The Income Tax Agreement between Taiwan and Korea entered into force on December 27, 2023 and took effect on January 1, 2024
Date:2024-01-25 Read
The Ministry of Finance states that the Agreement between the Taipei Mission in Korea and the Korean Mission in Taipei for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter referred to as “the Taiwan-Korea ADTA”) was signed on November 17, 2021. After both sides completed their respective domestic law requirements and notifying procedures, the Taiwan-Korea ADTA entered into force on December 27, 2023 and became effective on January 1, 2024, making it the 35th comprehensive Income Tax Agreement for Taiwan. The Taiwan-Korea ADTA is the 2nd Income Tax Agreement that Taiwan concluded with Northeast Asian countries after Japan. Our Ministry of Finance elaborates that the Taiwan-Korea ADTA includes 29 Articles, which provide appropriate tax reduction or exemption and tax administrative cooperation measures (please refer to the attached table) including a reduced withholding tax rate of 10% for dividends, interest, and royalties; tax exemption for business profits or independent personal services under specific conditions; relevant dispute resolution mechanism (mutual agreement procedure), and so on. In the absence of the Taiwan-Korea ADTA, a Taiwanese enterprise receiving technical service income sourced from Korea and having no place of business in Korea would be subject to a withholding tax of 22% (including local income tax) on the gross payment of the service income. However, after the Taiwan-Korea ADTA became effective, if a Taiwanese enterprise has no permanent establishment (PE) in Korea as defined in this ADTA, but receives technical service income sourced from Korea, the technical service income may enjoy tax exemption in Korea. The Ministry of Finance further explains that the Taiwan-Korea ADTA includes provisions for requesting a mutual agreement procedure (MAP). If a tax resident of either Taiwan or Korea considers that the actions of one or both sides result or will result in taxation not in accordance with the provisions of this ADTA, the resident may request that the competent authorities of both sides consult with each other to resolve the dispute. For example, multinational enterprises (MNE) may apply for corresponding adjustments in accordance with relevant provisions to eliminate double taxation arising from transfer pricing adjustments assessed by one side. They may also apply for a bilateral advance pricing arrangement (BAPA) to reduce the risk of facing transfer pricing audits, thereby enhancing tax certainty and reducing tax barriers to cross-border trade or investment. This will serve as a foundation for deepening bilateral economic and trade cooperation. The Ministry of Finance notes that based on the statistics from Taiwan’s Ministry of Economic Affairs, Korea was Taiwan’s 5th-largest trading partner in 2022, while Taiwan was the 6th-largest trading partner for Korea. In terms of bilateral investment, as of October 2023, Taiwanese enterprises invested a total amount of approximately US$2.9 billion in Korea, and Korean enterprises invested a total amount of approximately US$1.7 billion in Taiwan. Taiwan and Korea have close economic and trade relations and the industries of both sides complement each other in the fields of semiconductor and memory manufacturing. With the Taiwan-Korea ADTA taking effect, it will establish a favorable tax environment for the people and businesses of both sides. This will facilitate the movement of personnel, goods, technology, and capital between the two sides. As a result, it will strengthen supply chains, and foster industrial collaboration and resilience. It will also further allow both sides to explore opportunities for cooperation in industries such as food, tourism, healthcare, beauty, and gaming. The Ministry of Finance emphasizes that, based on the principles of equality and reciprocity, it will continue to promote the signing of Income Tax Agreements with countries with close economic and trade relationships so as to provide Taiwanese businesses with more comprehensive tax benefits and protection for their overseas investments. Contact person: Ms. Lin, Tian-Cin, Section Chief. Contact Number: +886-2-23228150
Taiwan to raise tax exemption, deduction thresholds in 2024
Date:2023-11-08 Read
Taipei, Nov. 23 (CNA) Taiwan's individual income tax exemptions and standard tax deductions are to be raised in 2024, in time for the tax season in May 2025, the Ministry of Finance (MOF) announced on Thursday. In a proposal approved by the Cabinet Thursday, the MOF noted that through the end of October, the consumer price index (CPI) had risen 5.5 percent this year, exceeding the 3 percent threshold for adjusting tax exemption and deduction levels. As a result, the ministry said, individual income tax exemptions will rise from NT$92,000 to NT$97,000 (US$3,078). In addition, the standard tax deduction for single filers will be raised from NT$124,000 to NT$131,000 and from NT$248,000 to NT$262,000, according to the ministry. The special deduction for wage and salary earners and persons with disabilities, meanwhile, is to be increased from NT$207,000 to NT$218,000. According to the ministry, the combined tax reductions are expected to benefit 6.62 million households in Taiwan, and will lower government revenue by NT$17.5 billion. 2023 tax year adjustments Separately on Thursday, the MOF announced that the annual tax-deductible allowance for basic living expenses during the 2023 tax year will be raised to NT$202,000 per person, an increase of NT$6,000 from last year. At a 5 percent tax rate, the NT$6,000 increase in the allowance will provide an extra NT$300 in income tax savings for a single filer, or NT$1,200 for a family of four, the ministry said. Taiwan's 2017 Taxpayer Rights Protection Act stipulates that people should not be taxed on the amount they need to cover their basic expenses, which is set at 60 percent of median disposable per capita income in the preceding year. In 2022, the median annual income was NT$336,850. According to the MOF, the adjustment to the tax-deductible allowance for basic living expenses will benefit around 2.35 million households and decrease government revenue by NT$18.9 billion. Resource: https://focustaiwan.tw/business/202311230018
The CFC Rules for Individuals to Be Enforced from January 1, 2023
Date:2022-11-21 Read
The National Taxation Bureau of the Southern Area (hereinafter "The Bureau"), Ministry of Finance indicated that the controlled foreign company (hereinafter "CFC") rules for individuals will be enforced from January 1, 2023. The Bureau provided an overview of the CFC rules for individuals in response to frequently asked questions from the public. The Bureau explained that the CFC rules for individuals were established by Article 12-1 of the Income Basic Tax Act. Whether an individual is subject to the CFC rules is determined by their residency of the R.O.C. in a taxable year in accordance with the Income Tax Act. If an individual is a non-resident of the R.O.C. in a taxable year in accordance with the Income Tax Act, the individual is not subject to the CFC rules. Next, a foreign enterprise is treated as a CFC if the enterprise fits the CFC definitions of control requirements and establishment in a low-tax country or jurisdiction. Control requirements are further classified into "equity control" or "substantial control". The former means that individuals and their related parties directly or indirectly hold 50% or more of the shares or capital of a foreign enterprise. The latter means that individuals and their related parties have a significant influence on the personnel, finance, or business operation of a foreign enterprise. Furthermore, even though a foreign enterprise fits the definitions of CFC, there are two exemption thresholds for an individual to exempt from the CFC rules once the CFC is eligible for one of the thresholds below. First, a CFC conducts substantial operating activities. Second, a CFC earns the current-year earnings of no more than NT$7 million. However, if the sum of the current-year earnings or losses of all of the CFCs under the control of the individual, his or her spouse, and dependents who file a joint consolidated income tax return in accordance with the Income Tax Act exceeds NT$7 million, the current-year earnings of each CFC shall be subject to the CFC rule for individuals. In sum, if an individual is a resident of the R.O.C. in a taxable year in accordance with the Income Tax Act, and a foreign enterprise fits the definitions of CFC which is also not eligible for the exemption thresholds, then when that individual along with his or her spouse and relatives within the second degree of kinship who directly holds 10% or more of CFC shares, the individual shall calculate CFC business income and include it with the amount of other overseas income in the basic income of the current year. As for the calculation of CFC business income, it equals the amount that the current-year earnings of the CFC, deducting from the legal reserve or restricted distributable earnings and the losses of past years assessed by the tax authority, times individual's direct holding ratio and holding period. For example, assume Company A, without conducting substantial operating activities, is established in a low-tax country or jurisdiction. Individual X owns 60% shares of Company A on April 1, 2023, which means Company A is a CFC of Individual X for meeting equity control of the control requirements. The earnings of Company A in 2023 are NT$36.5 million, and the legal reserve of Company A is NT$3.65 million. Individual X shall calculate overseas business income NT$14.85 million 【=（NT$36.5 million – NT$3.65 million）× 60% × (275/365) days】 to file in the basic income of the taxable year 2023. The Bureau pointed out that the earnings retained in the CFC would not be subject to tax until the earnings were distributed before the implementation of the CFC rules. However, the undistributed earnings shall be regarded as distributed and calculated as CFC business income after the implementation of the CFC rules. Besides, to eliminate double taxation, the amounts of dividends or earnings from a CFC that has been calculated as CFC business income and subject to tax shall not be included in the basic income again when an individual receives dividends or earnings afterwards. The CFC rules for individuals only change the time point of taxation rather than levying additional taxes. The Bureau would like to remind people to pay more attention to the CFC rules and related regulations to maintain their rights and interests. Press Release Contact: Ms. Cheng Second Examination Division TEL: 06-2223111 ext. 8040 Resources: Ministry of Finance, R.O.C.
Taiwan to raise tax exemption, deduction thresholds
Date:2021-12-02 Read
Taipei, Nov. 24 (CNA) Taiwan's individual income tax exemptions, standard tax deductions and special deductions thresholds are to be raised in 2022, in time for the tax season in May 2023, the Ministry of Finance (MOF) announced on Wednesday. The adjustments will see the personal tax exemption rise to NT$92,000 (US$3,309) from NT$88,000. For taxpayers aged 70 or over, or with a spouse or lineal ascendant 70 or older, the personal exemption will increase from NT$132,000 to NT$138,000, according to the ministry. In addition, the standard deduction for single filers will be raised to NT$124,000 from NT$120,000, and to NT$248,000 from NT$240,000 for married couples filing jointly. The special deduction for wage and salary earners and persons with disabilities, meanwhile, is to be increased from NT$200,000 to NT$207,000. Also, gift and inheritance tax exemptions are set to be raised by NT$240,000 and NT$1.33 million to NT$2.44 million and NT$13.33 million, respectively. The changes to deduction and exemption thresholds have been triggered due to increases in the consumer price index (CPI). Since the last adjustments in 2017, the CPI has risen by more than 3 percent, with the MOF legally obligated to make adjustments based on the average 12-month CPI data. Furthermore, the government has been forced to make greater concessions on inheritance and gift taxes due to the CPI rising by 11.09 percent since the last adjustment to these rates in 2009. According to the MOF, the upward adjustments will lower the government's tax revenues by NT$9.57 billion. Reference: https://focustaiwan.tw/business/202111240024 Taxation Administration, MOF, R.O.C.
Double Taxation Agreement between South Korea and Taiwan
Date:2021-12-01 Read
The Ministry of Finance states that the Agreement between the Taipei Mission in Korea and the Korean Mission in Taipei for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (hereinafter referred to as the Income Tax Agreement between Taiwan and Korea) was signed on November 17th, 2021. Each Party to the Agreement will notify the other in writing of the completion of the procedures necessary to implement this Agreement in their respective territories. The Agreement will enter into force on the date when the later Party’s notification is received and will apply to tax cases beginning on or after the first day of January after the year in which the Agreement enters into force. The Ministry of Finance points out that the Income Tax Agreement between Taiwan and Korea has been promoted and consulted by both sides for years before a consensus was reached. This Agreement was entered into with reference to international model tax conventions. Its main objective is to ensure that the income derived by the residents (including people and enterprises) of a Party is subject to tax in the other Party with a proper measure to the reduction of or exemption from that other Party’s taxation in order to eliminate double taxation. With such an Agreement in place, it may reduce the tax burden of people and enterprises from both sides, provide a mechanism for dispute resolution, and enhance other areas of tax cooperation. The Ministry of Finance notes that Taiwan and Korea has a close economic and trade relationship. In 2020, the bilateral trade between Taiwan and Korea amounted to US$35.74 billion. Taiwan and Korea have become each other’s 5th largest trading partner. As of the end of July of 2021, Taiwanese enterprises invested a total amount of approximately US$2.04 billion in Korea, and Korean enterprises invested a total amount of approximately US$1.51 billion in Taiwan. The appropriate measures for tax reduction or exemption provided by the Income Tax Agreement between Taiwan and Korea will promote industrial cooperation and technical exchanges, boost the competitiveness of enterprises from both sides, create employment opportunities, enhance economic growth so as to benefit both sides in a reciprocal way, and create win-win situations. The Income Tax Agreement between Taiwan and Korea is the 2nd Income Tax Agreement that Taiwan concluded with Northeast Asian countries after Japan. The signing and entry into force of this Agreement will strengthen the treaty network of Taiwan in Northeast Asia, which can help Taiwan conclude Income Tax Agreements with other countries in the future and improve its international competitiveness. The Ministry of Finance will, based on the principles of equality and reciprocity, continue to initiate the conclusion of Income Tax Agreements with countries with close economic and trade relationships so as to broaden our tax treaty network as well as create a fair, stable, and reasonable tax environment. Reference: Taxation Administration, MOF, R.O.C.