The National Taxation Bureau of the Southern Area, Ministry of Finance indicated that a foreign profit-seeking enterprise having neither a fixed place of business nor a business agent in the Republic of China (hereinafter “R.O.C.”) may apply for the adoption of net profit ratio and onshore profit contribution ratio to the competent authority before receiving the payment of remuneration for services or business profit to calculate its taxable income.
The Bureau further explained that the foreign profit-seeking enterprise, which obtains income from a domestic profit-seeking enterprise by selling services, would be subject to withholding tax according to the required withholding ratio. However, within five years after receipt of the revenue, the foreign profit-seeking enterprise may apply for reassessment of its taxable income by providing the accounting books and relevant documents to the competent authority. After allowable cost deduction and onshore profit contribution ratio are assessed by the competent authority with an approval letter, the foreign profit-seeking enterprise may claim a refund for excessive withheld tax. In an effort to mitigate the pressure of foreign profit-seeking enterprise on capital stacking and relieve refund application burden for both competent authorities and taxpayers, on September 26, 2019, the Ministry of Finance amended “Guidelines for the Determination of Income from Sources in the Republic of China in Accordance with Article 8 of the Income Tax Act”, (hereinafter “the Guidance”). With the addition of Article 15-1 of the Guidance, the foreign profit-seeking enterprise deriving the remuneration for services stipulated in Subparagraph 3 or the business profit stipulated in Subparagraph 9 of Article 8 of the Income Tax Act from the domestic enterprise, may provide relevant documents to the competent authority in advance to apply for the adoption of net profit ratio and the contribution of the domestic transaction process to the total profit of all trading processes (i.e. onshore profit contribution ratio) before receiving payments. Upon approval, taxable income will be calculated based on the assessed ratios and be withheld accordingly by the tax withholder at the time of payment.
The Bureau would like to issue a reminder that the aforementioned amendment is only applicable to the category of remuneration for services or business profit. For further information about applications, please visit the eTax Portal, Ministry of Finance (https://www.etax.gov.tw), search and download the “Application for a Foreign Profit-Seeking Enterprise to Calculate the Income Derived from the Republic of China (R.O.C.) using Applicable Net Profit Ratio and Onshore Profit Contribution Ratio”.
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