The Ministry of Finance states that the Agreement between the Taipei Economic and Cultural Office, Prague and the Czech Economic and Cultural Office in Taipei concerning the Entry into Operation of the Provisions on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (hereinafter referred to as the Income Tax Agreement between Taiwan and the Czech Republic) was signed on December 12th, 2017. After both sides finished notifying each other that the envisaged date for entry into operation of the Agreement will be January 1st, 2021, the Agreement came into effect on May 12th, 2020, making it Taiwan’s thirty-third comprehensive Income Tax Agreement so far. (It is also the sixteenth and the thirteenth Income Tax Agreement Taiwan concluded with European countries and with the European Union members, respectively.) The Income Tax Agreement between Taiwan and the Czech Republic will lessen barriers to cross-border trade and investment and will provide a more friendly tax environment to enhance trade and investment relations, industrial cooperation, and technical exchange of the two sides.
The Income Tax Agreement between Taiwan and the Czech Republic includes 29 Articles. Its main objectives are to ensure that the income derived by the residents of a territory (e.g., Taiwan) is taxed with lower tax rates or is exempt from the source territory (e.g., the Czech Republic) in order to eliminate double taxation and to provide a dispute resolution mechanism so as to prevent or remove problems resulting from cross-border taxation. The contents are as follows:
| Scope | Persons Covered | Residents defined in accordance with domestic tax laws of Taiwan or the Czech Republic, including individuals and enterprises. |
| Taxes Covered | Income Tax | |
| Main measures of tax exemption or reduction | Business Profits | If an enterprise of Taiwan or the Czech Republic carries on business in the other territory without constituting a permanent establishment (hereinafter referred to as PE) in that other territory, business profits are exempt from tax in that other territory.
However, an enterprise shall be deemed as not having a PE if its maintenance of a fixed place of business (e.g., logistic warehouse) established in the other territory is solely for the purposes of storage, display, or delivery of goods or merchandise, or of purchasing goods or merchandise, or collecting information for the enterprise as long as these activities are of a preparatory or auxiliary character. |
| Income from Investment | 1. Dividends: the tax so charged will not exceed 10% of the gross amount of the dividends as a maximum.
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| Capital Gains | Gains from the alienation of shares shall, in principle, be exempt from taxation in the source territory. | |
| Dispute Resolution | Mutual Agreement Procedure | Residents of either territory may, within the stipulated duration, present their cases to the competent authority of the territory of their residency and ask to open a mutual agreement procedure in order to resolve or prevent problems resulting from cross-border taxation where the following circumstances occur:
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The Ministry of Finance notes that the Czech Republic is a member of the European Union. The Czech Republic is well-situated in the center of Europe and has a sound infrastructure. According to the statistics provided by the Ministry of Economic Affairs, by the end of May 2020, the Czech Republic ranks seventh among European countries that Taiwan has invested in1 . Many Taiwanese leading information technology companies have established factories in the Czech Republic serving as an important base for Taiwanese companies to invest in the European market. The entry into operation of the Income Tax Agreement between Taiwan and the Czech Republic will lessen the tax burden of Taiwanese companies in the Czech Republic. Where a Taiwanese company derives dividends from a Czech company, the tax rate on the dividends will be reduced from 35% to 10% if the relevant provisions of the Income Tax Agreement between Taiwan and the Czech Republic are met. Where a Taiwanese company derives rental income from a Czech company for the use of industrial or scientific equipment, the tax rate on the rental income will be reduced from 35% to 5% if the relevant provisions of the Income Tax Agreement between Taiwan and the Czech Republic are met. Where a Taiwanese company furnishes technical service for a Czech company without establishing a fixed place of business in the Czech Republic and the period during which the Taiwanese company sends its employees or other personnel to the Czech Republic for such service is no more than nine months within any twelve-month period, the tax rate on the service income will be reduced from 35% to zero. In addition, the Income Tax Agreement between Taiwan and the Czech Republic is applied equally and reciprocally to both sides’ residents. Czech companies carrying out businesses similar to the above-mentioned will enjoy the same tax treatment in Taiwan. As a result, the Income Tax Agreement raises the willingness for Czech companies to choose Taiwan as their base for entering Asian markets, and it deepens the potential cooperation for both sides’ investment and trade relations.
The Income Tax Agreements that Taiwan concluded with the Czech Republic’s neighboring countries such as Poland, Germany, Austria, Hungry, and Slovakia have come into effect. With the Income Tax Agreement between Taiwan and the Czech Republic entering into operation, it completes the treaty network of Taiwan in central Europe. This enables Taiwanese companies to enjoy reasonable taxation when entering European markets, resolve or prevent double taxation problems, remove tax obstacles for cross-border economic activities, and take into consideration economic resources allocation and market mechanisms for companies’ development and global presence. The Ministry of Finance will, based on equality and the principle of reciprocity, continue to promote the conclusion of the Income Tax Agreements with countries of close economic and trade relations with Taiwan, New Southbound policy countries and countries in the Indo-Pacific region where they have the same interests so as to provide Taiwanese companies with better protection of tax rights for their global investment presence.
Contact person: Mr. Kevin Pao, Section Chief.
Contact Number: +886-2-23228150
1: The top six countries Taiwan invests in Europe are the Netherlands, the UK, Luxembourg, Germany, Italy, and Austria.