The Ministry of Finance states that the Agreement between the Taipei Economic and Cultural Representative Office in the Kingdom of Saudi Arabia and the Council for Saudi Chambers of Commerce and Industry for the Avoidance of Double Taxation with Respect to Taxes on Income and the Prevention of Tax Evasion (hereinafter referred to as the Income Tax Agreement between Taiwan and Saudi Arabia) was signed on December 2nd, 2020. After both sides completed the notifying procedures necessary for the entering into force of this Income Tax Agreement, it entered into force on November 1st, 2021 and will be applicable on January 1st, 2022, making it the thirty-fourth comprehensive Income Tax Agreement for Taiwan. The Income Tax Agreement between Taiwan and Saudi Arabia will reduce barriers to cross-border trade and investment and will provide a more friendly tax environment for the carrying out of the trade and investment, industrial cooperation, and technical exchange between the two sides.
The Income Tax Agreement between Taiwan and Saudi Arabia includes 28 Articles. Its main objectives are to ensure that the income derived by a resident of a territory (e.g., Taiwan) is taxed with a reduced tax rate or is exempted from taxation in the other territory (e.g., Saudi Arabia) for eliminating double taxation and providing a dispute resolution mechanism so as to prevent or resolve disputes resulting from cross-border taxation. The contents of this Income Tax Agreement are summarized as follows:
|Scope||Persons Covered||Residents, as those persons defined in accordance with domestic tax laws of Taiwan or Saudi Arabia, including individuals and enterprises.|
|Scope||Taxes Covered||Income tax, the taxes covered by this Income Tax Agreement also includes the Zakat of Saudi Arabia.|
|Main measures of tax exemption or reduction||Business Profits||
If an enterprise of Taiwan or Saudi Arabia carries on business in the other territory without constituting a permanent establishment (hereinafter referred to as PE) therein, business profits of that enterprise are exempted from taxation in that other territory.
The term PE includes:
2. Project PE: a project that continues to exist for a period of more than six months.
3. Service PE: the furnishing of services for a period or periods exceeding in the aggregate six months within any twelve-month period.
4. Agency PE: a person acting on behalf of an enterprise of a territory and habitually exercising an authority to conclude contracts in the name of that enterprise in the other territory.
However, an enterprise shall be deemed as not to have a PE if its maintenance of a fixed place of business (e.g., logistic warehouse) in the other territory is solely for the purposes of storage, display, or delivery of goods or merchandise, for purchasing goods or merchandise, or for collecting information etc. as long as these activities are of a preparatory or auxiliary character.
|Main measures of tax exemption or reduction||
Income from Investment
Dividends: the tax charged is not to exceed 12.5% of the gross amount of the dividends.
Income from Debt-Claims (Interest): the tax charged is not to exceed 10% of the gross amount of the interest; certain interest is exempted from taxation.
Royalties: 4% of the gross amount of the royalties as a maximum is applied to the payment for the use of, or the right to use industrial, commercial, or scientific equipment; 10% of the gross amount of the royalties as a maximum is applied to the payment for the use of, or the right to use intangible assets, or for other royalty cases.
|Main measures of tax exemption or reduction||Capital Gains||Gains from the alienation of shares of a resident of a territory shall, in principle, be exempted from taxation in theother territory except for such shares owned by that resident amounting to at least 25% of the total issued shares of the issuing company which is a resident of the other territory at any time during the seven-year period immediately preceding the alienation of such shares.|
|Dispute Resolution||Mutual Agreement Procedure||
Residents of either territory may, within the stipulated duration, present their cases to the competent authority of either territory and ask to open a mutual agreement procedure in order to resolve or prevent disputes resulting from cross-border taxation where the following circumstances occur:
1. Disputes on the application of the Income Tax Agreement between Taiwan and Saudi Arabia;
2. Disputes on the corresponding adjustments for transfer pricing cases;
3. Efforts to conclude Bilateral Advance Pricing Agreements, to minimize risks that affiliated enterprises would be facing in the future under transfer pricing auditing, so as to increase tax certainty.
The Ministry of Finance notes that Saudi Arabia ranks fifteenth among Taiwan’s global trade partners, and Taiwan was Saudi Arabia's eleventh-largest export market in 2020 according to statistics provided by the Ministry of Economic Affairs. The trade relationship between Taiwan and Saudi Arabia is close. The entry into force of the Income Tax Agreement between Taiwan and Saudi Arabia may be useful for reducing the tax burden of Taiwanese companies who carry on business in Saudi Arabia. Where a Taiwanese company furnishes technical service to a Saudi company without establishing a fixed place of business in Saudi Arabia and the period during which the Taiwanese company maintains its employees or other personnel in Saudi Arabia for furnishing such service is no more than six months within any twelve-month period, the tax rate on the service income will be zero if the relevant provisions of the Income Tax Agreement between Taiwan and Saudi Arabia are met (where the withholding tax of 15% would otherwise be applied to that case in Saudi Arabia in the absence of this Income Tax Agreement). In addition, the Income Tax Agreement between Taiwan and Saudi Arabia will apply equally and reciprocally to both sides’ residents. Saudi Arabia’s companies carrying on businesses similar to the above-mentioned will enjoy the same preferential tax treatment in Taiwan. Furthermore, since Saudi Arabia provides no unilateral tax relief under its domestic tax laws to eliminate double taxation, through the Income Tax Agreement between Taiwan and Saudi Arabia which provides Saudi Arabia’s companies with a mechanism to resolve their double taxation, this mechanism can greatly reduce the tax burden of Saudi Arabia’s companies, increase their willingness to invest in Taiwan, and deepen the cooperative relationship for both sides’ investment and trade.
The Ministry of Finance emphasizes that the Income Tax Agreement between Taiwan and Saudi Arabia is the first comprehensive Income Tax Agreement that entered into force between Taiwan and the Islamic countries in the Middle East and sets up a meaningful benchmark among Taiwan’s Income Tax Agreements. In recent years, Saudi Arabia has promoted an important economic policy “Saudi Vision 2030,” actively expanding infrastructure, enhancing inbound investment shares from foreign investors, and increasing fiscal revenues from non-oil sectors. The entry into force and application of this Income Tax Agreement enables Taiwanese companies to enjoy reasonable and stable taxation when entering markets in the Middle East, to resolve or prevent double taxation disputes, and to remove tax obstacles from carrying out cross-border economic activities. All of these may assist these Taiwanese companies to isolate tax considerations from their decisions regarding where to carry on their cross-border economic activities, so that the decisions on development and business structures of these companies may be based on the considerations such as economic resource allocations or market mechanisms. The Ministry of Finance will, based on equality and the principle of reciprocity, continue to promote the conclusion of Income Tax Agreements with countries of close economic and trade relations with Taiwan as well as New Southbound policy countries and countries in the Indo-Pacific region who share the same interests with Taiwan so as to provide Taiwanese companies with a better protection of their taxation under their global investment arrangements.
Contact person: Mr. Kevin Pao, Section Chief.
Contact Number: +886-2-23228150