As the peak season for the dividend distribution of the companies is approaching, an enterprise has to pay close attention to clarify its investment in a domestic or foreign company to determine whether the dividend is included in the taxable income or not, when filing the profit-seeking enterprise income tax return.
The National Taxation Bureau of the Southern Area expressed that, the dividends or earnings a domestic company received which is derived from its investment in other domestic profit-seeking enterprises are excluded from taxable income in accordance with the Article 42 of the Income Tax Act (hereinafter “the Act”). However, as to the dividends from its investment in the foreign company, the dividends from investment in the securities the foreign company offered and issued in Taiwan, such as the KY shares, or the dividends from investment in the Taiwan Depositary Receipts (TDR), all the above are the overseas investment revenues and inapplicable to the aforesaid provision. Pursuant to the Paragraph 2, Article 3 of the Act, the profit-seeking enterprise income tax shall be levied on those dividends.
The Bureau further indicated that, if holding significant influence over the foreign company it invested in, a domestic investor company shall use the equity method in accounting to record the revenue from investment. Because the dividend distribution hasn’t yet been resolved by a resolution to be adopted at a meeting of shareholders, said investment revenue has to be deducted from the income statement via tax adjustment. It is not until the dividend distribution is resolved that the revenue will be added back to the profit-seeking enterprise income and taxed in the year of the target date fixed by the investee company for distribution of dividends, bonuses or other benefits as a year-end accrual.
For example, a domestic company has received the dividend NT$300,000 in calendar year 2020 from its investment in another domestic company A and NT$400,000 from its investment in a foreign company B respectively. The target date fixed by the investee company for distribution of dividends, bonuses or other benefits is on December 1, 2020. When the domestic company filing the year 2020 profit-seeking enterprise income tax return, the dividend NT$300,000 from company A shall not be included in its taxable income according to the Article 42 of the Act, but the dividend NT$400,000 from company B shall be included.
The Bureau would like to remind companies to be aware of tax-related regulations about the dividends to avoid any omission or under-reporting of income taxable due to negligence.
Press Release Contact:
Mr. Tu, First Examination Division
TEL:06-2223111 ext. 8032