The National Taxation Bureau of the Northern Area (NTBNA), Ministry of Finance, indicates that income earned by a foreign enterprise from a domestic enterprise is subject to withholding per statutory tax rates, which has been required to be withheld in advance at the time of payment. The foreign enterprise, in accordance with Article 8 of the Income Tax Act, can apply for re-calculating its R.O.C. source income afterwards by providing relevant evidential documentation to the competent authority.  After allowable cost deduction or onshore profit contribution rate is assessed by the competent authority with an approval letter, the foreign enterprise can claim the over-withheld tax refund.  In an effort to mitigate taxpayers' pressure on capital stacking and relieve application burden for both competent authorities and taxpayers, on September 26, 2019, the Ministry of Finance amended “The Principle of Calculating R.O.C. Source Income According to Article 8 of the Income Tax Act”, hereinafter referred to as “the Principle”.  　　
　　With the addition of Article 15-1 of the Principle, the foreign enterprise with no fixed place of business or business agent in the R.O.C., prior to receiving “service income” or “business profit” from the domestic enterprise, could provide relevant evidential documentation to the competent authority and apply for calculating its R.O.C. source income based on applicable profit ratio and domestic profit contribution rate in advance.  Upon approval, taxable income will be based on the assessed ratios and be withheld accordingly by the withholding agent at the time of payment.  
　　In addition to the newly amended Article 15-1 of the Principle, the Ministry of Finance announced simultaneously the “Guidelines for Foreign Profit-seeking Enterprise Applying for Calculating R.O.C. Source Income and Applicable Profit Ratio and Domestic Profit Contribution Rate”, hereinafter referred to as “the Guideline”, to regulate the advance application process.
　　As an example, Domestic Company A outsources its product development activities to Foreign Company B. Company B is remunerated at cost plus a 8% mark-up on an annual basis.  The remuneration is subject to a 20% statutory withholding tax being withheld by Company A at the time of payment.  Company B has to provide relevant evidential documentation afterwards for the competent authority's assessment to claim the over-withheld tax refund.  According to the new Guideline (see attachment for details), Company B, before receiving remuneration from Company A, can select the most applicable method to apply for an advance approval in calculating its taxable income.  
　　Although the advance application can mitigate the taxpayer's pressure on capital stacking and relieve application burden for both taxpayers and competent authorities, the NTBNA would like to issue a reminder that the new ruling is only applicable to the category of service income or business profit, and it must be applied before income is being withheld.  If income has been withheld, the taxpayer needs to follow Article 15 of the Principal to apply for the allowable cost deduction or domestic profit contribution rate to re-calculate R.O.C source income.  If you have any questions, please visit the Bureau’s website at http://www.ntbna.gov.tw/ or call our toll-free number 0800-000321 for more information on the relevant aspects of the subject.  The Bureau is pleased to provide further consultation services upon inquiry.