Comparison of Taiwan Branch and Subsidiary

When a foreign company decides to set up an operation in Taiwan to carry out business activities, it could choose either a limited liability company (or a company limited by shares) or a branch office. A limited liability company is a separate legal entity independent from its parent company, whereas a branch office is merely an extension of the operation of the head office. This article introduces briefly the difference between a limited liability company and a branch office in Taiwan.

1. Definition and Main Differences Between a Branch and a Subsidiary A subsidiary is incorporated pursuant to the Company Act and is an independent legal entity. A subsidiary can be listed in the stock market and is entitled to various tax incentives. When a subsidiary distributes dividends to its foreign shareholders, it is subject to 20% withholding tax. A branch is also incorporated pursuant to the Company Act and can run its business independently; however, from a legal point of view, the branch is dependent to its head
office. If there will be any lawsuit against the branch, the head office will also be involved. In addition, a branch cannot be listed in the stock market and is not entitled to various tax incentives. When a branch distributes the profits back to its head office, there is no 20% withholding tax.

2. Accounting and Tax Filing Obligations
Both subsidiary and branch are subject to the Business Accounting Act in Taiwan and are required to maintain book of records in accordance with local generally accepted accounting principles. The book of records shall be maintained in local languages and
denominated in local currency; however, if the book of records is maintained in a foreign language, a translation from that foreign language to local language upon request can be acceptable to the tax authorities. Both subsidiary and branch are required
to file annual corporate income tax returns and VAT returns on a bi-monthly basis. If there are any payments that require withholding of income tax from the recipients, both entities are required to do so to comply with the law.

3. Registration Formalities
For a subsidiary, the registration procedures are:
(1) Chinese company name reservation
(2) Foreign investment approval
(3) Capital examination (verification report)
(4) Company registration
(5) Tax registration
For a branch, the registration procedures are:
(1) Chinese company name reservation
(2) Recognition & branch registration
(3) Capital examination (verification report)
(4) Tax registration
Once registration is obtained, the branch will have the same rights and obligations and will be subject to the same jurisdictional authority as a domestic company. In running businesses, a branch is an independent entity; however, from a legal point of view, a branch is dependent to its head office.

4. Tax Liabilities
In general, a limited liability company is subject to overall high tax than a branch office in Taiwan. Enclosed below is a table comparing the difference between a limited company and a branch in terms of tax liability.

Tax and Duties	Limited Liability Company	Branch Office
Corporate Income Tax	20%	20%
Individual Income Tax (max. tax rate)	Local Staff: Below NTD540,000, 0% Above NTD540,000, 5% to 40% Foreign Staff: 18%	Local Staff: Below NTD540,000, 0% Above NTD540,000, 5% to 40% Foreign Staff: 18%
Business Tax	5% (Filling at every two months)	5% (Filling at every two months)
Undistributed profit Tax	5%	waive
Distributed profit Tax	21%	waive

Comparison of Branch and Subsidiary in Taiwan

Structure	Branch Office of Foreign Company	Subsidiary
		Limited Company	Company Limited by Shares
Company Name	Translate foreign company name into Chinese language and apply for name approval	Name company & apply for name approval
Minimum Number of Shareholders	N/A	1	1-2 (Note 1)
Minimum Number of Directors	1(2)	1	3
Minimum Number of Supervisors	N/A	N/A	1
Corporate Directors Permitted	No	No
Requirement for Local Directors	No
Requirement for Local Supervisors	N/A	No
Requirement for Registered Office	Yes
Requirement for Local Meeting	No	Yes
Minimum Authorized Capital (Note 1)	Depends on company’s policy
Requirement for share certificates	N/A	No	Yes
Requirement for Income Tax Return	Yes
Requirement for Audited Accounts	Yes
Profits Tax	20%
Dividend Distribution Tax	None	21% (of Income after Company Income tax)
Duration of Set Up Procedures	30-60 Days
Independent Entity	No	Yes

Note:
1. 1 for corporation; 2 for nature persons
2. The authorized capital shall be transfer into company’s bank account from where head
office/shareholder resides, shall not be paid in installments nor solicited from outsiders.