Taiwan welcomes foreign business investors, especially those with a high-tech focus.
Taiwan is strategically located at the crossroads of three leading Asian economic regions:
- North East Asia
- The Association of South-east Asian Nations (ASEAN).
In terms of shipping, the average time from Taiwan to five major regional harbours (Singapore, Hong Kong, Tokyo, Shanghai and Manila) is 53 hours. The average flight time from Taiwan to seven major cities in the western Pacific is less than three hours.
IMPORT TARIFF AND VAT EXEMPTIONS FOR BONDED FACTORIES
Raw materials imported by bonded factories are exempt from import tariffs and VAT. Import tariffs and VAT are levied upon any such raw materials shipped outside the bonded area.
INCOME TAX CREDIT FOR R&D EXPENDITURE
For an enterprise’s spending in research and development (R&D), 15% of the spending is entitled to an income tax credit. The credit can be used to reduce the payable income tax of an enterprise, applying to 30% of the income tax payable in the year when the R&D expenditure was incurred, while any unused credit becomes ineffective and is not allowed for deductions in the following year.
TYPES OF BUSINESS
The following main types of business entity are generally chosen in Taiwan by foreign investors:
- Subsidiaries ( Company Limited by Shares, Limited Company, Unlimited Company, Close Company, and Limited Liability Partnership)
- Representative office.
For this type of company, the name needs to be approved and registered by the Ministry of Economic Affairs (MOEA) before the subsidiary can be formally registered.
A representative office works for a foreign company and needs to be registered with theMOEA. A non-Taiwan citizen can be appointed as the ‘responsible person’ for a Taiwan-registered company, but such a person should have a residence registered in Taiwan.
It can take up to three weeks to register a company in Taiwan. There is no minimum initial capital requirement for any kind of business entity, branch office or representative office.
PROFIT-SEEKING ENTERPRISE INCOME TAX
10% SURTAX FOR UNDISTRIBUTED EARNINGS
A 10% income tax is imposed on undistributed net earnings generated in every year since 1998. Paid income taxes (including both 17%-rated and 10%-rated ones) are accumulated in an Imputation Credit Account (ICA). The ‘Credit’ is attributed to shareholders upon earnings distribution, and half of the amount of the credit can be used to offset the respective shareholders’ individual consolidated payable income tax.
The 10% income tax and ICA are applicable to all profit-seeking enterprises except for branches, partnerships, proprietorships, not-for-profit organisations and certain other entities restricted from earnings distribution by related statutes (for example, governmentowned entities).
From 1 January 2016, an individual or a profit-seeking enterprise who has any income derived from transactions of house, the share of land associated with the house or any land which can be issued a construction permit (hereinafter referred to as the “house and land”) which comply with any one of the following conditions, shall be subject to assessment of income tax:
1. The transferred house and land are acquired on or after the following day of 1 January 2014, and have been held for a period of no more than 2 years
2. The transferred house and land are acquired on or after January 1, 2016.
Only the paid 10% income tax can be attributed to non-Taiwanese resident shareholders or to entity shareholders who have no fixed operating premise located in Taiwan, by means of offsetting the withholding upon remitting earnings distributions.
VAT (VALUE ADDED TAX)
For the majority of businesses, the standard VAT is 5%.
The VAT rate is 0% for exports or goods sold to a ‘bounded area’ or to a Science-based Industry Park and for international transportation.
Certain transactions are exempt from VAT, such as the sale of land, the sale of raw agricultural harvests, cattle and fish, and activities for public welfare, culture, education and charity, etc.
The VAT rate is 1% for premium income from re-insurance..
VAT rates are 15% and 25% for certain entertainment businesses.
Profit-seeking enterprises applicable for a 0% VAT rate can file a VAT-in return. VAT exempt profit-seeking enterprises are obliged to calculate a ‘non-deductible ratio’ and to compensate the government for any over-deducted VAT-in amounts.