholding
2. Examination of PRC Investor's Controlling Power
B. Currency and Exchange Controls
1. Background and Liberalization
2. Impact on Inward and Outward Remittances
C. Trade and Commerce Regulation
1. Imports and Exports
a. Licenses and Quotas
b. Customs Duties and Other Taxes
2. General Regulation of Business
a. Monopolies
b. Mergers and Combinations
(1) Types of Notifiable Combination
(2) Filing Thresholds
(3) Extraterritorial Transactions
c. Concerted Actions
d. Unfair Trade Practices
e. Securities Regulation
(1) Administration
(2) Foreign Investment in Listed Securities
(3) Purchase and Sale of Securities
(4) Anti-Manipulation
3. Licensing and Franchising in the ROC
a. Patents and Industrial Know-How
b. Trademark and Trade Names
c. Copyright
d. Franchising
D. Immigration Regulations
1. Non-PRC Nationals
a. Visiting the ROC
b. Working in the ROC
2. PRC Nationals
E. Labor Relations
1. Employee Statutory Entitlements
a. Minimum Wage, Working Hours, Rest Days, Public Holidays, Annual Leave and Other Statutory Leaves
b. Employer's Obligations with Respect to Occupational Injury
2. Statutory Causes for Termination of an Employee's Employment Contract
3. Retirement
a. Voluntary Retirement
b. Compulsory Retirement
c. Retirement Benefits
(1) Old Pension Scheme
(2) New Pension Scheme
(3) Choice Between Old Pension Scheme and New Pension Scheme
4. Hiring of Minor Workers
5. Work Rules
6. Penalties
F. Financing the Business
1. Shareholders' Fund
2. Third-Party Loans
3. Capital Market
III. Forms of Doing Business in the ROC
A. Principal Business Entities
1. Company Limited by Shares
2. Limited Company
3. Closely-Held Company
4. Partnership
5. Branch of a Foreign Corporation
6. Representative Office
B. Company Limited by Shares
1. Formation
a. Incorporation Procedure
b. Articles of Incorporation
c. Costs of Incorporation
2. Operations
a. Special License
b. Increases and Reductions of Capital Stock
c. Acquisition of Own Stock
d. Director(s) and Supervisor(s)
e. Board Meetings
f. Shareholders' Meetings
g. Financial Statements
h. Dividends, Other Distributions of Profits and Reserves
3. Dissolution
4. Liquidation
5. Reorganization
C. Limited Company
1. Formation
2. Administration
a. Director
b. Shareholders' Meeting
c. Supervision
d. Managers
3. Dissolution
D. Closely-Held Company
1. Formation
2. Operation
a. Shares
b. Shareholders' Meetings
c. Accounting
3. Transformation of Corporate Form
E. Partnership
1. Contribution
2. Administration
3. Withdrawal
F. Branch of a Foreign Corporation
1. Registration
2. Liability
3. Branch Manager and/or the Litigious and Non-Litigious Agent
G. Representative Office
IV. Principal Taxes
A. Sources of Authority in Tax
1. Legislative
a. Organization of the Tax Law
b. Other Legislative Documents that Can Be Used to Interpret the Law
c. Legislative Process
(1) Delivery of Draft Bills
(2) Readings of Draft Bills
(a) First Reading
(b) Second Reading
(c) Third Reading
(3) Promulgation by the President
d. Constitutional Challenge
2. Administrative
3. Courts
a. Court System
b. Procedure for Tax Controversies
c. Precedential Value of Court Decision
B. Income Tax
1. General Principle
2. Income Tax on Capital Gain
a. Capital Gain from the Sale of Land
b. Capital Gain from Securities Transactions
C. Estate and Gift Tax
1. Estate Tax
2. Gift Tax
D. Sales Tax
1. Tax Scope
a. General Principle
b. Tax Exemptions
2. Definitions
a. Sale of Goods
b. Sale of Services
c. Importation of Goods
d. Business Operators
e. Taxpayers
3. Business Tax Rate and Calculation of VAT
a. Tax Rates in General
b. Calculation of VAT
(1) General Principle
(2) Situations Where Input VAT Cannot Be Applied to Reduce VAT Liability
c. Zero Tax Rate
4. Government Uniform Invoices
5. Declaration and Payment of Business Tax
6. Services Rendered by Foreign Enterprises
a. General Regulation
b. Special Regulation for Foreign E-Commerce Operations
E. Capital Investment Tax
1. Securities Transaction Tax
a. General
b. Tax Rates
c. Tax Collection Procedure
2. Futures Trading Tax
a. General
b. Tax Rates
c. Payment
F. Tax on Real Property
1. Income Tax
2. Land Value Increment Tax
3. Land Tax
4. Deed Tax
5. Building Tax
G. Specifically Selected Goods and Services Tax
1. General Description
2. Tax Scope
a. Specifically Selected Goods
b. Specifically Selected Services
3. Tax Rate
4. Taxpayers and Time of Taxation
H. Stamp Tax
1. General
2. Taxpayers for Stamp Tax
3. Tax Rates for Stamp Tax
I. Commodity Tax
1. General Description
2. Taxpayers
3. Taxable Commodities and Tax Rates
4. Computation of Taxable Value
5. Returns and Payments
6. Exemptions
J. Customs Duty
1. General
2. Duty-Paying Value
3. Tariff Rates
4. Exemptions
V. Taxation of Domestic Corporations
A. What Is a Domestic Corporation?
B. Corporate Income Tax
1. Taxation of Worldwide Income
2. Accounting
a. General
b. Accounting Periods
c. Accounting Methods
d. Inventories
e. Reserves
3. Calculation of Net Income
a. General
b. Capital Gains
(1) Capital Gains from Sale of Land
(2) Capital Gains from Sale of Securities and Futures
c. Dividend Income
d. Income from Foreign Sources
e. Stock Options
f. Other Inclusions in Gross Income
4. Business Expenses
a. General
b. Organizational Expenses
c. Travel and Entertainment Expenses
(1) Travel
(2) Entertainment
d. Interest and Royalties
(1) Interest
(2) Royalty
e. Taxes
f. Depreciation and Amortization
(1) Depreciation
(2) Amortization
g. Obsolete Equipment
h. Charitable Contributions
i. Capital Losses
j. Casualty Losses
k. Reserve Accounts
l. Bad Debts
m. Inventory Write-Downs
n. Rent
o. Salaries and Wages
p. Repair and Maintenance
5. Capital Expenditures
6. Loss Carryforwards and Carrybacks
7. Tax Credits
a. Foreign Tax Credit
b. Investment Tax Credit
c. Deferred Income
8. Tax Rates and Calculation of Taxable Income
9. Filing and Assessment
a. Provisional Tax Payment and Filing
b. Annual Tax Returns Filing
c. Assessment
10. Audit Process and Statute of Limitations for Assessment and Collection of Taxes
a. Audit Process
(1) Paper Review
(2) Assessment Through Auditing
b. Statute of Limitations for Assessment
c. Statute of Limitations for Collection of Taxes
11. Consolidated Returns
12. Reorganizations
a. Change of Legal Form
b. Mergers, Spin-offs, etc.
c. Cross-Border Transactions
d. Liquidation
13. Advance Rulings
C. Other Taxes
1. Income Basic Tax
2. Undistributed Earnings Tax
3. Dividend Tax
4. Business Tax
a. General
b. Filing Procedure
c. Standard Tax Rates
VI. Taxation of Foreign Corporations
A. What Is a Foreign Corporation?
B. Determination of Taxable Income
1. Taxable Income in General
2. Deemed Taxable Income
3. Exemptions
a. Royalty Income
b. Interest Income
C. Method of Taxation
1. Investment Income and Passive Payments
2. Business Income
D. Filing and Assessment
1. Filing and Payment by Fixed Place of Business
2. Filing and Payment by Business Agent
3. Withholding and Payment by ROC Payor
4. Filing and Payment by Foreign Corporation
VII. Taxation of Branches of Foreign Corporations
Introductory Material
A. Determination of Taxable Income
B. Method of Taxation
C. Filing and Assessment
D. Subsidiary vs. Branch
1. Subsidiary
2. Branch
VIII. Taxation of Partnerships
   
A. Small-Scale Partnership
B. Regular-Scale Partnership
IX. Taxation of Other Business Entities
   
A. Small-Scale Sole Proprietorship
B. Regular-scale Sole Proprietorship
X. Taxation of Individuals — Residents
A. Scope of Taxation
B. Resident
1. Definition
2. MOF's Interpretation
C. Determination of Gross Income
1. General Principle
2. Exemptions
D. Allowable Allowances, Deductions and Credits
1. Allowable Allowances
2. Deductions
3. Credits
4. Indexation
E. Rates and Calculation of Taxable Income
F. Filing and Assessment
1. Consolidated Tax Returns
2. Deadline and Procedures
3. Cases Exempt from Filing Tax Return
4. Forms of Tax Returns
5. Assessment
G. Statute of Limitations for Assessment and Collection of Taxes
1. Statute of Limitations for Assessment
2. Statute of Limitations for Collection of Taxes
H. Alternative Minimum Tax
XI. Taxation of Nonresident Individuals
A. General
B. Business Income
1. General Principle
2. Exclusion
3. Exempted Income
C. Investment Income
D. Capital Gains
E. Method of Taxation
XII. Estate and Gift Tax
Introductory Material
A. Estate Tax
1. Liable Persons
2. Territorial Scope of Tax
3. Taxable Base
a. Taxable Property
(1) Estate
(2) Constructive Estate
(3) Evaluation of Estate
(4) Exempt Property
b. Exempt Transfers
c. Deductible Liabilities
d. Personal Allowances and Deductions
4. Tax Rate
B. Gift Tax
1. Liable Persons
2. Territorial Scope of Tax
3. Taxable Base
a. Taxable Property
(1) Gift
(2) Deemed Gift
b. Exempt Transfers
c. Deductible Liabilities
d. Personal Allowances
4. Tax Rate
XIII. Intercompany Pricing
Introductory Material
A. Transfer Pricing Regulations
B. Adjustment of Intercompany Prices
1. Scope of the Provision
2. Determination of Arm's-Length Price
a. Transfer Pricing Principles
b. Transfer Pricing Methods
3. Documentation Requirements
a. Transfer Pricing Report and Other Required Documents
b. Master File and Country-by-Country (CbC) Reporting
c. Safe Harbor Rules
4. Availability of Advance Pricing Arrangement on Pricing
a. Criteria for Applying for an APA
b. Required Documents for Applying for an APA
c. Determination of an APA
d. Effective Period of APA
5. Competent Authority
XIV. Special Provisions Relating to Multinational Corporations
A. Foundation
1. Applicable Laws and Regulations
2. Procedures
a. Timeline
b. Minimum Amount of the Initial Fund
c. Articles of Endowment
d. Board of Directors and Supervisor(s)
e. Required Documents
f. Government Fee
3. Use of Initial Fund and Income Generated
4. Annual Reporting Obligations
5. Tax Exemption Criteria
6. Tax Deduction of a Donation to a Foundation
B. Tax Haven Operations and Important ITA Amendments
1. CFC Rules (Article 43-3 of the ITA)
a. Definition of CFC
b. Safe Harbor Rule
c. Taxation Under CFC Rule
d. Avoidance of Double Taxation
2. PEM Rules (Article 43-4 of the ITA)
a. Definition of PEM
b. Taxation Under PEM Rule
c. PEM Rule Supersedes CFC Rule
3. Effective Date of the CFC and PEM Rules
4. Authors' Comments
C. Alternative to Meet the CRS
XV. Avoidance of Double Taxation
A. Foreign Tax Credits
B. Tax Treaties
1. Tax Treaty Negotiation and Ratification Process
2. Procedure to Claim Reduced or No Withholding, or Refund
3. Taxation of Business Income
a. Permanent Establishment
(1) General Principle
(2) Construction PE
(3) Deemed PE for Services Rendered or Practice of Profession over a Period of Time
(4) Agent PE
b. Industrial or Commercial Profits
c. Planning to Minimize Taxation of Business Income Under the Treaty
4. Taxation of Investment Income
a. What Is Investment Income
b. Withholding Rates
C. Tax Treaties with the United States
1. Income Tax Treaty
2. Estate and Gift Tax Treaty
3. Other International Transportation Income Tax Agreement

Working Papers

Table of Worksheets
Worksheet 1 Checklist of Documents Required for Application for Initial Investment (Including Establishment of New Enterprises) by Overseas Chinese or Foreign Nationals
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 Procedures for EPZ Investment Application
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 (for Non-public listed FIA Co.)
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 Countries with Which Taiwan Has In Force Income Tax Treaties and Other Tax-Related Agreements as of March 31, 2018