If you are planning on doing business in Taiwan knowledge of the investment environment and information on the legal, accounting and taxation framework are essential to keep you on the right track‌
Taiwan's National Flower -- MĂŠi
Contents
Introduction
1
Key features of Taiwan
3
Legal and accounting
6
Controls of foreign investment
7
Controls on normal business activities
8
Finance and incentives
9
Incentives for business activities
10
Forms of business organizations
12
Taxation
13
Tax information
15
1
Introduction
Grant Thornton Taiwan was founded in 1971 to provide high quality services to dynamic organizations needing specialised services in the fast growing economy of Taiwan. The firm joined Grant Thornton International in 1993 as a member firm. Grant Thornton Taiwan’s main office is in Taipei with a branch office in Taichung. The total number of employees working in the organisation in Taiwan is approximately 140. The quality of Grant Thornton's partners and staff is maintained through extensive on-the-job-training and a commitment to excellence when assisting our clients. Grant Thornton Taiwan specialises in providing services to international and local clients in assurance, advisory and outsourcing work. We have staff that can support clients using English and Japanese. The most common way of doing business is through companies and branches of foreign companies, and the information has been produced mainly with these entities in mind. Other business structures exist and in some situations may be more appropriate. Some entities such as banks and insurance companies are subject to special regulations, which are not dealt with in this booklet. It is essential that advice be obtained from local professional sources before any business is undertaken. This guide is designed to give an insight into doing business in Taiwan, together with relevant background information, which will be of assistance to organizations considering establishing a business there. It does not cover the subject exhaustively but is intended to answer some of the important, broad questions that may arise. When specific problems occur in practice, it will often be necessary to refer to the laws and regulations of Taiwan and to obtain appropriate accounting and legal advice. This guide contains only brief notes and includes legislation in force as of 1 July 2012. Grant Thornton Taiwan 6th Floor, No. 560 Chung Hsiao East Road, Sec, 4 Taipei, Taiwan Republic of China Telephone : 886-2-27582688 ext 314 Facsimile : 886-2-27295993 Email: jay.lo@tw.gt.com
2
Foreword
Grant Thornton International is one of the world's leading organisations of independently owned and managed accounting and consulting firms providing assurance, tax and specialist advice to independent businesses and their owners. The strength of each local firm is reflected in the quality of the international organisation. All Grant Thornton International member firms share a commitment to providing the same high quality service to their clients wherever they choose to do business. If you require any further information, please do not hesitate to contact your nearest Grant Thornton member firm. This guide has been prepared for the assistance of those interested in doing business in Taiwan. It does not cover the subject exhaustively but is intended to answer some of the important, broad questions that may arise. When specific problems occur in practice, it will often be necessary to refer to the laws and regulations of Taiwan and to obtain appropriate accounting and legal advice. This guide contains only brief notes and includes legislation in force as of 1 July 201. Grant Thornton International is not a worldwide partnership. Member firms of the international organisation are independently owned and operated. Services are delivered nationally by the member and practising correspondent firms of Grant Thornton International, a network of independent firms throughout the world. Grant Thornton International is a non-, international umbrella organisation and does not deliver services in its own name.
3
Key features of Taiwan
General
Population 23 million (2012) Language Mandarin is the official language, but most people also speak Taiwanese. English is spoken in the business community and a number of people also speak Japanese. International airports Taiwan Taoyuan Airport (near Taipei), Kaohsiung Airport Currency New Taiwan dollar (NT$) US$1 is equivalent to approx (NT$30) Annual Inflation Rate: 1% (2012) Weather by area North South
Subtropical Tropical
Weather by period May to September December to February
Hot, humid summers Short, mild winters
Rainfall is abundant, typhoons frequently hit between July and September Visas Countries eligible for Visa exempt entry (up to 90 days)
Austria, Belgium, Bulgaria, Canada, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Republic of Korea(effective from July 1, 2012), Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Monaco, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, U.K. , and Vatican City State. Countries eligible for Visa exempt entry (up to 30 days)
Australia, Malaysia, Singapore, U.S.A..
4
The nationals of the following countries are also eligible for the visa exemption program, which permits a duration of stay up to 30 days： The nationals of India, Thailand, Philippines, Vietnam, Indonesia, who also possess a valid visa or permanent resident certificate issued by U.S.A., Canada, Japan, U.K., Schengen Convention countries, Australia or New Zealand, are eligible for the visa exemption program, which permits a duration of stay up to 30 days.
Those who meet the above qualification and have never been employed in Taiwan as blue-collar workers have to apply to the “Advance Online Registration System for the Visitors of Nationals from Five Southeast Asian Countries to Taiwan” of the R.O.C. National Immigration Agency (website: https://nas.immigration.gov.tw/nase) for an "Authorization Certificate" before coming to Taiwan. After completion, the printed-out Certificate can be used by the foreign visitor for boarding the airplane and the immigration inspection. During the immigration inspection, foreign visitors who cannot show a valid visa or permanent resident certificate issued by one of the aforementioned countries will not be admitted into the R.O.C. (In case a single-entry visa issued by any of the said countries has already been used, it is invalid.)
5
Economy
Per capita income US$18,458 (2012) Unemployment Rate 5~6% Major industries Electronics, metal, machinery, chemical, textiles. Major imports Electronics, machinery, vehicle, metals, crude oil, chemicals, metals. Major exports Electronics, machinery, commercial equipment, footwear, textiles, toys and sports equipment, processed foods. Principal trading partners: Exports - USA(15.1%), Japan (7.6%), Singapore (4%), Hong Kong(16.2%), China(21.6%) Imports - USA(11.6%), Japan (25.3%), South Korea (7.3%), Germany(3.4%), China(11%) Workforce
Industrial Sector Service Sector Agriculture Sector
52% 46% 2%
Standard employment Monday-Friday, A worker shall not have regular working time in excess of eight hours a day and eighty-four hours every two weeks. Annual leave ranges from 7-30 days, depending on seniority. Trade unions 22% unionized workforce. Government of Taiwan (ROC)
The president of the ROC is the chief of state, who serves a four-year term and is elected by the National Assembly. Government power is discharged through five yuans (branches); the Executive, Legislative, Judicial, Examination and Control Yuans. Only the members of the Legislative Yuan are chosen by popular election. The five yuans are the leading bodies of the administration for the nation. Under the Constitution, the government is divided into Central, Provincial and County levels, each with well-defined powers.
6
Legal and accounting
Legal system
Taiwan's systems are based on the civil law system. The country accepts compulsory ICJ jurisdiction, with reservations. The court system has 3 levels; district court, high court (court of appeal), and supreme court. Accounting requirements
For the most part the accounting system in Taiwan is similar to the US model. Principles follow standards adopted by The Financial Accounting Standard Committee and the Auditing Standard Committee of the Accounting Research and Development Foundation of ROC. Accounting records must be maintained in accordance with the Commercial Accounting Law and the Regulations for Administration by Tax Authorities of Accounting Records and Evidence, and other relevant laws and regulations. The financial statements of the companies which paid-in capital or bank credit facilities in excess of NT$30 million are required to be audited annually by certified public accountants. The Ministry of Finance (MOF) have issued "Rules Governing the Examination and Certification of Financial Statements by a CPA," which cover certain regulations on independence, reporting and disclosure requirements, suggested audit procedures, and other general requirements related to a review of internal control systems. A company may adopt an alternative fiscal year with the approval of the tax authorities. A company may apply to MOF for revaluation of assets in certain cases.
7
Controls of foreign investment
Foreign exchange controls: little restriction
Foreign exchange transactions are required to be processed through the Central Bank or its appointed banks. Individuals and enterprises may hold foreign exchange and use it for whatever purposes they choose. Foreign Investment Approval (FIA) applications require approval from the MOEA's Investment Commission pursuant to the Statute for Investment by Foreign Nations or Overseas Chinese. FIA companies are restricted in entering certain key industries.
8
Controls on normal business activities
Summary
Import and export controls - tariffs, anti-dumping measures. Environmental protection regulations. Regulations governing the development of land and improvements. Patent, trademark and copyright laws. Labour insurance and employment laws (including pension & welfare funds).
9
Finance and incentives
Summary
The banking system provides a full range of financial services. The Central Bank of China is responsible for the management of the monetary supply and the control of foreign exchange.
10
Incentives for business activities
Effective from 1 January 2010, Companies can claim tax credits up to 15% of qualified R&D expenses, with the maximum amount of tax credits capped at 30% of the tax payable for the current year. There are strict assessing procedures involved for evaluating whether R&D expenses put forward can qualify for the tax incentives. R&D tax credits not utilized cannot be carried forwards into future years. Certain other tax incentives are available if business is located in prescribed areas such as export processing zones, science parks, free trade zones and others. Please see regional investment incentives below. Tax-free royalties and technical services fees
Royalties paid to a foreign company are exempt from the normal 20% withholding tax when: (1) Patent rights, trademarks and other special rights are used to introduce new technology or products and the agreement has been approved by government authorities, or (2) Technical services are provided for construction of a factory of an important productive enterprise as determined and approved by the government authorities. To qualify for this exemption, pre-approval from MOF is required. Please contact Grant Thornton tax expert for further advice. Regional investment incentives
In addition to tax holidays and tax credits, incentives offered to enterprises established and operating within the science-based Industrial Park include: -
22% ceiling rate of income tax and surtax exemption from deed tax rent for government sites may be waived or reduced government contribution up to 49% of the total investment assistance on recruiting and training technical employees.
Mergers and consolidations encouraged
Taiwan introduced Enterprise Merger and Acquisition Law (EMAL) in 2002. The Law provides the mechanism for mergers, acquisitions, share swaps and spin-offs. A merger, acquisition and share swap between Taiwan companies, as well as those between a foreign company and a Taiwan company, are generally feasible under the EMAL. The EMAL provides the following tax incentives: no stamp tax, deed tax, securities-transaction tax and value-added tax (VAT) arising from a merger, acquisition, share swap or spin-off. the land value increment tax payable for transferred land may be deferred and charged to the account of and payable by the surviving enterprise after the merger and acquisition at the time the land is transferred. This tax treatment is also applicable to land transferred as a result of a spin-off. goodwill arising as a result of a merger, acquisition, share swap and spin-off may be amortized over 15 years.
11
business expenses incurred in a merger, acquisition, share swap and spin-off may be amortized over 10 years. a transaction loss arising from a share swap may be recognized over 15 years. losses may be carried forward after the merger and spin-off subject to a prescribed formula. the surviving company, new company or acquiring company after a merger, acquisition and spin-off may take over any tax incentives enjoyed by the dissolving company, split company or acquired company subject to prescribed condition being met.
12
Forms of business organizations
Principal forms of business entities subject to corporate income tax include:
-
Limited company Company limited by shares Branch of a foreign corporation Foreign Corporation without a local representative that derives income from sources within Taiwan Partnerships.
Company limited by shares, Limited Company and a branch of a foreign company are the most common forms of business undertaken for foreign investors in Taiwan. Foreign companies that do not intend to carry on business in Taiwan may establish a presence through a representative or liaison office. The main features of Companies limited by shares (CLS) and Limited companies (LC) are as follows: minimum number of shareholders maximum number of shareholders of whom domiciled Taiwanese nationals limitation on foreign ownership minimum capital requirement - general - special industry minimum number: of directors : of supervisors
CLS
LC
21 no limit no requirement
1 no limit no requirement
No limit
No limit
Note 1 Depends 3 1
Note 1 Depends 1 (not exceeding 3) not required
Note 1: There is no minimal capital requirement. However the amount of paid in capital needs to be sufficient to cover setup costs of the Company. Additional Information There are higher minimum capital requirements for some selected industries. If the Company needs to apply for work permit for expatriates, paid in capital needs to be more than NT$ 5 million.
1
Only one shareholder is required, if the shareholder is a legal entity.
13
Taxation
Income tax
General features: 1 Two classes of taxpayers; individuals and corporations. 2
Residents & Non-residents are liable for income tax on all income generated from sources within Taiwan.
3
Residents are not taxed on income generated outside of Taiwan (Personal Income tax is levied on a territorial basis). However, residents are subject to Alternative Minimum Tax which is levied on worldwide income.
4
Individuals file income tax returns on a cash basis, companies use the accrual basis.
5
Assessed business losses may be carried forward for five consecutive years.
6
All enterprises must apply for approval to adopt a taxable year other than the calendar year.
Alternative Minimum Tax (AMT)
Taiwan introduced Alternative Minimum Tax effective from 1 January 2006. This new tax regime has wide implications on Companies and Individuals in Taiwan. Taxpayer needs to pay the higher of income tax or AMT. Alternative Minimum tax is computed based on the following formula (Income subject to AMT-deduction)*tax rate = AMT payable Legal entities Individuals
AMT Tax Rate 10% 20%
Deduction TWD 2 million TWD 6 million
Income subject to AMT is computed as follows for legal entities. Taxable Income + approved exempted income under tax incentives scheme+ capital gain from security and futures trading + Banking Institution’s Offshore Branch Profits = Income subject to AMT. Income subject to AMT is computed as follows for Individuals. Taxable Income + foreign source income (effective from 2009 year) + insurance payout portion in excess of TWD 30 million. + Capital gain earned from selling shares/ beneficiary certificates not listed in stock market + Tax deduction claimed for non-cash based donation made + Excess of market value over par value of the stock dividend granted to employee = Income subject to AMT.
14
Taxation of companies
Non-resident companies are taxed on income derived from Taiwan sources only. Retained earnings not distributed are subject to a 10% undistributed profits tax. This additional tax paid can be franked out to shareholders to offset against personal income tax. Subsidiaries and branches of foreign companies are subject to the same taxation mechanism as local companies. The allocation of administrative expenses by the head office of a branch within Taiwan will be allowed subject to a prescribed formula. If a company or branch is to claim a loss carry forward, it may have its tax returns tax audited by a CPA for the year reporting a loss and the year the loss is used. Representative or liaison offices are generally not subjected to corporate tax. More details of the tax system and computation of taxable income are included in the GTI publication "Corporate Taxation in Asia Pacific" Taxation of individuals
Individuals are liable for income tax on all income generated in Taiwan. Taxable income includes earnings from dividends and partnerships, remuneration for services, interest, rental and royalties. Gain on disposition of long-term assets (except land), prizes and lumpsum retirement payments. Tax returns should be filed between May 01 and May 31. Insurance payments and gains from disposition of securities and land are excluded from income tax (legislation is currently being considered that will change this). The allowance exemptions are adjusted based on increases in the Consumer Price Index (CPI). Other taxes
The other principle taxes, details of which are included in the GTI publication "Corporate Taxation in Asia Pacific", are as follows: Business tax (VAT) Stamp tax Land tax (including land value increment tax) Securities transaction tax Vehicle license tax House tax Deed tax Inheritance and gift tax Amusement tax Commodity tax Mining lot tax Customs duty The Specifically Selected Goods and Services Tax
15
Tax information
Corporate Tax Rate
Corporate income tax rate is fixed at 17% effective from 1 January 2010 (2009: 25%). Tax year 1 January to 31 December (unless otherwise approved). Payment 50% of the previous year's income tax by the 9th month of the taxable year. Balance-before the end of the 5th month of the following year. Relief for losses May be carried forward for ten consecutive years if tax return is tax audited by a CPA firm. Withholding tax:
Resident/Taiwan Nonresident/Source Dividends 0% 20% Salaries and wages, Commissions, Professional fees 5%/Table 18% 2 Interest 10% 15%/20% Rental, Royalties 10% 20% Prizes 10% 20% Other income 10% 20% Capital gains
Thin Capitalisation Effective from 1 January 2011, Taiwan introduced thin capitalization rules. Deductible interest expenses on inter-company loans are capped at a prescribed debt to equity ratio as published by Ministry of Finance. The published debt to equity ratio is current set at 3:1. Rate Capital gains are considered taxable income and are taxed at the income tax rate. Base Based on selling price after deduction of original cost and all expenses necessary for acquisition, improvement, and ownership transfer of the asset.
2
For low income workers, this rate may be reduced to 6%.
16
Exemptions A capital gain from the sale of land or securities is not subject to the capital gains tax. Effective from 1 January 2013, capital gain from sale of securities will be subject to capital gains tax. Losses Deductible in the year of disposal or can be carried forward for three consecutive years. Value added tax (VAT)
Rates VAT tax is levied on supply of goods and services within the territory of Taiwan. Type of business Regular rate Export sales and services Income from reinsurance premiums Night clubs and restaurants with entertainment Coffee, shops and bars with hostesses Wholesale agricultural traders or small agricultural product suppliers Small-scale businesses
Tax rate 5.0% 0% 1.0% 15.0% 25.0% 0.1% 1.0%
Personal taxes
Rates: Both residents and those non-residents* who have physically been in Taiwan for 183 days or more in one calendar year. The tax rates for the financial year 2011 are as follows: 2011 (NT$) 0 – 500,000 500,001 – 1,130,000 1,130,001 – 2,260,000 2,260,001 – 4,230,000 Remainder
Rate (%) 5 12
Progressive Diff 0 35,000
20
125,400
30
351,400
40
774,400
*Non-residents who stayed in Taiwan for less than 183 days in a fiscal year pay a flat rate of 18%. Exemption and deductions – 2011
Taiwan taxpayers are entitled to exemption, standard or itemised deductions and special deductions. Personal exemption – taxpayer, spouse, dependents (Under 70 years old) Personal exemption –dependents (Over 70 years old) Standard deduction – single Standard deduction – married, filed jointly
NT$ 82,000 per person 123,000 per person 76,000 152,000
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Resident taxpayer can elect to claim itemised deductions up to prescribed limit amounts instead of standard deduction. Itemised deductions can include donation, life insurance premium paid, medical and maternity expenses, losses suffered from disaster, interest paid for a loan for an owner-occupied dwelling, rental expense and losses from property transactions. Resident taxpayer can also claim special deductions up to prescribed limit amounts. These include special deduction for salary or wages, special deduction for savings and investment, special deduction for disability and special deduction for tuition. If a tax resident intends to depart and will not return, the amounts for exemptions and standard deduction shall be calculated on the basis of a proportion to the total days in which he has resided in Taiwan prior to departure. Gifts and Inheritance Taxpayer - Taiwan nationals and foreign nationals who own property within Taiwan. Tax rate of Inheritance Progressive rates ranging from 2% of the first NT$670,000 to 50% of estate in excess of NT$113 million. Effective from 23 January 2009, inheritance tax rate is now changed to a flat rate of 10%. Tax rate of Gift Progressive rates ranging from 4% of the first NT$670,000 to 50% of gifts in excess of NT$50 million. Effective from 23 January 2009, gift tax rate is now changed to a flat rate of 10%. THE TAX LEGISLATION IS COMPLEX - YOU ARE STRONGLY RECOMMENDED TO SEEK PROFESSIONAL ADVICE BEFORE UNDERTAKING BUSINESS TRANSACTIONS IN TAIWAN.
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