Practical Questions Foreign Investors Commonly Encounter
Taiwan’s tax system is generally transparent and business-friendly.
In practice, however, foreign companies often encounter uncertainty—not because the rules are unclear, but because tax treatment depends heavily on how business activities are classified and documented.
Questions around withholding tax, employee taxation, management fees, transfer pricing, and profit remittance frequently arise as foreign companies expand operations or interact more closely with banks and tax authorities.
This article addresses common Taiwan tax compliance questions from a practical, institutional perspective, rather than statutory or procedural detail.
Q1｜Do foreign companies need to pay withholding tax when providing services to Taiwan?
✔ It depends on where the services are performed.
In practice, Taiwan’s source-of-income analysis focuses on where services are actually carried out, rather than contract location or payment flow.
Common scenarios include:
- Services performed in Taiwan
Withholding tax generally applies. This frequently includes technical, consulting, or on-site support services. - Services performed entirely offshore
Withholding tax may not apply, provided the company can substantiate that no part of the service was performed in Taiwan. - Mixed services
Where services are performed partly in Taiwan and partly offshore, tax authorities may require an allocation based on reasonable criteria.
For foreign corporations, the standard withholding tax rate is 20%, unless reduced under an applicable tax treaty.
In practice, supporting evidence of service location is often reviewed during audits or bank remittance processes.
Q2｜What are the withholding tax rates for royalties, software, and licensing?
Withholding tax treatment depends on the nature of the income, not the label used in the contract.
In practice:
- Royalties or IP-related income are generally subject to 20% withholding tax.
- Technical service fees are also typically subject to withholding if services are performed in Taiwan.
- Software-related payments may be taxed differently depending on whether the arrangement is characterized as a license, usage right, or sale.
Where an applicable double tax agreement (DTA) exists, withholding rates may be reduced.
Notably, Taiwan does not currently have a DTA with the United States, which directly affects U.S.-based companies.
Q3｜Do foreign employees working in Taiwan need to file taxes?
✔ Yes. Tax obligations are determined by work location, not payroll source.
Foreign employees are generally subject to Taiwan tax if they perform work physically in Taiwan, regardless of where salaries are paid.
Common situations include:
- Short-term assignments in Taiwan paid by overseas entities
- Expatriates holding work permits or ARC status
- Remote workers spending extended periods in Taiwan
Non-residents are generally taxed at a flat rate, while individuals meeting residency thresholds are subject to progressive rates.
Employee tax compliance often intersects with labor, immigration, and payroll processes, requiring careful coordination.
Q4｜Are management fees or cross-border recharges taxable?
✔ In the absence of an applicable DTA, management fees are generally subject to withholding tax.
Tax authorities typically assess:
- Whether services were actually provided
- Where the services were performed
- Whether pricing aligns with arm’s-length principles
In practice, tax authorities expect clear contracts, service evidence, and allocation methodologies.
Where documentation is insufficient, fees may be recharacterized, often resulting in higher withholding exposure.
Q5｜What is the annual tax filing calendar for foreign companies?
Foreign companies in Taiwan are typically subject to overlapping compliance obligations, including:
- Annual corporate income tax filings
- Monthly VAT and withholding filings
- Employee income reporting
- Ongoing transfer pricing documentation
Failure to meet filing deadlines may result not only in penalties and interest, but also in bank KYC issues and increased scrutiny during fund remittances.
Q6｜Why is transfer pricing (TP) important for foreign companies?
Foreign companies engaging in related-party transactions are required to comply with Taiwan’s transfer pricing regulations.
This commonly involves preparation of:
- Local files
- Master files
- Country-by-country reports, where applicable
In practice, TP issues often surface during audits triggered by losses, management fees, or profit volatility rather than through standalone TP reviews.
Q7｜Are profits remitted to foreign parents taxable?
✔ The tax treatment depends on whether the Taiwan operation is structured as a branch or a subsidiary. The applicable tax framework is different.
Branches
A Taiwan branch is not a separate legal entity.
Accordingly, profit remittances by a Taiwan branch are not treated as dividend distributions and are not subject to dividend withholding tax.
Under Taiwan’s Income Tax Act and prevailing tax practice, once corporate income tax on Taiwan-source profits has been properly settled, after-tax profits may be remitted to the foreign head office without additional withholding or separate remittance tax.
Subsidiaries
A Taiwan subsidiary is a separate legal entity.
Profit distributions to foreign shareholders are therefore treated as dividend payments.
Where no applicable double tax agreement (DTA) applies, dividends distributed to foreign shareholders are generally subject to 21% withholding tax, regardless of whether the shareholder is a corporation or an individual.
Where a DTA applies, the withholding tax rate may be reduced, subject to proper documentation such as a certificate of tax residence.
Practical Note
Although both branches and subsidiaries remit profits offshore, they operate under different legal and tax frameworks.
Misclassifying branch profit remittances as dividends—or assuming subsidiary dividends follow branch logic—is a common source of confusion and may result in additional bank or tax authority review.
Q8｜When do foreign companies typically get audited?
Foreign companies are more likely to attract scrutiny when one or more of the following are present:
- Incorrect withholding treatment
- Missing or incomplete transfer pricing documentation
- Offshore services without supporting evidence
- Persistent losses combined with significant related-party transactions
- Inconsistencies between board resolutions, tax filings, and remittance records
Most audits arise from patterns rather than isolated errors.
Closing Perspective
Taiwan’s tax environment is stable, but compliance expectations are detailed and evidence-driven.
For foreign companies, tax compliance is rarely about a single filing—it is about maintaining consistency across contracts, operations, and documentation over time.
Companies that establish clear compliance frameworks early tend to encounter fewer disruptions and greater predictability in cross-border operations.
Discreet CTA (Co-Mastery aligned)
Tax compliance issues rarely arise in isolation.
They often reflect coordination gaps across tax, corporate governance, and operational records.
Co-Mastery supports foreign-invested companies in Taiwan by helping teams assess compliance readiness and align documentation before issues surface.
If you are reviewing your Taiwan tax position or responding to recurring questions from banks or advisors, you may contact us to discuss whether coordination support is appropriate.