Qualification for offsetting the Paid Foreign Business Tax in Taiwan

It is a very common phenomenon that a majority of Taiwan’s businessmen choose to invest in cross-country enterprises. However, according to the article 3rd in Income Tax Act in Taiwan, for the location of head office of foreign enterprises within the territory of Taiwan, such profit-seeking enterprise in Taiwan shall comply with the laws to declare the profit-seeking income tax. The domestic and oversea income shall be declared jointly.

In spite of the limited coverage of tax treaty in Taiwan, for oversea enterprises which complied with the tax law in the designated country to pay the amount of taxes, such enterprise is able to present the proof of taxation promulgated by Bureau of Taxation within the territory of designated country to offset the profit-seeking enterprises income tax payables in Taiwan with the paid amount of taxes converted into TWD.

Here are two points which shall bear in mind for Taiwan’s businessmen to present the proof of taxation of foreign enterprise to offset the profit-seeking income tax in Taiwan:

  1. The first one is the maximum of offsetting. The maximum amount of offsetting is to add the amount of oversea income to compute the amount of tax payables. That is, the amount of oversea income shall be the gross amount to deduct the related expenses, then converted the result into TWD with the tax rate in Taiwan to offset the tax payables, instead of the gross amount of oversea income to offset.

    For Example, a company in Taiwan proceeded the declaration of profit-seeking enterprise income in 2020 and paid the amount of taxes equivalent to TWD$1,500,000, pursuant to the tax law in country A. The income of technical service is equivalent to TWD$15,000,000. In this case, as the company computes the amount of offsetting taxes, the net amount of oversea income is about TWD$3,000,000, which is the result from deducting the necessary expenses of producing technical services about TWD$12,000,000, instead of the gross amount of technical service income TWD$15,000,000 to recognize as “oversea income”. In addition, the computed amount of tax payables shall be the profit-seeking enterprise income in Taiwan adding the amount of oversea amount TWD$600,000 (TWD$3,000,000×20%), instead of TWD$3,000,000 (TWD$15,000,000×20%).

  2. The second point is the computing coverage, especially for those who invested several enterprises in different countries. The amount of deduction shall be “total amount of oversea income”, instead of the source from individual country to compute the amount of deduction.

    For instance, a company in Taiwan benefits from the dividends of its subsidiary in country A about TWD$18,800,000 and sold another subsidiary in country B with the loss of shareholding investment about TWD$19,380,000 in the accounting record. In this case, as the company proceed the declaration of profit-seeking enterprise income tax at that year, the investments of subsidiary A and B shall be computed jointly. The company not only benefited nothing, but assumed the amount of losses. Thus, when the dividends of subsidiary A are remitted from country A, the amount of deducted income tax about TWD$1,880,000 is no longer available to offset in Taiwan.

Upon a final notice for every Taiwan’s businessmen, in the past, to offset the profit-seeking income tax in Taiwan is required to present the proof of taxation from each country, which is even mandatory to be verified by the ministry of foreign affairs of Taiwan in each country. Fortunately, from 2017, in order to simplify the whole procedure of declaration by Ministry of Finance, a majority of cross-country enterprises can present the proof of taxation of the designated country to proceed the deduction of profit-seeking income tax directly.

On the other side, for Taiwan’s businessmen with the income from mainland China, the proof of taxation is still required to be verified by Straits Exchange Foundation so as to enjoy the privilege of deduction. In the condition of offsetting the tax payables in China, it is specially aware that the amount of offsetting shall be based on the exchange rate of tax payment in China at that day to convert and compute the result to deduct the profit-seeking enterprise income tax.