The National Taxation Bureau of Taipei, Ministry of Finance stated that when a profit-seeking enterprise with its head office located within the territory of the Republic of China (hereinafter referred to as R.O.C.) invests in shares issued by a foreign company that has been approved to list and trade its shares in the R.O.C., any dividends distributed from such investment must be included in the enterprise’s taxable income, in accordance with Paragraph 2, Article 3 of the Income Tax Act.

The Bureau further explained that for a foreign company established and registered under foreign laws, whose shares are issued under foreign laws and approved by the R.O.C.’s securities regulatory authority for listing and trading in the R.O.C., the dividends distributed by such foreign companies are not considered income derived from sources within the R.O.C. Therefore, a profit-seeking enterprise with its head office located outside the territory of the R.O.C. is not subject to the  R.O.C. profit-seeking enterprise income tax on such dividends. However, a profit-seeking enterprise with its head office located within the territory of the R.O.C. must include both cash and stock dividends in its taxable income. This is because the issuer is a foreign company, which does not meet the criteria under Article 42 of the Income Tax Act, which stipulates that dividends received from investments in “domestic” profit-seeking enterprises shall be excluded from taxable income. Accordingly, such dividends must be included in taxable income pursuant to Paragraph 2, Article 3 of the Income Tax Act.

The Bureau provided the following example: Company A, whose head office is located within the territory of the R.O.C., invested in shares issued by Company B, a foreign-based profit-seeking enterprise, whose shares are approved for listing and trading on the R.O.C.’s securities market. In 2023, Company A received cash dividends of NT$400,000 distributed by Company B. However, when filing its 2023 profit-seeking enterprise income tax return, Company A mistakenly assumed that the dividends qualified for exclusion from taxable income under Article 42 of the Income Tax Act and therefore failed to report them. Upon assessment, the Bureau assessed an additional tax of NT$80,000 and imposed a penalty.

The Bureau would like to remind profit-seeking enterprises with their head office located within the territory of the R.O.C. that if they have received dividends from foreign companies whose shares have been approved for listing and trading in the R.O.C. but have not included such dividends in taxable income as required, they should voluntarily file amended returns and pay the additional tax due with the competent National Taxation Bureau before any report or investigation is initiated by tax authorities. Under Article 48-1 of the Tax Collection Act, taxpayers who voluntarily report and pay the underpaid tax, together with interest, may be exempt from penalties.

(Contact: Mr. Hsu, Head of Profit-seeking Enterprise Income Tax Division; Tel: 02-23113711 ext. 1365)