Foreign Company Taiwan Branch Compliance and Maintenance Guide

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Foreign Company Taiwan Branch Compliance and Maintenance Guide

 

Unless otherwise stated, the foreign company Taiwan Branch stated in this quotation referred to the limited company incorporated under the Taiwan Company Act and Business Registration Act. The compliances in this Guide are applicable to limited company as well.

 

When a foreign company Taiwan branch is established, in accordance with the provisions of Taiwan Company Act, the company must always have a Taiwan address for company registration, prepare annual business report, prepare financial statements, tax declaration in every two months and hire an accountant to audit its annual financial statement, etc.

 

This Guide is divided into 6 sections, mainly introduce the various declaration, maintenance responsibilities and related expenses after the establishment of a foreign company Taiwan branch. Section 1 -5 mainly describe the maintenance and compliance requirements for a Taiwan branch, while Section 6 shows the minimum necessary fees for maintaining one. The maintenance fees listed in this Guide is an estimated amount and is provided to Kaizen’s current and potential clients as reference only. The finalized fee is subject to actual condition.

 

This Guide does not cover all the compliance and declaration responsibilities that a Taiwan branch must comply with in accordance with Taiwan’s laws and regulations. If you have any questions about the content of this Guide or seeking for more information on the compliance of your Taiwan branch, please feel free to contact our professional consultants.

 

This Guide does not cover the licenses and permits required for operating in certain regulated businesses in Taiwan. If your Taiwan branch operates a regulated business, such as alcohol and medical equipment dealer, you may need to apply for a separate license or permit for your Taiwan branch. For more details, please contact out professional consultants.

 

  1. Compliance and Maintenance Requirements

 

  • Registered Office Address

 

According to the Taiwan Company Act, a branch that established in Taiwan must have a Taiwan registered office address. Post Office Box could not use as the registered office address for a branch. If there are any changes with the registered office address, the branch should notify the related competent authority, by submitting specific form and documents within 15 days upon date of event.

 

  • Preparation of Business Reports

 

According to the Taiwan Company Act and the Business Entity Accounting Act, within six months after the end of the fiscal year, the directors of the Taiwan branch shall prepare an annual business report and financial statements proposal for the shareholders. If no objection proposed within one month will deem as agree.

 

The business report shall include the management policy, implementation overview, business plan performance, business budget execution, profit analysis, status of research and development, etc. The company shall prepare the annual business report and place it in the company. The government has the right to request the business report for inspection.

 

  1. Compliance Requirements for Taxation

 

  • Declaration of Corporate Income Tax

 

  • Declaration of Annual Settlement

 

The annual settlement declaration must declare the branch’s operating income, costs, gross profit, expenses, net profit and non-operating income or losses.

 

Taiwan branch shall fill in the settlement declaration form from 1 May to 3 May each year and report to the National Taxation Bureau the company’s income and tax payable in the previous year. Company limited and limited company shall declare the undistributed surplus for the previous year with the additional 5% tax to it. Foreign companies Taiwan branch does not have to impose an additional 5% tax, but they still have to file settlement declaration. Therefore, from 1 May to 30 May each year, would be the peak season for declaration of company with fiscal year from 1 January to 31 December.

 

The fiscal year of ordinary company is in accordance with the provision of Income Tax Act and runs from 1 January to 31 December of the current year. The company can apply for a special period for fiscal year when registering for establishment, or it can change the fiscal year afterwards.

 

The minimum taxable amount and rates for corporate income tax are as follows:

Total Taxable Income Rate
Under NT$ 120,000 Waive
Over NT$120,000 20%

 

Operating losses from previous years shall not be included in the calculation of the current year. However, if the company keeps a complete set of account books and evidential documents, annual settlement for losses and entrusted an accountant to perform tax audit for the year of losses.

 

  • Provisional Tax Payment

 

Except those which comply with the relevant provisions for exemption of provisional payment, Taiwan branch shall settle the provisional tax which amount should be half of the corporate income tax payable from the previous year, from 1 September to 30 September each year. Companies shall also fill in the provisional tax declaration from in prescribed format, attached with the provisional tax payment receipt and declare to the National Taxation Bureau. However, if a Taiwan company, without using investment tax credit, refundable tax from administrative remedy and withholding tax to offset the amount of provisional tax payment in the preceding provisional tax payment, shall be exempt from filing a provisional income tax return according to the provision, if it pays the provisional tax to the public treasury.

 

A company organized by corporate (including foreign corporate Taiwan branch), which keeps a complete set of account books and evidential documents, after examine by a certified public accountant, and files the return within the said period, may alternatively compute the amount of provisional tax payment, which is based on the operating income incurred for the first six months of the current year under the relevant provisions of the Income Tax Act and applied with the tax rates.

 

For companies practicing special fiscal year may compute according to calendar-year, i.e., adding 8 months upon the starting month of the special fiscal year (eg: a company with April as the starting month of its fiscal year, it shall file the provisional tax from 1 December to 31 December).

 

  • Business Tax Registration and Declaration

 

  • Business Tax (VAT) Registration

 

Selling of goods or service or imported goods to Taiwan shall be subject to business tax in accordance with “Value-added and Non-value-added Business Act” (hereinafter referred to “Business Tax Act”). The company should apply for taxation registration with the Taiwan National Taxation Bureau for tax filing.

 

  • Issue of “Taiwan Uniform Receipt”

 

When a Taiwan branch sells taxable goods or services, the price should include tax, and a ” Taiwan Uniform Receipt” printed by the Taiwan government should be issued to the buyer. If the buyer is a company, the sales amount and output tax shall be separately listed on the receipt to benefit the buyer as input deduction.

 

  • Declaration and Payment for Business Tax

 

Except as otherwise provided in this Act, Taiwan branches shall, regardless of whether they have sales amount, fill in a declaration form in the prescribed format, attach with tax refund amount and other related documents, and submit to National Taxation Bureau for sales amount, business tax payable or overpaid, within 15 days from the beginning of the next phase. Those who have the amount of business tax payable should first pay it to the public treasury, and then report it together with the payment receipt. For example: the business tax for January and February should be paid before March 15.

 

If the Taiwan branch sells goods or services and applies the zero tax rate according to the regulations, it can apply one phrase in a monthly basis, and declare the sales, payable or overpayment of business tax to the Taiwan National Taxation Bureau before the 15th of the following month. However, it cannot be changed within the same year.

 

  1. Audit of Annual Financial Statement

 

  • Statutory Audit of Financial Statement

According to the Business Entity Accounting Act, Taiwan branches shall proceed with accounting base on the company’s source document and information, including examine of source document, prepare bookkeeping slip base on the source documents and account book, etc.

 

The account book shall be kept in the branch’s registration address or other places agreed by all directors. Company shareholders shall be allowed to review the account books upon request. If directors refuse the request, shareholders may apply an order from the government to allow the request. Annual account book and related documents have to keep for at least 10 years.

 

Taiwan has introduced to IFRS (International Financial Reporting Standards) in 2013. It is applicable to company size of public company or above. For small enterprise, EAS (Enterprise Accounting Standard), similar to IFRS, shall be applied.

 

For ordinary company which meets any of the following scale or requirements, shall offer financial statement audit report:

  • Paid-in capital over NT$30Million (include).
  • Net revenue over NT$100Million or staff who join labor and health insurance is over 100 pax.

 

For listed company or company meets any of the following special sector or requirement, shall offer financial statement audit report:

  • Conduct guarantee of promissory note or loan for over NT$30Million (include): Financing Certificate.
  • Multilevel direct selling: revenue over NT$100Million.
  • Public company
  • School legal persons or private schools
  • Medical legal person

 

Advantages of financial statement audit:

  • Transparent account transaction to avoid human error, malpractices and non-compliance with laws
  • To review the internal control system and accounting system of enterprise through financial audit and provide suggestions for improvement.
  • To analyze the financial status of the company through audit and provide strategic analysis on operating management and suggestions for business improvement.

 

  • Taxation Audit

In addition, there is a tax audit report for tax declaration purposes. For small private companies, tax audit reports must be issued if they meet the following scale and conditions:

 

  • Banking, credit cooperatives industry, trust investment industry, bill finance industry, financial leasing industry, securities industry (except securities investment consulting), futures industry and insurance industry.
  • Public company
  • According to the original Incentive Investment Regulations, the Regulations on Promoting Industrial Upgrading, or other laws and regulations, for profitable businesses that have been approved to be exempt from profitable business income tax, their annual net operating income and non-operating income shall less than NT$50 million.
  • In accordance with the Financial Holding Company Act, the Corporate Mergers and Acquisitions Act, or other laws and regulations, profitable businesses that have filed income tax settlement declarations jointly.
  • Profitable businesses that do not include in the 4 types listed above, and with an annual net revenue and non-operating income over NT$100Million.
  • Organizations (non-profitable) with total amount of property or annual total income over NT$100Million.

 

A very important point to note is that if a company loses money at the beginning of its establishment, it must have an appointed accountant to work on a tax audit in the year of loss, so that this loss can be used to deduct profits in the next ten years. This means that if the enterprise fails to present a tax audit report in order to save costs, the loss cannot be used in the future.

 

Advantages of taxation audit report

  • Current loss can be used to deduct profit in the future (lower corporate income tax, lower undistributed surplus).
  • Avoid backlog of funds when making provisional payments.
  • Increase the limit of social expenses
  • Simplify of procedures for commodity scrapped/ commodity inventory loss/ scrapped of fixed assets that without reaching the end of durability.
  • Communicate with the National Taxation Bureau on behalf of the company to avoid waste of manpower, or penalties due to misunderstanding of taxation act or fail to follow the regulations.
  • Lower the risk of being audited by the National Taxation Bureau.
  • Avoid waste of tax burden through comprehensive and international planning by accountants

 

  1. Employees Labor Insurance, Health Insurance and Pensions

 

If a Taiwan branch would like to hire employee, the company must apply labor insurance and the health insurance for their employees. Labor insurance is kind of on-the-job insurance, while health insurance refers to the Taiwan National Health Insurance System, which is a kind of social insurance. Employees working in Taiwan, despite locals or foreigners, are required to insure and declare for the insurances in accordance with the Taiwan Act.

 

If the employee is a Taiwan resident, they are required to fund for the labor pension, which shall be save in the employee’s personal account at the Bureau of Labor Insurance and refund to the person upon reaching a certain age.

 

Generally speaking, the labor and health insurance and pension would add an extra 15%-18% labor cost for the company.

 

If the employer does not declare for the labor and health insurance, the company may face a penalty of 10 times of the premium amount for labor insurance and 4 times of the premium amount for health insurance, along with compensation make up for the loss of employee. If the employer does not declare for the labor pension, there would be a fine of NT$ 200,000 or below. The above mentioned fine will count until improvement is made.

 

Besides, if there are employee newly join, leaving of employee or changes of employees’ information, the company shall be responsible to update the Taiwan government.

  1. Special Permit and License

 

Taiwan branch can operate the business it preferred, however, if the business lays into the scope of regulated business by Taiwan government, then other than registration of company, it would have to apply for various kind of license or permit from government units.

 

As for the license or permit you need to apply for, it depends on the business you intend to operate in Taiwan, its nature, industry, and the location where you intend to operate the business. The most common business activities that require special permits, such as imported alcohol, hotels, or medical equipment sales related industries. For example, a company that imports alcohol, a company that opens a hotel or imports medical equipment.

  1. Annual Maintenance Fees

 

As mentioned above, once a Taiwan branch is established successfully, it must obey the regulations of Taiwan Company Act and Taxation Act. Also, if the company intends to conduct a regulated business, it may need to apply for a license or permit. Kaizen can provide a thorough service support regarding Taiwan branch compliance and business, such as account, financial statement audit, tax declaration, payroll calculation and payment, etc. Fees of Taiwan branch maintenance service are as follows:

 

Table 1: Taiwan Branch Annual Maintenance Fees

No. Description Amount(TWD) Note
Statutory Basic Maintenance Service Fee (Fixed Fees)
1 Preparation of business report 10,000  
2 Registered Office Address Service 54,000 Note 1
Accounting, Auditing and Tax Declaration Service Fee (Variable Fees)
3 Updating books of accounts (assuming a turnover of less than NT$10 Million) 60,000up Note 2
4 Financial statements statutory audit (assuming a turnover of less than NT$10 Million) 20,000up Note 3
5 Tax computation and filing of profits tax return 10,000up Note 4
6 Basic Payroll Service (per person) 2,500up Note 5
TOTAL 156,500/up  

 

Note:

  • Kaizen could provide the registered office address service for NT$54,000 per year. The registered office address fee includes the following services:
  • Provide a registered office address for the Taiwan company;
  • Collect and forward letters for the Taiwan company.
  • The fees of our accounting services may vary due to the volume of transactions and clarity of the accounts. The transaction volume is calculate based on the number of sales bills, purchasing orders, checks, bank remittances, bank receipts, etc. The more the transaction volume or complicated the accounts, or messy bills, will take us longer to process the accounts, therefore the cost will be higher. Kaizen can provide a monthly, quarterly or yearly account update service based on customer requirements.
  • The fees are quoted according to the turnover of the company, business nature and the complexity of the accounts. For example, if a trading company holds real estate and securities at the same time, the audit fee will be higher, compare to ordinary trading company. The fees quoted in this Guide are estimated amount and the finalized fees would be quoted according to the actual situation.
  • The service fee provided by Kaizen for the calculation of corporate income tax and filing of business income tax includes only the preparation, calculation and the filing of tax returns to the tax bureau. If the company needs to apply for tax exemption, the fee will be quoted upon request.
  • The fee for payroll service is NT$2,500 for the first employee. Others will be charged according to the number of employees.

 

The annual maintenance fees described in this section is a variable fee estimated based on a company with small transactions volume or small business scale. The price quoted is for reference only, and the actual cost will be adjusted based on the business scale and the business nature of the company.

 

 

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